Hard truths about the energy transition and other economic challenges – OpEd – Eurasia Review

By Alfredo Pastor and Antonio Argandoña

As the economy recovers from the coronavirus crisis, driven by expansionary fiscal and monetary policies in recent times, war is now interrupting this recovery.

The current challenges for the Spanish economy are rising prices; de-globalization and supply chain disruptions; the energy transition; monetary policy changes; a high level of public debt; and the limits of fiscal policy.

Looking ahead to 2023, the two factors that could contribute the most to the recovery are (1) higher household consumption – which is expected to continue to grow, despite the drop in confidence caused by the war as well as inflation, in due to so-called stalled demand – and (2) strong fixed capital investments, both in equipment and in construction. Regarding the second factor, note that only 23% of the EU recovery funds initially approved for Spain have yet been placed – which means that economic productivity will sooner or later benefit from an injection of money. Tourism could also play an important role in the recovery.

On the other hand, although credit growth is positive and interest rates are still low, interest rates are starting to climb. Public sector indebtedness has also increased dramatically: first because of the pandemic and now because of the war.

Unemployment and shortage of workers

In Spain, unemployment is also a problem. The latest labor reform reduced the number of temporary contracts in favor of more permanent contracts, while it is difficult to find qualified professionals to hire. This happens in all sectors, but especially those related to new technologies, where there is less training and wages are increasing.

Yet, if unemployment is a problem in Spain, why is it still difficult to find qualified workers? Perhaps because geographical mobility is decreasing, the population is aging, bureaucracy continues to get in the way and its education system is lagging behind, as our colleague Jordi Canals recently pointed out.

Worrying inflation figures

The OECD insists that today’s inflation — that is, too much money for too few goods — is not a passing phenomenon. Therefore, at some point, prices must rise.

Governments try to cope with inflation with aid and subsidies, but these measures further increase public debt. Government price interventions can also confuse consumers about how much they can reasonably spend in the future.

In the event of a new crisis in Spain, the ability of its government to continue to help families, businesses and the country in general has been greatly reduced due to its high level of debt. The specter of what happened in Greece hovers.

The costs of the energy transition

Russia’s war against Ukraine has highlighted Europe’s dependence on fossil fuels. But this is nothing new: tackling climate change already requires accelerating Europe’s transition from fossil fuels to renewable energy sources.

What does this imply? Production of electricity from hydraulic, solar, wind, biomass and nuclear resources. That said, on the path to greener energy, some hard truths should be considered more openly than they currently are:

  • The same cause has very different effects in different parts of the planet, which means that energy policies must be different; beware of general policies.
  • Ads aren’t always based on science. The geographic distribution of the Earth is very uneven, which is another reason to be wary of one-size-fits-all policies.
  • Coal, gas and nuclear provide a constant, peakless flow of energy 24/7.
  • At this point, fossil fuel-based chemicals are still needed to make plastic.
  • Not all countries should make the same effort.

It looks like we are heading towards a low energy world, with simpler technologies. But that doesn’t mean it will be worse. In fact, it’s perfectly possible that it’s better. The energy transition requires sacrifices, sacrifices that must be distributed or shared in such a way that no one is left behind.

Achieving a tolerable amount of equity is the real problem of the future. Managing the energy transition as well as possible is (almost) entirely in our hands.

This article is based on Retos y oportunidades en un entorno que cambia muy deprisa, a session held in Spanish on May 24, 2022, as part of the IESE Alumni Learning Program, which is only open and to members of the IESE Alumni Association.

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