The macroeconomics of the energy transition

First, the energy transition is going to lead to huge needs for additional investment (some of which will be to offset capital destruction) and to an increase in the capital intensity of economies. It will also lead to a rise in the price of energy (also cars and housing) and therefore in principle to a significant impoverishment of working classes and to a significant increase in income inequality. So what macroeconomic consequences will these developments have ? Real long-term interest rates will have to remain very low so that the necessary investments can be made; Low-income households’ loss of purchasing power due to the rise in energy prices will have to be offset with larger redistributive policies. These will require either increased taxation of capital income or a skewing of income distribution in favour of wage earners at the same time as capital intensity increases . I n any event , it will therefore require a significant decline in the required return on equity for shareholders.