Energy is a very important subject. On, I have been lucky enough to be able to devote several articles to it over a period of about two years, including the following:

What lessons can we learn from these analyses? First lesson: in the case of the energy theme, a series of detours through Germany is fruitful. But this is only to be followed by a more general examination of the theme, in order to draw some lessons and to start formulating some questions for the future.


1) French perplexity, German consistency – three small detours

The first detour is to Germany: philosophically, energy is historically the common thread of Germanic monism. In a monistic philosophical system, everything is explained by a single principle. A rather significant sentence concerning the philosophical meaning of energy is attributed to Boltzmann: “The struggle for existence is above all, and increasingly, a struggle for the mastery or production of energy.” As for Ostwald, he judged that the progress of civilization is measured by the amount of energy it is able to mobilize and employ. Such certainty can lead to a method of thought that can be applied to everything: energy is a dangerous idea, to take up the title of a book by Daniel Dennett.

A second Germanic detour: the German energy transition of the last few years, characterized by the withdrawal from nuclear power, is causing great perplexity in France. My research has led me to note that until the 1990s, a Franco-German dialogue on energy issues, open to nuclear power, was maintained at a high level. The arrival in power of the socialist and ecologist coalition seems to have led to a weakening of this dialogue. The ecological arguments are quickly transformed into economic arguments, completing the process of self-persuasion. In this new eco-financial narrative, which began to take hold in the early 2000s, nuclear power is considered less profitable than the solution that combines renewables and gas power plants. During the same period, the European Commission expressed a desire to introduce competition between electricity suppliers, in particular, to end what remained of the EDF monopoly in France. Today, the pressure on France is at its highest to close this chapter definitively. At a time when the French energy system could end up being completely brought to the heel, a whole new literature is flourishing in the Anglo-Saxon world on the advantages of nuclear power not only in terms of the environment but also in terms of national independence. Moreover, new small and modular reactors will soon change the economic and financial landscape, even for buyers who would be unable to finance large plants.

Thirdly, Germany has long been very aware of the vulnerability of its oil supply. It does not have a large oil company and therefore makes little direct profit from oil extraction. It sees a high carbon price in developed countries as a step towards equalizing competitive factors. During World War II, synthetic gasoline was economically inefficient. But in the context of the global war on greenhouse gas emissions, synthetic hydrocarbons from an industrial carbon cycle system capping the natural cycle will, on the contrary, be in high demand.

Contrary to an analysis that is all too common in France, the German energy strategy seems to be quite coherent:

  • Germany positions itself as a mercantile power whose energy strategy consists of competition between suppliers. The high price level is interpreted in this perspective as a transitional situation.
  • The German mercantile interest is to acquire a dominant position in renewable energies and circular systems in order to gain maximum profit from the construction of a large-scale so-called green energy system in Europe and the world.
  • From the German point of view, given the political decision to get out of nuclear power (the historical explanation of which is beyond the scope of this article), the superior efficiency of the former French electricity monopoly, which was the result of a long-term national investment, constitutes a form of unfair competition that must be dismantled.

Germany does not include the whole of Germany, but rather a large part of Austria. The narrative that high prices are only transitory is questioned and even rejected by some parts of German society.

2) The financial sector now aspires to play a binding role in the global energy transition

The German case suggests the existence of more general factors, without which the German strategy would be inexplicable. One of these factors is the financial sector. In particular, I had noted here a relatively recent analysis showing the highly variable cost of decarbonization depending on the industrial sector. Since that analysis, very large players in the financial sector have been pushing the primacy of ESG criteria (environment, social, and governance). All companies that depend on the financial markets for their investments are likely to have to submit to this pressure; which spreads both horizontally and vertically through the value chains. Including, as I noted in my article last month, companies in the energy sector. In 2020, the financial sector, through its largest players, has clearly expressed its ambition to play a binding role in the global energy transition. It is no longer just a matter of encouraging green investments, but of actively discouraging investments that are deemed too carbon-intensive, while showing leniency towards the profits that are, in the short term, the consequence of the coordinated reduction of these investments. These profits finance the work of the coordinators of the energy transition, itself presented as a public good desired by society, notwithstanding the signs of refusal and resistance. Thus a recent referendum in Switzerland, or the eternal Yellow Vests. We are no longer only in the economy, we are in politics and the risks of systemic blockages.

One thing is clear: in a world where only green energy providers are financeable and funded, old-world energy providers will quickly become very attractive prey, because, paradoxically, they are both underfunded and highly profitable. To better understand the problem, it seems necessary to look more closely at the literature on the determinants of exploration. This is beyond the scope of this article. We will simply note that the reserve replacement rate plays an important role in these considerations. Hypothesis: an international oil company with a relatively high replacement rate can use this advantage to better maintain control over the pace of its energy transition. It can thus hope to avoid falling prey to, or being overly affected by, the collective rush on green asset prices, or even to benefit from the abandonment of exploration-related assets (equipment, etc.). This may be the case, at present, for TotalEnergies.


3) Some questions for the future

  • This recent change in the positioning of the financial sector vis-à-vis the rest of the economy, and in particular vis-à-vis the energy sector, may in some respects be reminiscent of the eco-financial shift in Germany in the early 2000s. In both cases, what began as a political conviction about an externality of economic activity was transformed into an economic risk, and then into a financial performance indicator, anticipating the full internalization of the initial externality. This operation of systemic self-persuasion, if that is what we are talking about here, would require a more rigorous and non-polemical examination.
  • To what extent can the analogy between 2020 and 2000 sketched above be based on an economic calculation according to which investment in green energy combined with gas would be more profitable than an investment in nuclear power (2000) or in the exploration of new oil fields (2020)? In both cases, the exploitation of fossil resources is more profitable (gas power plants (2000 perspective), oligopolistic increase in oil prices (2020 perspective)).
  • Another point of historical comparison: the financial crisis of 2008, also followed by a green stimulus plan in the USA. The fact that the recent Tirole-Blanchard report proposes to launch an ARPA-E in Europe reinforces in my opinion the interest in a comparison between these two historical moments. Crises follow each other and sometimes look alike.
  • If we accept that the evolution of the French electricity system is characterized by the disappearance of a monopoly, and therefore of power, it seems necessary to understand how this loss of power was possible, and how the French players in the sector are positioning themselves for the future. Is it possible to detect an ambition to win back power?
  • How are ESG criteria applied in different geographical areas of the world?
  • To what extent can ESG criteria provide actors playing a role in coordinating the economic system with a tool for more detailed control of investment decisions within a system over which they do not have direct control? For example: without these criteria, investment in exploration would be higher, notably because of low-interest rates. But if the objective, as set by a coordinator on the basis of the analysis of the data at his disposal, is, among other things, to promote a higher oil price, these investments must be reduced. What applies to the exploration of hydrocarbon reserves also applies to nuclear and defense.
  • In my previous article, I concluded on the possibility for a major player such as the CEA to play the financial disruption game by becoming a bitcoin miner. This is probably not the same thing, but I have since been informed that EDF is already very active in blockchain, especially in the ecosystem surrounding Tezos. This is a major area to explore. We know that the quest for an alternative financial system leads to energy strategies, which are themselves vulnerable to regulatory control. But the reciprocal could be just as significant, if not more so: to what extent are players with strong energy capabilities called upon to play a role in the establishment of alternative financial systems?