Renewable Energy Industry

Protect Climate or Protect Jobs?

The first half of 21st century will see the demise of the cheap oil regime. While oil has been in enabling high growth which the developed economies have witnessed in the post second world war era, it has also created a global eco-system feeding on oil for its sustenance & prosperity. It has done irreparable damage to the climate by dramatic rise in carbon dioxide emissions and hence the temperature of earth resulting in catastrophic consequences for future of human civilization on our planet.

In a few days, leaders of the new world will convene in Copenhagen on the eve of United Nations Climate Change Conference 2009 to show their commitment to prevent climate change and secure the future of earth's ecosystem. If we miss this opportunity to universally agree on deliberate policies restraining ourselves on the usage of fossil fuels going forward, we will inflict irreversible damage to earth's geo ecosystem and throw ourselves at a guaranteed disaster. If history is any indicator, it would be foolish to pin any hopes on outcome of this summit. Similar discussions in the past have yielded limited to no results. Issue of carbon emission and climate conservation have been perceived as a social responsibility with little significance in the face of domestic economic challenges by both developed and developing nations. It may however be different this time.

Never in the past had the agenda around climate change been supported by economics imperatives. However the senseless consumption of oil over the last five decades has resulted in exhaustion of this commodity at an astonishing pace and this phenomenon may present a solution to this problem. The price of oil continues to climb and we will reach peak global oil in the next few decades if we are not already there. From the mid-1980s to September 2003, the inflation-adjusted price of a barrel of crude oil was generally under $25/barrel. During 2003, the price rose above $30, reached $60 by mid 2005, and peaked at around $150 in July 2008. As we approach peak oil, the demand will drive price to dizzy heights and can see the price go well over the dreaded $200/barrel. At this price, Oil will lose its power to be the economic growth agent due to its affordability and availability to support the growth rates of developing countries such as China and India.

There is very little disagreement globally over the need to contain the carbon emission immediately if we have to avoid causing irreparable damage to earth's climate. The benefit of acting strong and early far outweighs the cost of not acting. Using the results from formal economic models, the Stern Review Report on the Economics of Climate Change estimates that if we don't act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more. There is still time to avoid the worst impacts of climate change, if we take strong action now.

At the same time, more than half of the world's population lives in poverty and a solution to climate change which curbs economic growth in developing countries or results in a major drop in lifestyle in developed countries will be politically. A recent McKinsey study says that to achieve both the objectives of stabilizing GHG emission while maintaining economic growth will require 10-fold increase in "carbon productivity" - ie the amount of GDP produced per unit of carbon equivalent (CO2e) emitted. The carbon revolution that is necessary to increase the carbon productivity of such an extent is comparable to the labor productivity increases of the Industrial revolution but will have to be achieved in one-third of the time if the world is to maintain the current economic growth levels. It is therefore virtually impossible to achieve this feat without reducing the reliance on fossil fuels.

As a result three things will happen. 1) Renewable energy, which has traditionally played a second fiddle to the fossil fuels, will take centre-stage and replace the carbon based energy source as the primary driver of global economic growth. While oil and coal will continue to be a substantial source of energy well into the second half of 21st century, its use will be highly governed and regulated as we now understand the full costs of using fossil fuels on the economy as well as the climate 2) As we transition from the Second to the Third Industrial Revolution, manufacturing activities will start concentrating in regions with clean, sustainable, reliable energy source creating millions of new jobs. Any solution which aims to reduce carbon dioxide emissions would reduce the number of jobs in industries that produce carbon-based energy, use energy in their production process, or produce products whose use involves energy consumption, because those industries would experience the greatest increases in costs and declines in sales. 3) Nations who use this opportunity to force out the fossil fuel from its ecosystem and lay the foundation for the post carbon Third Industrial Revolution will have gain unparalleled competitive advantage and emerge as the dominant economic power in the second half of the 21st century.

As in the previous era, the advent of coal powered steam technology and printing press gave birth to the first industrial revolution, today the technology exists in form of intelligent utility network to not only produce renewable energy (solar, wind, hydro and biomass) but also distribute in an granular fashion with cost economics comparable to the economics of the traditional fossil fuel energy eco-system. The investment that takes place in the next 10-20 years will have a profound effect

on the climate in the second half of this century and in the next. Early signs of investment in renewable energy are encouraging but needs to increase significantly. Global investment in renewable energies topped $148 billion in 2007, a 60 percent increase from 2006. By conservative estimates, global investments in renewable energies are expected to leap to €250 billion by 2020 and €460 billion by 2030.

According to a study conducted by University of California, adopting comprehensive clean energy and climate legislation could create up to 1.9 million jobs in the U.S. The analysis shows conclusively that climate policy will strengthen the U.S. economy as a whole. Full adoption of the ACES package of pollution reduction and energy efficiency measures would create between 918, 000 and 1.9 million new jobs, increase annual household income by $487-$1, 175 per year and boost GDP by $39 billion-$111 billion. The findings are consistent with previous analyses that have similarly demonstrated that clean energy investments create more jobs, across a wider variety of skill and education levels, than comparable investments in fossil-fuel energy sources.

A new renewable energy economy will be less polluting, more efficient, more competitive, and provide more jobs. In Germany, alone, the renewable energy industry boasted an annual turnover of €21.6 billion and 214, 000 workers in 2006.

Selected global indicators

2006

2007

2008

Investment in new renewable capacity (annual)

63

104

$120 Billion

Existing renewable power capacity,
excluding large hydro

207

240

280 GW

Wind power capacity (existing)

74

94

121 GW

Solar (PV) power capacity (grid connected)

5.1

7.5

13 GW

Ethanol production (annual)

39

50

67 Billion Litres

EU has been in forefront of the Third Industrial Revolution. It is the first regional bloc to take the leadership in committing to a target of 20% renewable energy and a likewise reduction of emission by 2020. Various initiatives at a country and regional level have been invested in over the last several years and will start showing results as early as 2015. By 2050, renewable energy is projected to provide nearly half the primary energy, and 70 percent of the electricity produced within the EU, and account for several million new jobs.

For instance one of the noteworthy initiatives "The Desertec Industrial Initiative" aims to supply Europe with 15% of its energy needs by 2050. Desertec Industrial Initiative aims to produce solar-generated electricity with a vast network of power plants and transmission grids across North Africa and the Middle East. The first stage will be to build massive solar energy fields across North Africa's Sahara desert, utilising concentrated solar power technology (CPS), which uses parabolic mirrors to focus the Sun's rays on containers of water. The electricity will then be transported great distances to Europe, using hi-tech cables that suffer little conductive loss of power. The move is critical in the transition of Europe, North Africa and the Middle East to sustainable energy supplies.

In 2008, the European Commission also announced a Joint Technology Initiative (JTI), an ambitious public/private partnership, to speed the commercial introduction of a hydrogen economy in the 27 member states of the EU, with the primary focus on producing hydrogen from renewable sources of energy.

A lot of precious time has already been wasted in meaningless and narrow tunnelled debate between the US and developing countries such as China and India over the subject of who has the right to burn more fossil fuel in future. However, the new economic imperatives of renewable energy should replace the debate from the subject of economic concerns to economic opportunities and urge the world leaders of developing nations to instead broker an agreement for speedy technology transfer of renewable energy which will help them preserve the much needed manufacturing jobs, maintain economic growth without causing damage to the climate. The cost of not acting for developing nations will be far higher than for developed economies even though they have contributed the least to the cause of climate change.

Cheap labour will no longer be sufficient to attract manufacturing activities. Nations will have to demonstrate energy security of the clean kind to create and retain manufacturing jobs much needed for greater prosperity through economic growth. The transition from carbon to renewable economy will have dramatic influence on the globalization process in the second half of 21st century. The transition will require substantial transformation of energy infrastructure, reconfiguring of industries, retraining of workers and realignment of global power hubs. Early adopter will have an advantage of being ready to embrace this wholesale change while laggards will witness bleak economic growth in the second half of this century. Each country have to now choose to either be a laggard or in the forefront of this game changing revolution.