France considers cash creation to finance energy transition
A French government advisory body has suggested that the European Central Bank create money - via loans to other financial institutions - in order to support the transition to renewable energies, claiming the proposed system would not necessarily fuel inflation.
France's Economic, Social and Environmental Council (ESEC) unveiled its conclusions on Tuesday (10 September) about how to finance the energy transition while public debt continued to weigh heavily on the state budget and the tax burden was already stretched to the limit.
A consensus was reached over the fact that energy consumption was too important and too dependent on fossil fuels and nuclear energy.
The cost of the energy transition is estimated between 5 and €10 billion.
“Financing the energy transition will require efforts, but this effort must be a source of employment and help reduce poverty”, the rapporteur, Gaël Virlouvet, said.
During the presentation of the report, prominent French political figures and members of the committee, such as Michel Rocard, former advisor to president François Mitterrand, and Alain Juppé, former prime minister to then President Jacques Chirac, called for a national mobilisation on the matter.
“We are obsessed with growth”, lamented Juppé.
But the debate is still open as to the financial resources that could be mobilised to support the energy transition.
The ESEC proposed to lower VAT to compensate the rising cost of energy.
The main idea however remains the creation of money to finance solar panels, wind or marine energy. The problem is that money creation in the EU is only possible through the European Central Bank (ECB), whose policy imposes monetary discipline.
According to the ESEC, the ECB would lend money at low rates to the European Investment Bank (EIB) and France's Public Investment Bank (BPI) – which would de facto mean money creation. Public banking structures would then have the responsibility to lend the money collected from the states. But this remains a theoretical hypothesis for now, as the organisations in question have yet to give their green light.
The inflation would be limited as the money created would go to job creation, research and other productive activities. There would therefore be no upward pressure on prices.
Greens such as the popular Nicolas Hulot, a French environmentalist and former presidential candidate, support the idea. The Greens say that ultimately renewable energy should have a positive influence on inflation. They claim that oil consumption and price volatility are the main causes of inflation in Europe.
The European Commission has until now considered the harmonisation of EU support schemes for renewables as premature, arguing it would disrupt energy markets, which are fragmented along national lines.
That view is also shared by the renewables industry.
However, Brussels does not rule out greater harmonisation in the future, saying in a January 2011 communication that "a convergence of financing, such as feed-in tariffs, will be necessary in the medium or long term, when a truly European market is created”.
Such harmonisation, it said, “can include greater cooperation in setting tariffs, technology bands, tariff lifetimes, etc."