Climate Change: The Green Economy - how will it work?

Boris Johnson has just announced that the UK will cut carbon emissions by 68% from 1990 levels by 2030.  How will the "greening" of the economy affect our wealth?

The analysis below suggest that the "green" economy will be less damaging than we might expect.  A fall of 5-6% in GDP, largely as a result of the decline of the "Great Car Economy", is likely by around 2035.  There is likely to be a loss of jobs but this will probably happen as a result of automation anyway.  The 2030s will be a bumpy ride for everyone.

Fully electric vehicles will not need conventional filling stations and should be cheaper to keep in good mechanical condition. They should also, in principle, be cheaper to construct as the battery packs fall in price.  The Society of Motor Manufacturers and Traders produced a report  in 2017 on the value of the Great Car Economy.  It said that 'from raw materials and R&D, to logistics, freight and shipping; from retail and distribution, finance, insurance, fuel and maintenance, to telecoms, electronics, IT and tech; and not forgetting motorsport, travel, advertising and media, sciences and education, the list of sectors which depend at least in part on the success of the automotive industry is extensive.'  It valued the contribution of the automotive industry at £202bn, or about 10% of the UK economy.  My guess is that electric vehicles will only use 50-70% of existing support and services and we should see a cut of 3-5% in GDP from the existing sector.  However, the massive infrastructure program needed for kerbside charging and hydrogen fuel stations will probably largely compensate for this loss in the first decade. The main impact of 3-5% will happen from 2035 onwards.

The demand for petroleum products will fall precipitately from 2025.  Most oil consumption is due to transport:

See UK Oil and Oil Products

This demand should fall by c.30% if all private transport is electric by 2035.  Diesel lorries will be replaced by hydrogen or electric vehicles in the 2030s leading to a 50% decline compared with 2019. What will happen to air transport is still a bit of a mystery but hydrogen will take over from kerosene at some stage.  We can fairly confidently predict a 75% decline in the oil industry by 2035.  Fortunately although the oil and gas industries get a lot of headline space they are quite minor contributors to UK GDP.  According to the Government they contribute only 0.85% of GDP.  Ceasing dependence on hydrocarbons will be a huge boost to the UK Balance of Payments:

Energy Knowledge Institute

Coupled with Brexit it will allow the UK National Accounts to move towards balance for the first time in two decades.  The reduction in Financial Deficit due to the beneficial effect on the Balance of Payments will probably offset any loss in GDP from lost oil sales.

E-commerce was 19% of all retail in 2019. The local delivery of goods by autonomous electric vehicles will also become important within 10-20 years.  This will have little impact on supermarket staffing initially as cashiers become "pickers".  However, in the long run picking will be automated.  The large scale de-staffing of supermarkets will happen from 2030 onwards. Staff costs in supermarkets are about 18% of total turnover whereas these are only 3% of e-commerce turnover. Despite being highly visible retail only generates about 5% of UK GDP.  Expect a decline to 4% from 2035.

The replacement of gas fired heating systems by heat pumps (air conditioners working as boilers) will cause huge changes for heating engineers but the unreliability of heat pumps will keep them in business.  The net economic effect is probably neutral in the long run but will increase turnover in the short term.

All of the GDP losses entail staff losses. However, the rapid further automation of industry from 2030 would have taken most of these jobs anyway.

A forward looking government would encourage, and acquire shares in, UK based alternative technology industries from electric motor manufacturers to heat pump suppliers.

The move away from oil may destabilise the Middle East even further and will adversely affect many primary producers such as Nigeria and Norway.  Expect social unrest and war in the 2030s as Western populations can no longer be promised growth as the answer to social problems and primary production no longer sustains corrupt economies.  

The answer to the social problems in the West is to focus on disparities of wealth.  It is sad that our Corporate Media is focusing on race and ID politics just when we need policies that will give young adults hope for a future. No doubt there is a wish to stop or control the coming changes in some quarters even if that involves a period of anarchy.

4/12/2020