By Dr Anthony Horton
On 16 January 2016, the International Renewable Energy Agency (IRENA) published a report titled ‘Renewable Energy Benefits: Measuring the Economics’ discussing their analysis of the link between renewable energy and world economies. The report is based on a study investigating and measuring the macroeconomic impacts of renewable energy deployment on a global scale. From this information, IRENA has calculated that US$1.3 trillion would be added to global GDP if the renewable energy share doubles by 2030. Under this provision there would be significant welfare benefits, with millions of indirect and direct jobs, and positive trade impacts worldwide.
As living standards improve and resource consumption increases, the total global energy demand is expected increase by 21% by 2030. Governments around the world are increasingly concerned about climate change and are actively looking at how they can supply clean energy and minimise greenhouse gas (GHG emissions). The energy sector drives the global economy and any changes can send strong ripples through it. Increasing the cost effectiveness, reliability, security and sustainability of this sector means contributing to long-term economic resilience.
IRENA’s report states that technological breakthroughs in the renewable energy space and cost competitiveness have made the business case of renewables more compelling, as Governments can now transform their energy systems. Scaling up renewable energy surpasses cost competitiveness and increased deployment will see economies able to meet the needs of an ever-growing population, facilitate development and improve wellbeing. Greenhouse gas (GHG) emissions will decrease and natural resource productivity will increase. IRENA also states that economic growth and environmental conservation are fully compatible, with trade-offs between the two no longer required.
According to IRENA’s report, the US$1.3 trillion GDP increase is mostly due to increased investment in renewable energy deployment, which in turn triggers investment elsewhere in the economy. In terms of welfare, renewables can bring benefits beyond pure economics. Doubling the share of renewables by 2030 can significantly increase the pool of money that can be spent on welfare around the world by approximately 3%. Jobs in the renewable energy sector are expected to grow across all technologies, with growth in bioenergy, hydropower and solar expected to be highest. In the value chain, the largest growth in jobs is expected to be from fuel supply (bioenergy feedstocks), installations and equipment manufacturing.
In terms of trade, the deployment of renewable energy infrastructure affects the trade of related equipment, services and fossil fuels. Trade will increase as deployment is scaled up in both the power and end-use sectors. Fossil fuel importers and exporters will be impacted as the trade in renewable energy equipment and services increases. For importers, a higher percentage of energy supplied from renewables has potentially favourable trade implications from the ripple effects on their economies. In contrast, exporters may be vulnerable to changes in trade unless they can diversify and position themselves in the new markets that will arise.
The ‘Renewable Energy Benefits: Measuring the Economics’ report also discusses a way forward for renewable energy deployment which is underpinned by a conducive and enabling Government policy environment. Government commitments can include credible renewable energy targets which give investors some degree of confidence and establish a trajectory for the continual development of the global energy sector. As of early 2015, more than 140 Governments have introduced regulatory and fiscal incentives and public financing. Incentives that have been implemented include feed in tariffs, net metering, auctions and investment or production tax credits. Significant decreases in the cost of technology has led to a shift in the factors that influence policy making. Governments are now adapting their existing policies to ensure that the incentives they offer are appropriate. Policy makers will need to use a system level approach that balances the ambitions of established renewable energy companies, new market entrants, and other stakeholders.
Institutional development is also essential in order to support the sustainable deployment of renewable energy. The pace of transition will be influenced by individuals and institutions making informed, effective decisions on resource use. In some countries institutional capacity is weak which affects awareness, policy design and implementation processes. To strengthen these institutions it is very important to identify, assess and address barriers to their operation and development. Needs assessments should guide national capacity building programs and focus on establishing appropriate steering processes, institutionalising inter sectoral coordination mechanisms, and creating or strengthening specialised renewable energy institutions.
IRENA’s study and report make postponing the scale up of renewable energy technology around the world even more questionable. The analysis of the positive impacts of this on GDP, welfare, employment and trade, as well as a rationale for how to scale up the deployment, should provide justification for first-mover Governments that are now reaping the benefits of doing so. It should also encourage change in Governments who have yet to grasp the opportunities that renewable energy presents. Grasping these opportunities will ensure that all countries play their part in increasing the likelihood that US$1.3 trillion can be added to global GDP if the renewable energy share is doubled by 2030.
