Energy constraints in the European Union: Macroeconomic implications and the case for a managed degrowth transition

Details

Supervisors

Olieslagers, Ruben

Faculty

Louvain School of Management

Degree label

Master [120] : ingénieur de gestion, à finalité spécialisée

Abstract

enThis thesis examines the relationship between energy constraints, monetary Gross Domestic Product (GDP) and physical economic activity in the European Union. While GDP remains the dominant measure of economic performance, it captures monetary output rather than the material and energy flows that keep the production process running. This distinction is central to the decoupling debate, as rising GDP alongside declining energy consumption may be interpreted as evidence of green growth, while potentially hiding stagnation or contraction in the physical economy. The central research question is the following: Does the divergence between monetary GDP and physical economic activity in the European Union since 2000 reflect a structural energy constraint, and to what extent does this support a managed degrowth alternative? The empirical analysis relies on a balanced panel of 26 EU member states over the period 2000–2023. The analysis is built around three steps. Firstly, it compares how strongly energy consumption is linked to GDP and specifically to three physical indicators of economic activity: domestic material consumption, industrial production, and inland freight transport . Secondly, it examines whether these relationships changed after the mid-2000s, when EU energy consumption reached its peak and the global financial crisis occurred. Thirdly, it tests whether countries that depend more heavily on energy show a stronger gap between GDP and physical activity. The results support the core argument, but with nuance: the EU’s apparent decoupling between energy and GDP is, at least partly, a measurement issue, because GDP does not fully reflect what is happening in the physical economy. Physical activity remains closely linked to energy availability, more than monetary GDP. This suggests that GDP can move away from the physical economy beneath it, while production, material use and freight remain more dependent on energy. The structural break and import dependency results are less straightforward than expected, implying that the divergence cannot be explained by one single turning point or by import exposure alone.