This is an extract. Read the full interview here.

What drove us to write the book was the misunderstandings, myths and historical inaccuracies that I had seen in publications about the energy sector. I saw that both efficiency and technology were making a big change in the energy world and wanted to debunk the myth of peak oil that was very popular. The second factor was that there were many books about maybe oil on its own but very few about energy as in integrated concept including coal, gas, renewables etc. and that’s what we wanted to write about especially because when we wrote it the general consensus was that oil prices were going to be higher for longer and our view was the opposite!

The book is targeted at anyone who is interested in the energy world from a very open perspective, someone that could be an expert but also someone who approaches the energy sector without knowing the basics. People will learn about the history of the energy sector, our view of what the future could be and about the forces that are driving such a change.

“Dramatic change is happening globally to technologies, also changes to efficiency, changes to diversification of supply even in fossil fuels – the fracking revolution has been very important – all these drivers flatten what was perceived as a very volatile market in the energy world in which the risk of running out of energy drove prices higher.”

The title of the book comes as a homage to The World is Flat by Thomas L. Friedman, that as we know was a very popular book a few years ago. Dramatic change is happening globally to technologies, also changes to efficiency, changes to diversification of supply even in fossil fuels – the fracking revolution has been very important – all these drivers flatten what was perceived as a very volatile market in the energy world in which the risk of running out of energy drove prices higher. Like in the technology revolution, the dotcom bubble, the enormous amount of investments that have happened to accommodate the growth in energy demand have created a surplus of capacity that on one hand makes the risk of running out or of disruption of supply minimal and on the other means that it continues the expansion of sources of energy that reduce the dependence on OPEC or on fossil fuels. So demand is growing but not in a way in which it could risk the supply demand balance and at the same time technology is massively eroding the risk premiums and the pricing of different sources of energy, flattening the energy world.

“The concept of peak oil is extremely popular because as most conspiracy theories it is based on half truth and half lie.”

We have seen the first wave of the flattening of the energy world that is mostly a supply shock. Now we will see the next phase which is China growing as a developed country and growing its energy imports by 1-2%. We are being extremely optimistic about the transition of China to a consumer economy. The demand growth estimates will continue to go down. From a price perspective $20 a barrel oil was a price that was not good for consumers or producers. Consumers in Europe have not seen a dramatic improvement in gasoline prices, yet it has a negative impact in terms of growth of economies of producing countries. We will settle at a price that is $33-40, not much higher than that because then all those companies the US that have been suffering will come back with a vengeance. It has happened in the gas market in the past. For oil we’re in for low prices for longer, around the $30-40 level. There may be moments it goes lower or higher, but that low volatility will persist. If you think about gold, supply demand balance is extremely tight there is no oversupply yet prices have collapsed. There is also an effect of the massive amount of ETFs, of futures that were linked to the oil price for financial reasons. As the market becomes more adapted to the view that it won’t stay lower for longer also a lot of those financial instruments disappear and that also impacts the volatility.

“Decarbonisation of the economy is an unquestionable and unstoppable force because the disruptive technologies have not been and will not be erased in their growth because of low gas or oil prices.”

We consciously avoided taking a view on climate change in the book because we are not climate scientists and also
didn’t want to represent a political position. We do take it into account, as we talk about government regulation and the strive to address climate change. Decarbonisation of the economy is an unquestionable and unstoppable force because the disruptive technologies have not been and will not be erased in their growth because of low gas or oil prices. We mention that OPEC is wrong to think solar and wind are going to be reduced in their growth because of low oil prices – no. It’s a completely different position.

The Paris agreement was a huge disappointment for anyone who has climate change as the cornerstone of their concern. I am sceptical about the Paris agreements because if we wanted to really reduce emissions it would be extremely simple. China stops subsiding its coal companies, the European Union stops subsiding the automotive and steel industry and stops giving tax relief to state owned coal companies. That would immediately address the issue of C02 emissions and they’re not doing it. I’m more of a believer that it doesn’t even matter because technology and market forces will take care of it. I think it’s a disgrace that you go to Shanghai and can’t see the sun – that’s unacceptable. That should be addressed through policy but it’s not because they are state owned companies who employ a lot of people. I won’t go into the perverse incentives of keeping an industrial model that is obsolete.
The relentless slow driving force of technology will continue to surprise us all. Seeing it from a positive perspective, policy might help, but the last nail in the coffin of a carbon based economy is technology. Think of 3D printers. What they are going to do to the shipping industry we have not even started to think about.
Policy makers have only one thing on their mind, to sustain GDP for fiscal reasons. The way we calculate GDP is obsolete. Technology is going to take care of it and we will have to start addressing the beneficial cumulative impact of that technology.

The Energy World is Flat: Opportunities from the End of Peak Oil is out now published by Wiley.

After two failed investiture votes, it is likely that Spain will be heading for new elections in June. This period of political uncertainty, which started with the municipal elections, starts to show clear signs of economic impact.

There are many studies on the effect on the economy of political uncertainty. The IMF (Aisen and Vega, 2011) and Harvard (Alesina, Sule, Roubini, Swagel, 1996) explain that political instability and constant changes of policies and administrations have a direct impact on economic growth.

The first to suffer in an environment of constant political battle is consumption, investment and hiring decisions of domestic players. That is, it is Spaniards themselves who reduce economic activity seeing every day in the media a battery of impossible magic solutions, and calls to eliminate reforms that have supported growth.

Spanish consumer confidence -ICC – fell by twelve points so far in 2016. The ICC has dropped to 95.2 points, a level not seen since December 2014.

Capital flights reached 70.2 billion euros in 2015, mostly between October and December. Even if we consider the ECB cheaper lending effect, there is a clear negative effect.

Unemployment rose in February by 2,231 people.

One of the most dangerous statements we usually hear is that “fundamentals have not changed.” They change. A lot.

If we analyze the global growth expectations of international organizations, the first thing that should concern us is the speed and intensity of downward revisions. In the US, for example, we had an expectation of growth of 3.5% revised to 2% in less than six months. If we look at the revision of the estimates for the fourth quarter of 2015 of the major economies of the world, they were downgraded by 40% in less than twenty days.

Not surprisingly, the IMF and the OECD have cut their expectations for 2016 and 2017 growth already in January. Can they be wrong? Yes, but if we look at history, they have mostly been optimistic, not cautious.

This downgrade process is not over.

China is one of the key reasons. The global economy has geared itself to justify huge investments to serve the expected Chinese growth, ignoring its fragility. China, with an overcapacity of nearly 60% and total debt already exceeding 300% of GDP, has a financial problem that will only be dealt with a large devaluation, many investors expect 40% vs the US dollar over three years, and lower growth . That landing will not be short. An excess of more than a decade is not resolved in a year. This exports deflation to the world, as China devalues and tries to export more, and when the “engine of the world” slows down because it ends an unsustainable model, we are left with the excess in global installed capacity created for that growth mirage. Commodities fall and mining and energy dependent countries suffer.

Consensus economists have overestimated the positive effects of monetary policy and expansionary fiscal measures and ignored the risks. Emergency measures have become perpetual, and the global economy, after eight years of expansionary policies shows three signs which increase fragility.

First, excess liquidity and low interest rates have led to increase total debt by more than $ 57 trillion, led by growth in public debt of 9% per annum, according to the World Bank.

Second, industrial overcapacity has been perpetuated by the refinancing of inefficient and indebted sectors. Governments do not understand the cumulative effect of this overcapacity because they always attribute it to lack of demand, not misallocation of capital. In 2008, there was a problem mainly in developed countries. With the huge expansion plans in emerging markets, overcapacity has accumulated and been transferred to two-thirds of the global economy. Brazil, China, the OPEC countries, and Southeast Asia in 2015 join the developed nations in suffering the consequences of investment in huge white elephant projects of questionable profitability “to boost GDP.”

Third, financial repression has not led to the acceleration of activity from economic agents. Currency wars and manipulation of the amount and price of currencies makes the velocity of money slow down. Because the perception of risk is higher, and solvent credit does not grow, as the average cost of capital is still greater than expected returns, causing debt repayment capacity to shrink in emerging and cyclical sectors below 2007 levels, according to Fitch and Moody’s.

Since 2008, the G7 countries have added almost $ 20 trillion of debt, with nearly seven trillion from expansion of central bank balance sheets to generate only a little over a trillion dollars of nominal GDP, increasing the total consolidated debt of the system to 440% of GDP.

A balance-sheet recession is not solved with more liquidity and incentives to borrow. And it will not be solved with large infrastructure spending and wider deficits spending, as Larry Summers requests.

Offsetting the slowdown from China and emerging markets with public spending is fiscally impossible. We have exceeded the threshold of debt saturation, when an additional unit of debt does not generate a nominal GDP increase. Global needs for infrastructure and education are about 855 billion dollars annually, according to the World Bank. All that extra expense, if carried out, does not make up for even half of the impact of China, even if we assume multipliers that are more than discredited by reality, as seen in studies by Angus Deaton and others.

China is about 16% of global GDP, its slowdown to sustainable growth cannot be compensated with white elephants. It is not pessimism, it is mathematics.

The monetary “laughing gas” only buys time and gives the illusion of growth, but ignores the imbalances it generates. Financial repression encourages reckless short-term borrowing, attacks disposable income and is accompanied by tax increases that affect consumption.

In the United States, following a monetary and fiscal expansion of over $24 trillion, the economy is growing at its slowest pace in three decades, real wages are below 2008 figures and labour force participation is at levels of 1978. Its total debt is nearly 340% of GDP. The economy´s fragility is such that the impact of an insignificant rate hike -from 0% to 0.25% – is phenomenal.

The odds of a recession in the US have tripled in six months. Although I find more plausible a scenario of poor growth, indicators of consumer and industrial activity show a clear weakening.

The capital misallocation created by excess liquidity and zero rates have led to a credit bubble in high yield that issued at the lowest rates in 38 years, masking their true ability to repay. Looking at the figure globally, maturities of corporate and sovereign bonds to 2020 are nearly $20 trillion. Up to 14% of those are considered “non performing”.

With all these elements of fragility, it is normal to assume we face an environment of low growth, but there is reason to doubt a global recession.

The Chinese problem is mostly in local currency and within its financial sector, reducing the risk of contagion to the global financial system.

Dollar reserves in emerging countries have only fallen by 2% in 2015 and remain at record levels.

Although default risks in emerging markets, mining and commodities has risen recently, the total combined fails to reach a fraction of the extent of the real estate bubble risk in 2008.

Additionally, it is unlikely that a global financial meltdown effect will happen when it did not occur in 2015, with the perfect storm of devaluations, falling commodity prices, terrorism, Greece and growing geopolitical risk.

Consumption continues to grow due to the growth in the global middle class and the effect of technology, which provides efficiency and good disinflation.

This is a slowdown from oversupply, not a credit crunch led by financial risk, and as such it puts in question the possibility a global recession. But increased consumption will not compensate for the saturation of the obsolete indebted industrial growth model.

For more than a year I have warned of a long period of weak growth, but we should not confuse it with a global recession. Repeating the mistakes of these past years will not change the landscape. It will perpetuate it.

Negative real rates do not stimulate investment. They slow lending to the real economy and encourage short-term speculation.

The exit from a balance-sheet recession is not going to come from the same mistake of increasing public spending and adding debt. It will only be solved when we recover as main policy objective to increase disposable income of households, not attacking it with financial repression.

Daniel Lacalle is an economist, author of Life In The Financial Markets and The Energy World Is Flat, CIO of Tressis Gestion and professor of Global Economics at the Instituto de Empresa, UNED and IEB.

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