Why There Cannot be Growth without an Energy Transition

The Other Causes of the Present Recession

We all need to grow in order to survive and progress through our lives and careers. Whether it is individuals who climb the corporate ladder, companies that bring in more profits and record higher growth each year, or countries that grow their GDP (Gross Domestic Product) each year, growth is a necessary and established fact. In recent years, the aspect of growth has taken a hit because of the ongoing economic crisis. Though there are many experts who have pointed to the high levels of debt and indebtedness as the reasons why economies are faltering, as they need to payback the debt and hence, their revenues are being consumed by debt repayments, the key term is that the revenues can accrue only if there is growth.

Given the fact that growth cannot materialize out of thin air without corresponding economic activity, the focus now shifts to how economic activity can be kick started. This is where the role of Energy and especially oil enters the picture as basic economics would tell you that in order to grow, one needs investments, and the investments must be transformed into output through productivity and the use of energy. Of course, it is common for many mainstream experts to proclaim that we can still grow with higher energy prices. However, the fact remains that in most conditions, unless oil prices are reasonable, recessions would be common.

Peak Oil and the Need to Find Alternative Sources of Energy

Given the fact that we have passed the peak oil phenomenon, which indicates that getting more oil out of the ground would be progressively more expensive, it is indeed a dire situation we are faced in as we confront a future where high oil prices and high indebtedness means that growth is the casualty. This is another fact that is usually ignored in the mainstream analysis. Without going into the reasons for this, it would suffice to state here that the transformation of raw materials into usable finished products and goods requires human labor and energy and without energy, we cannot actualize growth. Which brings us to the topic of this article and that is that we need to find alternative sources of energy as quickly as possible if we are to go from zero growth and no-growth to full growth. Indeed, this aspect is crucial to our future as we are going to face a slow growth scenario in the absence of low energy prices. The other aspect that is connected to this is that unless we grow, we cannot payback our debts and we can only grow when we have abundant energy. Taken together with other resources that are needed for our growth, the implication is that resource depletion is going to hurt us badly in the near future.

Energy Transitions take Time

With these points in mind, it is essential to remember that energy transitions take time to actualize as the infrastructure for the extraction, transport, and the last mile connectivity which denotes how the energy is delivered to the consumers all need a lot of time to be built and actualized. This is the reason why the situation is so urgent as estimates indicate that we would have to transition to a new energy paradigm in this decade if we are to avoid economic depressions and even, a collapse of our industrial and consumerist civilization. That means that we do not have much time left in our quest to transition to a new energy source and this is the reason why many experts are already sounding alarm bells about the future that we face.

Concluding Thoughts

Finally, the simple fact that humans need energy everyday to work and live can be applied to the whole economy. Without food and energy, we atrophy and become unproductive and even die in the process. Similarly, without energy our civilizations would collapse. When that energy is scarce, we either need to conserve it our find new energy sources to stay fit and healthy. This is the theme that this article is propagating.


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Managerial Economics