by Damon de Laszlo, ERC Chairman
July brings some relief from the scorching hot days of June for the UK. The unprecedented heatwaves in southern Europe and central US hopefully will focus minds on the global- warming issue. A long-term problem that is arriving as the long-term becomes short-term.
The global meetings that agreed to the reductions in greenhouse gases produced headlines but, as yet, have not produced the statutory policies needed in the West. The primary initiatives so far have been the product of what one could call capitalist economic ingenuity. The technology behind the building of wind farms, the research going into tidal energy and the installation of solar power have, by and large, been industrial initiatives. The key need for nuclear energy to provide the backbone of constant supply has so far been hampered by a strange combination of the lack of consistent and cohesive government policies, combined with opposition from Green movements, who twenty or thirty years ago seemed to be lobbying on behalf of the carbon producing industries, but now straddle opposition to both. In the UK the biggest inhibition to the growth of alternative energy is the government and the CEGB (Central Electricity Generating Board) whose responsibility it is to oversee the power distribution system but has so far failed to upgrade the grid and seems to have few policies in place to work out how they are going to achieve this critical infrastructure rebuilding.
In the US, the decentralization of government to the State level has meant that many States are decarbonizing faster than Europe as they are less hamstrung by centralized bureaucracy.
The decarbonization of electricity supplies is phenomenally complex and is probably moving too slowly. Hopefully, in the next few years, the political will and the public understanding of what is required will grow to the point that serious decisions can be taken. The mining industry will have to be able to open new mines. Pylons will have to be built across the countryside and new factories and production facilities need to be enabled but, most difficult of all, the education system in the US, UK and Europe will need to be tilted towards manufacturing skills – engineering, electronics and computer sciences. It is interesting that TSM, the world’s biggest producer of semiconductors, has had to postpone the opening of its giant $40 bn. US plant that has been under construction since 2021, owing to a shortage of the skills required to even install the semi-conductor grade facilities. A problem faced throughout Western industry.
On the economic front, the gloomiest projections, which inevitably get the headlines, have yet to be fulfilled.
The global economy is slow but not dramatically so, financial pressures are building slowly but not yet precipitously, inflation is declining as the recent shocks to the economy are worked around and, for the moment, things are going in the right direction. The gangster-like activity of Communist Russia is still the elephant in the room. The gratuitous destruction of Ukraine’s ports will, if it continues, greatly impact world food supplies and its activities in the energy market could reverse the downward trend in energy prices. These core potential upward pressures on inflation are outside the control of Central Banks. Central Banks came late to the realization that interest rates needed to rise, and they needed to bring the money supply back under control, but as things start to go in the right direction, hopefully they will lighten up on the interest rate lever and allow the Western economy to adjust.
China, the second biggest economy in the world, has probably a greater problem. Their government in recent years has reversed the trend of encouraging entrepreneurial activity and is exerting more and more control on industry and individuals’ activities. It is particularly worrying that youth unemployment is heading past 20%, which is likely to cause political unrest and further weaken the economy. There may be short-term benefits to the West as the price of Chinese products declines but this, in the longer term, will not help the West in revising its attitude towards complex global supply chains.
On balance, we are hopefully at the watershed of the downturn in economic activity. If the Central Banks do not pull the deflationary levers too much further, inflation will stabilize and start to adjust, and so grow our ability to deal with global electrification.
Damon de Laszlo
24th July 2023