The inconvenient truth on energy and GDP

Source: Ole Peters

One could provocatively say that humans are not that innovative between periods of true major breakthroughs (steam engines, kerosene, electricity, internal combustion engine, airplanes, radio, nuclear power, transistors, lithium-ion batteries etc.). Edwin Drake discovered oil in 1859 which unleashed the beginning of the oil age which until the discovery of nuclear energy was the biggest increase in energy input to the economy relative to required capital. It immediately unleashed unprecedented economic growth and raising living standards. As the chart above shows, we have basically replicated the process of burning hydrocarbons (coal, oil and natural gas) to fuel ever higher GDP and living standards. The reason could be that – because productivity is additive (linear) and thus does not contribute enough to rise GDP over a long period; only a big increase in energy input increases GDP meaningfully.

If this hypothesis of growth is true, then Cathie Wood’s idea of disruptive innovation is plain wrong and the world will gallop into a catastrophic climate crisis unless we either make a significant breakthrough in energy technology (fusion maybe?) or significantly reduce our growth and redistribute the available GDP. If we cannot make a breakthrough in energy technology (part of the solution will naturally be renewable energy – view our theme basket on renewable energy) that materially decouple GDP from expanding hydrocarbons, and we are not willing to reduce economic activity, then we will power on and live with the climate crisis of higher temperatures and all the fallouts from that.

A tsunami of GDP growth as energy and metals investments soar?

Last section ended on a depressing note for most people, but one should remain optimistic and it is likely that powered by necessity scientists will make a breakthrough in energy technology enabling the next leg of substantial wealth increase and growth for the world. The high prices on energy and metals will create a super cycle and new investment boom which in turn could have the likely impact of significantly increasing GDP growth because investments in energy and mining are activities that are will captured by GDP unlike streaming or social media platforms.

On Friday, Exxon Mobil and Chevron will report Q1 earnings and we will naturally focus on their plans for capital expenditures as the world need significantly more investments in energy to both substitute Russian oil and gas, but also grow the overall energy input.