3FOOD

Third Industrial Revolution Consulting Group
Given their very hectic and busy work and travel schedules, many business and political leaders
understandably do not have the time to think through how the economy is operating across the
larger dimensions of climate and energy policy. And the assumption might typically be made
that Luxembourg is on what is called a production frontier at point “a” in the Figure 2 diagram
above. Given the current market structures, technologies and social needs, any change to
satisfy a demand for greater efficiencies, or for the reduction in greenhouse gas emissions,
must likely result in a downward shift to the right on this graphic illustration. Basically,
Luxembourg might achieve some mix of isolated productivity improvements, and there might
be some reduction in greenhouse gas emissions, but it must surely come at the cost of a
reduction in incomes and GDP. Yet the TIR Innovation Scenario envisions a revitalized thinking,
together with a set of programs, policies and incentives that may initially drive the economy
down to point “b”. Yet, such a shift may also create a productive transition that can lift the
economy to point “c.” The result might be an improvement in energy efficiencies (as well as the
more productive use of resources more generally) even as the economy remains at a relatively
stable level of GDP.
At some point, however, the various energy and non-energy benefits that result from an array
of incentives and policy initiatives can boost the performance of the economy to a higher than
expected level of performance. Although not drawn to scale in Figure 2, the migration from
point “a” to the eventual point “d” might represent a 30 percent reduction in energy
requirements per unit of GDP together. The net energy savings together with a transition to a
renewable energy system might, in turn, stimulate net gains in jobs and GDP (as we shall see
when we turn our attention to Tables 6 and 7 later in this section of the master plan). Equally
critical, the TIR Innovation Scenario can become a way to catalyze the seventh benefit of such
master plans—an enhanced push of the production frontier so that future technologies and
markets are encouraged, developed and implemented to the long-term benefit of the
economy. 375
375 It is true that a one or two percent absolute improvement over any long-term forecast may seem a very small
benefit. In that regard, the roughly €2 billion net gain in GDP suggested in this assessment, compared to a
reference case projection of more than €100 billion, may seem less than appealing. Yet, equally important is
understanding that the “movement to” and the “outward movement of” the production frontier can provide a
sustainable basis to ensure a 3 percent growth in GDP rather than the prospect of a lagging growth rate of 2
percent growth rate. Indeed, that may be among the more important outcomes of the TIR master plan. For
instance, the mere subtraction of a 1 percent from a 3 percent growth rate can mean an economy that is 30
percent smaller by 2050. The OECD is sufficiently concerned about lagging productivity worldwide, including both
Luxembourg and the United States, that it released a special study on this topic. See, The Future of Productivity,
OECD Publishing, Paris, 2015. http://dx.doi.org/10.1787/9789264248533-en.
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