The Key to Future Competitiveness
Oct 12, 2020JULES KORTENHORST
The winners of the future global economy will be the countries that moved decisively to replace fossil fuels with clean, renewable energy sources. Unlike the United States, China, most European countries, and others clearly have gotten the message, and are capitalizing on the rapidly falling costs of wind and solar.
DENVER – As countries around the world struggle to recover from the COVID-19 pandemic, the main focus must be on human health and economic wellbeing. But there is also an opportunity for the response to create both short-term benefits and longer-term economic advantages. Those countries that seize the moment could gain a competitive edge for decades to come. By orienting their recovery packages around sustainable solutions, such as those outlined in the European Green Deal, governments can chart a course toward a future that includes improved health, better jobs, lower energy costs, and sustained economic growth.
The direct health benefits of clean energy are now widely recognized. As we have all seen during the pandemic, reducing fossil-fuel use almost immediately results in cleaner air, water, and land. Moreover, these benefits accrue disproportionately to the marginalized and lower-income communities that have long suffered the most from fossil-fuel pollution. To be sure, an economic downturn is not the way to reduce emissions over the long term; that will require sustained, structural change. But the crisis at least will have reacquainted the residents of many urban areas with the taste of breathable air.
In addition to improving public health, replacing fossil fuels with clean energy will create more jobs quickly, and many will be safer than what came before. Solar, wind, and battery-storage projects can be rapidly deployed, boosting employment in a variety of sectors and settings, from factories and installation to maintenance and repairs. And that doesn’t include new sustainable-infrastructure projects to build transmission lines, electric-vehicle charging stations, and electric rail. Yet another source of new employment will come from constructing new net-zero-emissions buildings and retrofitting existing ones for energy efficiency.
While many world leaders now clearly understand these direct benefits, they are only beginning to grasp the overall economic advantages that clean energy brings. Already, new clean-energy sources are often cheaper to build than new coal or gas plants are.
More to the point, building new clean-energy facilities is already – or soon will be – cheaper than even operating existing coal or gas plants. With solar and wind costs having fallen by 60-80% over the last decade, purchasing the fuel to run an existing coal or gas plant is rapidly becoming a losing proposition. And as deployment of clean energy continues to be scaled up, learning rates are driving cost curves down even further, accelerating the transition.
Moreover, it is a misconception that electric grids with a high composition of wind and solar power cannot operate reliably. Many European economies already run their power systems with over 50% renewables on a daily, monthly, or (in the case of Denmark) annual basis.
Simulations from the US Department of Energy, energy utilities, and other researchers find no reliability barriers to generating 90% of annual power consumption from zero-carbon sources using today’s technologies. In fact, a recent study by researchers at the University of California, Berkeley, shows that renewables could be scaled to deliver 90% of US electricity by 2035 “at no extra cost to consumers.”
The possibilities for clean energy don’t stop there. The world also has an opportunity to shift away from fossil fuels in buildings and vehicles. For buildings, the Rocky Mountain Institute has published studies showing that technologies like electric heat pumps produce lower emissions and are more cost-effective than gas-powered alternatives in almost every US state. These solutions also dramatically improve indoor air quality, because burning gas indoors can emit even more air pollutants than what the Environmental Protection Agency allows outdoors.
In transportation, the cost of batteries has fallen by 87% since 2010, underpinning electric vehicles’ rapid progress toward price competitiveness with internal-combustion-engine vehicles. An analysis from Bloomberg New Energy Finance shows that by the mid-2020s, the average upfront costs of EVs in the United States and Europe will be lower than for a comparable gasoline car. This shift is also accelerating among larger sport utility vehicles, with delivery, medium-haul, and long-haul trucks also rapidly shifting to zero-emission designs.
Countries that move quickly to be part of the clean-energy transition will be amply rewarded, which is why we are already seeing a global race to the top. For nearly a decade, China led the world in solar-panel manufacturing, and has more recently become the largest producer of lithium-ion batteries. The country now boasts two-thirds of the global manufacturing capacity for both sectors. Similarly, Europe is leading the offshore wind industry, which could be worth $1 trillion by 2040. And hydrogen projects are being deployed at scale in Australia, Morocco, Saudi Arabia, and the European Union. The US, meanwhile, lags behind.
As more countries fundamentally shift the economic and industrial calculus, they are catching the laggards by surprise. But it should not be surprising that newer, more advanced technologies would replace older systems. Throughout modern human history, clearly superior technologies have rapidly swept away what came before: the horse-drawn carriage gave way to the automobile; the typewriter to the computer; the landline phone to cellular and then smartphones.
Just as an emerging economy like India would no longer build a network of copper wires to install phones in every house, it would be imprudent for any country to build new fossil-fuel infrastructure. These outdated, dirty systems will soon become stranded assets.
Political, business, and civil-society leaders worldwide must recognize and embrace the economic benefits of green recovery packages. These investments will yield far-reaching benefits to the health, prosperity, and sustainability of societies everywhere.
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Writing for PS since 201110 Commentaries
Jules Kortenhorst is CEO of the Rocky Mountain Institute.