A once in four years change (the change in the US Presidency) has unleashed changes, some firm and some inchoate. There will be some short-term and some long-term changes, as well as because of the ongoing war in Ukraine. Defence expenditure, and energy security will dominate national and regional discussions. Renewable energy and nuclear energy (and therefore uranium enriching capacity, currently highly skewed) will see major changes.
In more than one fundamental aspect, this world we live is changing and going to change much more largely as a result of a single event. There is debate in the US over whether the President is guilty of executive over-reach, but Kurt Godel, arguably the greatest mathematical logician spotted the risk of something like this happening nearly seven decades ago.
In April 1948, Godel took the oath of citizenship of the United States of America, and his study of the US Constitution convinced him “how in a perfectly legal manner it would be possible for somebody to become a dictator and set up a Fascist regime, never intended by those who drew up the Constitution”, (https://mathshistory.st-andrews.ac.uk/Extras/Godel_naturalisation/). Godel’s views were taken seriously by many some of who researched to find where does the flaw lie in the US Constitution – https://www.researchgate.net/publication/241278542_Godel%27s_Loophole. This is the central political and legal question in the US but how this will unravel is anybody’s guess.
It is important to mention that there has been no shortage of constitutional despots in the world which reminds us painfully, if I may add, that, a constitution is no guarantee against misuse of power. There will be many changes politically too if the current happenings in the US tends to ‘inspire’ other political leaders. Apart from this political risk, there will be many changes of which I wish to focus on defence and energy.
A new EU and Defence spending
The biggest change, as most of you must know by now, is going to be in defence, especially in the European Union. Every country is allocating a larger budget for defence but EU is particularly important to note.
After the second world war and the strong NATO that followed suit, European defence spending was not a priority. “The share of total expenditure, the average defence spending was 2.7 % in 2023 in the EU and 2.5% in the euro area. As a share of GDP the average was 1.3% in the EU and 1.2% in the euro area” ec.eruropa.eu quoted in Wikipedia (https://en.wikipedia.org/wiki/List_of_countries_in_Europe_by_military_expenditures). Absolute amounts of defence spending is also an important data. This data shows how far ahead of every other country is the US ($916 billion) followed by China ($296 billion), Russia ($109 billion), India ($83.6 billion), Saudi Arabis ($75.8), the UK ($74.9). The two biggest economies in the EU spend considerably less – Germany ($66.8 billion) and France ($61.3 billion). Ukraine spends more than France.
This is about to change. Ursula von der Leyen, President of the European Commission, has already announced that the EU Parliament has sanctioned a budget of $800 billion over the next four years. And this leap will certainly sacrifice, chief of which could well be environment-related spending.
The social-market model of capitalism that Europe followed since the end of the second world war with the growth of the Welfare State will face severe challenges to maintain itself. There already have been threats to the model from other quarters but increased defence budgets will take its toll.
Energy security
Even before the inauguration of a new US President, the fossil fuel industry has seen high levels of investment and with disdainful dismissal by the President of climate change and global warming, environment-related investments will face a decline. Renewable energy, however, will hold itself because it has demonstrated itself to be a scale business. As I have argued several times, unless something offers a potential to become a large scale business, investors are not interested. Once it is shown to be so, they will invest in climate change too.
The Economic Times (November 5, 2024) reported that the “renewable energy investment globally is likely to register 29 per cent growth to touch USD 3.1 trillion in 2024 against USD 2.4 trillion in 2018, a report said Tuesday. The Ministry of New and Renewable Energy (MNRE), in a statement, said that as per the World Investment Report, the solar segment leads the renewable energy investments, accounting for 59 per cent of the total, driven by lower costs, with APAC emerging as the top investing region”. The Renewable Energy Institute also carried the story.
Nuclear energy
The Ukraine-Russia conflict has catapulted energy security to the status of national security, with many countries revising their stance on nuclear power. According to the International Energy Agency (IEA), there is a new era for nuclear energy, as shown in its new report ‘The Path to new era for nuclear energy’. Arguing that nuclear has made a strong comeback, IEA Executive Director Fatih Birol, said: “In addition to this, more than 70 gigawatts of new nuclear capacity is under construction globally, one of the highest levels in the last 30 years, and more than 40 countries around the world have plans to expand nuclear’s role in their energy systems. SMRs in particular offer exciting growth potential” (SMR – small module reactors) – https://www.iea.org/news/a-new-era-for-nuclear-energy-beckons-as-projects-policies-and-investments-increase.
The most important hurdle is the distribution of uranium enriching capacity in the world – “Today, more than 99% of the enrichment capacity takes place in four supplier countries, with Russia accounting for 40% of global capacity, the single largest share. Highly concentrated markets for nuclear technologies, as well as for uranium production and enrichment, represent a risk factor for the future and underscore the need for greater diversity in supply chains.” This skewed distribution of uranium processing will impel changes to ensure stable nuclear energy sector, not vulnerable to political factors. A comeback will fizzle out if it cannot be stable and hence there will be serious changes in processing of uranium in the world. Energy is an intensely political business where sometimes politics dominates and yielding to business on occasions.
