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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. 430
Third Industrial Revolution Consulting Group Because this idea is central to the advancements envisioned by the TIR master plans, Figure 3 that follows provides yet another glimpse of the potential economy-wide benefits which are likely to result from a lower cost of energy services. As we look forward to information provided in Table 2, Luxembourg appears to have an aggregate annual energy bill of about €2,100 million (reflecting data from the annual accounts for the year 2015). Looking even further ahead at Table 6, we find that the TIR Innovation Scenario (described more fully below), over the period 2016 through 2050, might generate lower annual energy costs of €1,680 million. This results in an initial energy bill savings of about €420 million. At the same time, to enable the savings requires that Luxembourg create a series of programs, policies, and incentives which might average about €25 million per year. 376 It is these initiatives that, in turn, will drive the requisite large-scale of investments which are amortized over time as one might pay for a new home or building. Since the renewable energy technology costs are part of the average annual energy supply expenditures, it is only the annualized energy efficiency investments that further bump up the cost to an estimated €145 million (also reflecting average annual payments for those relevant investments over time). All of this means that, although gross savings might be €420 million each year on average, paying for the additional energy efficiency investments over time, as well as for the annual cost of programs and policies, reduces the gross savings of €420 million to a net savings of €250 million. The first result in exploring the costs of energy services is a lower €1,850 million total cost per year. 376 This figure reflects expenditures within the public, private, and non-profit sectors to educate, train, market, promote and evaluate the relevant programs and policies which will be necessary to elevate the performance of the Luxembourg economy. 431
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