In 2021, 82% of the energy consumption came from fossil fuels, we must aim for 30% in 2050.
Until the 19th century, the economic cycle was very dependent on climatic conditions. Two or three years of poor weather led to crop failures and a sharp drop in income. But the post-war period has removed this dependence. Economic security for the majority.
Since 1950, in France, but also in all other developed countries, well-being, measured by per capita income, has never progressed as much. However, President Macron declared, in his introduction to the Council of Ministers on August 24, that the world would be subject to great upheavals, to a rupture that would mark the end of abundance.
This is a reversal of the development model established during the industrial revolution and unrivalled since the Second World War.
THE FUTURE BECOMES MORE UNCERTAIN
This announcement by the French president highlights a well-known phenomenon. After each recession, the trend growth rate is somewhat lower than in the previous cycle. What Emmanuel Macron is suggesting is that this inflection could be of a greater magnitude than has been seen in the past. Over the past 70 years, the world has experienced and managed many crises. They have resulted in temporary declines in activity, but the rebound has allowed us to settle into an upward trend. In this context, abundance is the idea that crises are only temporary, a bad moment to pass that we will soon forget.
Thus, the end of abundance can be understood as the absence of a rebound from the crisis, or a recovery that is not sufficient to leave us in a better situation than before the crisis. GDP, in trend, would not grow. The uncertainties and constraints are such that the improvement in the cycle will not guarantee that the situation will be better in the future.
DISRUPTIONS RELATED TO THE ENERGY TRANSITION
This change of trend could be explained by the necessary change of model with the forced reduction of fossil energy consumption.
The industrial revolution and the development that followed were only possible because of the use of fossil fuels, first coal, then oil. Without this capacity to mobilize and use these energies, the upward trend in per capita income would certainly not have had the same pace. However, compliance with the agreements signed in Paris in 2015 and the convergence towards carbon neutrality in 2050 require a very rapid reduction in fossil fuel consumption.
The macroeconomic adjustment will then be of great magnitude. The macroeconomic model must be altered so that it is no longer conditioned by the use of fossil fuels. In 2021, more than 82% of primary energy consumption will come from fossil fuels (oil, gas, coal). The goal should be 30% by 2050. The effort is considerable and the adaptation of the economic system will be spectacular.
It is this inevitable upheaval that fuels the questions of growth and degrowth. In other words, growth since the industrial revolution has been conditioned by the use of fossil fuels.
RETHINKING THE PRODUCTION SYSTEM
The French head of state is simply reopening the debate among specialists on the pace of activity during the period of energy transition, when fossil fuel consumption will be reduced in favor of renewable energies.
The production processes will not be the same, depending on whether, for example, vehicles with internal combustion engines are built or vehicles with electric engines. The number of jobs and the necessary qualifications will not be identical either. The training effort must be increased tenfold to facilitate the adjustment of the production system.
The obligation to rethink the production system must encourage growth to become more autonomous, so that on a European scale, the dynamics of activity depend mainly on local resources. This is the other major challenge of these upheavals.
Emmanuel Macron has put his foot down on the climate and on the ruptures and necessary reconstructions that will result from it. The question remains of how to mobilize the means to achieve this transformation.
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Source: Allnews | 1 sept 2022 | Philippe Waechter, Ostrum AM.
Link to the online article (FR)
Philippe Waechter, Director of Economic Research
Philippe Waechter is Director of Economic Research at Ostrum Asset Management. He was previously Chief Economist at Natixis Asset Management and at Bred Banque Populaire. In 2003-2004, he was appointed Associate Professor of Economics and Finance at the University of Evry. He is currently a lecturer at the Ecole Normale Supérieure de Cachan.
Ostrum Asset Management
For more than 30 years, Ostrum Asset Management has been helping its clients to achieve their financial goals. Based in Europe, with a presence in the United States and Asia, Ostrum AM offers a wide range of active fundamental bond and equity management solutions, as well as insurance management. Ostrum AM manages €324.5 billion.