The ecological transition consists of implementing a set of measures that could provide a global and lasting solution to the major environmental issues that threaten our planet. It involves major actions along three main axes: energy transition, industrial transition and agro-food transition.
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The first axis includes the replacement of fossil energies by renewable energies, the improvement of energy efficiency and the collective and individual reduction of energy consumption. The second axis aims to reduce the carbon footprint of industrial production through an in-depth review of the life cycle of the goods produced: design, manufacture, marketing, use, reuse and recycling. The third axis concerns the reduction of the negative impacts of current agricultural production methods in terms of the greenhouse effect, deforestation, soil and water pollution while providing access to quality food for all.
Virtuous and vast program that we all wish to see implemented, but of which we do not measure all the implications. This is particularly true for the economic cost of this transition.
The cost of ecological transition
It will be expensive, very expensive. Various evaluations show this. Thus, researchers at Princeton University estimate that the United States would need to invest 11% of its GDP by 2030 to reach its goal of net zero emissions by 2050. The European Commission projects an even greater amount of 25 % of GDP over the next decade while the European Court of Auditors, for its part, predicts that a budget of 11,200 billion euros will be necessary between 2021 and 2030 for the ecological transition in Europe. Depending on the economic weight of each country, the impact would vary, but it is estimated that for France, for example, the sums involved could correspond to 6% of French GDP. There is no evaluation of the same type that would allow us to see what the situation is for Quebec. However, it can be assumed that the costs will be very significant.
Financing the ecological transition
The question then arises: how to finance this transition? We can resort to indebtedness, increase the level of taxes and reduce spending, but none of these means will be sufficient and we will probably have to use all three at the same time, while hoping for relatively strong economic growth.
Debt financing
The financial management of the pandemic and a global savings glut have driven interest rates down so that debt financing today is very inexpensive. However, this situation is temporary and, with inflation helping, the central banks are reviewing their interventions and announcing a gradual increase in base interest rates. As governments have taken on a lot of debt to deal with the health crisis, borrowing to finance the ecological transition will not be as easy as before.
To buy public debt securities, investors must have confidence in the ability of governments to repay them and it is the sustainability of the debt that is assessed. Countries with less indebtedness and a strong economy will be able to finance themselves on the financial markets, although at higher rates than their previous borrowings. Highly indebted countries with sluggish economies will have to accept paying more for financing while seeing it become scarcer and, in some cases, stop. The path of indebtedness to finance the ecological transition involves significant risks and is not accessible to everyone.
Financing by reducing expenditure
It is certain that it will be necessary to review the structure of government spending to prioritize those that will facilitate the ecological transition. This involves shifting from current spendthrift programs to greener ones. But what expenses to cut?
The aging of the population has led to a major increase in pension and health expenditure and these will continue to monopolize a significant share of public budgets. The same goes for education, workforce training and income support. If we want to release considerable sums to support the ecological transition, in particular for the financing of research and the public investments that will be necessary, difficult choices will have to be made and the support of the population will be necessary. Although a review of public spending seems inevitable, we should not expect miracles.
Financing through taxation
State revenue comes from levies on household and business income. The level of tax pressure already reached will determine what space will be available to finance at least part of the ecological transition. Most governments will seek to avoid overtaxing the middle class and the poor and examine how the upper classes could contribute more without hurting the economy. Numerous studies show that the expected return is not always achieved. Making the rich bear part of the burden of the expenses linked to the transition will not be enough to meet the immense needs of the ecological transition.
Another approach consists in introducing the cost of carbon into the price of goods and services consumed via a carbon tax or the purchase of rights to pollute (carbon exchange). Both involve raising the production cost of GHG producers. By increasing the selling price, the supply and demand for products that emit large quantities of carbon are gradually reduced, so that companies have an incentive to invest in energy savings and clean energies. These two fiscal tools are only really effective if they reach much higher levels than at present, but in doing so they risk not only affecting economic activity, at least temporarily, but also creating a lot of discontent among citizens. who will suffer it and find it socially unjust.
Financing by growth
The ecological transition cannot truly take hold without upheavals affecting the lives of populations. For governments that want to avoid the environmental cause being perceived as punitive, the key lies in maintaining an adequate standard of living for citizens. Social acceptability is at this price.
Neither borrowing, nor new taxes, nor changes in spending will be possible if economic activity declines. There will be too much to finance for revenues to stagnate. Without maintaining growth strong enough to support new borrowing, new taxes and new spending, the ecological transition will not happen as quickly as necessary and could even be called into question.
Ecological transition without economic growth: disappointment on the horizon
We hear more and more often environmentalist groups and the political parties that support them claim that to save the Earth, we must break with the current modes of production and consumption which not only deplete its wealth, but lead the world to its destruction. Based on numerous reports (including those of the IPCC) showing that the maintenance of past and present trends contributes to the aggravation of the planet’s problems, they recommend a rapid deceleration in economic growth, or even its cessation or even growth negative.
Rarely do we bother to explain what zero or negative growth means in the lives of citizens or that ecological transition without economic growth is doomed if not to failure, at least to slow implementation.