Welcome back. Today, we discuss the link between the energy transition and economic growth. That is one of the central points that we need to discuss in this MOOC. The process of energy transition is not something new. The energy system has been on a continuous transition essentially ever since the beginning of the 19th century. At that time, the steam engine was introduced, and that allowed the shift away from reliance on biomass as the main source of energy and human muscles or animal muscles as a main source of energy, towards something completely different and opened the door to coal as a major source of energy. It also opened the door to the industrial revolution, so improvement in energy technology as embodied by the steam engine has always been hand-in-hand with improvement in industry. It is difficult to disentangle the two. Each time that there has been an improvement in energy technology, this has opened the door to significant industrial development. So when the internal combustion engine was discovered, this opened the door to mass production of automobiles and other transportation equipment. When electricity was discovered, it opened the door to the technology of lighting, of electric motors, and nowadays to information technology. So all of these is linked. All our industrial civilization is linked to successive forms of improvement in energy technology. The rise of oil as a main source of energy which occurred after the Second World War, oil became the main primary source of energy only in 1960. That was one reason and one important reason why we were able to experience an economic boom in the 1960 and the 1970s. Oil was a convenient cheap source of energy at least until the end of the 1960s and in the 1970s, its price began to increase, but the positive economic effect continued for a few years longer. Growth then slowed down significantly towards the end of the 1970s. That was because the cost of oil rose significantly and the relative decline of oil as a primary source of energy began at that time. So we can see very clearly that there is a correlation between the availability of a cheap convenient source of energy and the speed of economic growth. Since then, we have had several other episodes of fast growth in particular, the Chinese Economic Miracle. That too has been facilitated by abundance of energy sources. China was self-sufficient in oil production until just a few years ago, it was self-sufficient in coal production and relied very heavily on coal. China pursued a policy of fast electrification and all of this was the essential enabler of the fast Chinese economic growth. Now, some people would argue that our understanding of growth is wrong and the way in which we measure growth is wrong. We measure growth on the basis of statistics of gross domestic product. GDP is the sum total of all value added which is created in an economy. But we have not been including in this sum total certain costs. It only includes the costs and the benefits that the cost that you pay for and the benefits that you are paid for, in other words the value which is commercially recognized. It does not include value which is produced but not paid for. This is an old quarrel related to the work of housewives which is not paid for and therefore, does not enter into gross domestic product. But it does also not include costs that you don't pay for. So in particular, it does not account for environmental damage. So if some people say, if we did take into account environmental damage, growth would not be the same, would not be measured in the same fashion, and would be in fact, much lower than we believe it has been. If we internalize the cost of environmental damage and the cost of climate change, the picture may look completely different. It is an assessment of the past that has been based on the fact that we ignore this cost and this cost have been there and that now are coming to the fore and we need to pay for. So our view of the future also will be affected. The World Bank has proposed a different way of measuring the gross domestic product which they call net domestic product. That is based on taking into account not just value-added as we normally measure it, but also taking into account some other aspects notably environmental damage. Apart from how GDP growth is measured, energy certainly in the future will be much more expensive and therefore, we may face a tendency towards slowing down of growth because we will need to avoid environmental damage because we need to pay for this additional cost which is implicit in the avoidance of environmental damage and global warming. Because in fact although, some people point to the fact that the cost of renewables is decreasing, the running of an electricity network in which renewable energy sources play a dominant role is increasingly more expensive because of the fact that we do not control some of the renewable energy sources. We do not control when the sun shines or the wind blows. Therefore, we cannot be certain of the availability of solar and wind energy. So although, when the sun shines, when the wind blows, solar and wind energy are cheaper. In fact, extremely cheap. Nevertheless, because they are not always available, we still need to keep other sources of electricity, and there are certain uses of energy which cannot be satisfied by electricity. So we need all the primary sources of energy which are not electricity, and all of this will be still needed and need to be paid for even if they are use less. So we may have hope or the expectation that there will be some new technology that will give us abundant, cheap, clean, and reliable energy. But we don't have this solution yet. All the solutions that we have at the moment entail additional costs. Energy efficiency has improved very significantly, but the relationship between GDP, that is economic activity and energy demand has not been broken. It is still the case that whenever there is an increase in economic activity, there must be an increase in energy demand. It's not as fast as the increase in energy activity, and the ratio linking these two has been declining over time, but it remains positive. So we cannot imagine future of economic growth that is not also to some extent a future of energy demand growth. In building scenarios about future energy, we rely on growth assumptions and assumptions about growth, which are extremely important in determining the outcome. Normally, agencies such as the International Energy Agency rely on assumptions that they take from other international agencies such as the International Monetary Fund or the World Bank. Today, these agencies tend to forecast a slowdown, a progressives slowdown of economic growth. This is what allows the builders of energy scenarios to conclude that maybe we will be able to contain or not have an explosive increase in global warming. But if we abandon this hypothesis of slower growth, then we would have very fast increasing global warming. So there is a link between these two things. In order to contain global warming, we cannot afford to have much faster economic growth. We need to maintain some check on the speed of economic growth. Further slowing down growth would still have a positive impact on climate change. So this cannot be denied and then creates a contradiction because on one hand, we want to avoid climate change. On the other hand, we also want to pursue fast economic growth, and we need that for purposes of employment, for purposes of satisfaction of expectation of the vast majority of the people even in rich countries. So the two assumptions, assumptions about economic growth and assumptions about population growth are crucial to determine the outcome of scenarios of energy demand. In some cases, some of the more optimistic scenarios, the ones that tell us that we will be able to avoid global warming because we can achieve fast decarbonization, these scenarios very frequently rely on assumption of even slower economic growth and slower population growth. So it is in a sense assumed that we are not going to be able to grow as fast as we perhaps would like. So Malthusian solutions that is limiting population or zero growth solutions raise very significant social and political problems. The most immediate one is employment. You need a certain rate of growth in order to achieve what economists call full employment, which is not quite full employment, but close to. So if we have a slow down of global growth, we will also see a stop to the process of narrowing international income gaps that has been going on in the past decades. In the past decades, some emerging countries have managed to significantly reduce the gap in per capita income that they used to have with respect to the more advanced countries. So China still is significantly poorer than Europe or the United States in terms of per capita income. But the gap, the distance has narrowed very significantly. If we assume that global growth will slow down, this process of narrowing the international gaps, the gap between Europe and India or even less between Europe and Africa or the United States and Africa, this process will come to a standstill or will be slowed down. When then would be the turn of Africa to significantly make progress in terms of reducing the gap? This is basically not allowed for in the current scenarios. If the industrial countries slow their growth, go for slower growth in order to meet certain environmental objectives, this exacerbates the issue of employment, and this is going to compound with the expected negative consequences of digitalization and automation which already are a very significant preoccupation for many advanced countries. In the future, work will be done by robots and people will be unemployed, and that is something which should not be allowed to happen. If we include a slowdown of growth for environmental reasons, then the picture becomes even more difficult. Therefore, the optimistic view of the energy transition that tells us that there is going to be lots of cheap solar and wind energy, and we will create a large number of green jobs so to speak is unfortunately intrinsically contradictory because there is a contradiction between economic growth and environmental impact or the energy transition itself. This optimistic view is not really supported by reality. Only if we have some dramatic, scientific, and technological development, we will be able to re-establish a positive relationship between energy and economic growth as we have had in the past.
