Offshore wind Asia

Climate optimism

After years of hesitation and delay, world leaders – at least in word – are starting to take more serious on climate change. “And about time too,” some might say. After all, it is 6 years since the Paris Agreement.

Because discussions about climate change are often (and quite rightly) driven by what we could lose, it is interesting to consider some genuine opportunities resulting from the green energy transition.

For example, take the following economic forecasts from Swiss Re Group, a major global re-insurance company, which, earlier this year, published several projections for global GDP growth by 2050 compared with a world without climate change.

The report made for some depressing reading:

  • -18% if no mitigating actions are taken (a 3.2˚C temperature increase)
  • -14% if some mitigating actions are met (a 2.6˚C temperature increase)
  • -11% if further mitigating actions are taken (a 2˚C temperature increase)
  • -4% if Paris Agreement targets are met (a below 2˚C temperature increase)

Forecasts such as these are important. They show what the world could lose if countries fail to act or react inadequately on climate change.

But let’s get real, due to historic carbon emissions, many people around the world are already losing out from climate change. Whether that’s due to rising sea levels, desertification, or more frequent extreme weather events.

Sadly, this is now to some degree inevitable.

But what many economic forecasts don’t attempt to account for (since, let’s face it, who’s interested in good news!) is the potential growth that can be driven by the green energy transition.

And there are plenty of reasons to be chearful…

Growing the green way

For a long time economic growth has fuelled climate change.

Why? Because economic growth has typically resulted in, and required, greater demand for energy. It’s a symbiotic relationship.

And energy has long been generated since time immemorial by burning fossil fuels. Even today, according to the International Energy Agency, around 80% of electricity is produced by fossil fuels.

The causal relationship between growth and emissions has prompted several schools of thought to develop. One of these advocates “degrowth”.

Wikipedia check:

“Degrowth (French: décroissance) is a term used for both a political, economic, and social movement as well as a set of theories that critiques the paradigm of ecomomic growth. It is based on ideas from a diverse range of lines of thought such as political ecology, ecological economics, feminist political ecology, and environmental justice, pointing out the social and ecological harm caused by the pursuit of infinite growth and Western “development” imperatives.Degrowth emphasises the need to reduce global consumption and production (social metabolism) and advocates a socially just and ecologically sustainable society with social and environmental well-being replacing GDP as the indicator of prosperity. “

According to “degrowthers”, perpetual economic growth is unsustainable, so humanity must shrink economic activity if it hopes to halt climate change.

Degrowth might work on a personal level. For example, according to the European Commission, if people decide to cycle more or eat less meat, then the aggregate impact of this could reduce the investment needed to reach net zero by up to one-third.

However degrowth could never be deployed at scale.

After all, economic growth has lifted billions of people out of poverty throughout recent history. Indeed it’s how hundreds of millions of people have been lifted out of poverty over the past few decades.

As European economic think tank Bruegel, maintains: “Degrowth is simply not an option that will be pursued by poor or rich countries. The crucial question is thus how to achieve green growth.”

The green energy transition presents an opportunity to decouple growth from emissions and drive a new kind of economic growth.

And one region in particular is in a prime position to capitalise on this transformation… Asia-Pacific.

Why Asia-Pacific is destined for green growth

The idea that the region that pumps out around 50% of the world’s carbon emissions stands to gain from the green energy transition may sound strange.

After all, China and India alone produce nearly 35% of global emissions. And the region’s astonishing economic development has of course gone hand in hand with rising energy requirements.

India’s recent announcement at the COP26 summit that it will aim to achieve net zero carbon emissions by 2070 can rightly been viewed as unambitious to say the least.

But in terms of reducing its regional pollution, Asia-Pacific has the potential to benefit a lot.

Take coal. If the region weans itself off coal-powered energy production, this alone will reduce global emissions by 14%. And there are plenty of viable, economical substitutes for coal !

Even before the pandemic, Asia-Pacific had already embarked on the path to decarbonisation. And the year 2019 marked the world’s largest increase in renewable energy as a share of total energy production.

The country that saw the greatest increase in renewables production?

China.

Meanwhile, South Korea – currently pursuing its own “Green New Deal” – is in the process of building the world’s largest offshore wind farm. And next year, India is expected to open the world’s largest floating solar plant.

But reducing emissions is only one half of the story.

World leaders and investors are increasingly seeing the green energy transition as a new avenue for growth. An article by the Carbon Tracker Initiative think tank, “Gain not pain: why COP must move the narrative forward“, sums it up well:

Previously, the idea of transition away from fossil fuels was seen as a necessary cost that countries must shoulder. So why not share the burden?

Now, the narrative has shifted.

The green energy transition is an opportunity that promises to grow, not shrink, economies. As stated by Carbon Tracker:

“… harnessing this great wave of innovation and redistribution requires moving on from the old framing and overcoming the vested interests that cling on to it.”

And the Asia Pacific region is particularly well-positioned to make the process of going green a highly profitable proposition.

So, what opportunities does the green energy transition offer the region?

For a start, China is already the largest exporter of renewable energy products. China, alongside the rest of Southeast Asia, already owns around 80% of the solar photovoltaic production capacity.

But there’s another way of thinking about economic growth too.

Being able to manufacture renewable energy products is great. But given that many countries in Asia Pacific are already renewable technology producers, the region also possesses the skills, knowledge and expertise needed to build and scale up entire green industries.

Factors such as these take time to establish… a generation of green energy experts can’t be trained up overnight. However many countries in the region already have a head start.

According to a report by Deloitte, “Asia Pacific’s turning point: how climate action can drive our economic future“, examining the economic impact of going green in Asia Pacific, the green energy transition could add an additional $47 trillion in growth to the region by 2070.

Plus, since manufacturing capacity in the region is growing far faster than anywhere else in the world, economic powerhouses like China and India will have plenty of capacity to export renewable technology too.

Naturally, other areas of the world may struggle to “green” their economies this quickly.

For example, within just a couple of decades, Nigeria is on course to have a larger population than the United States – but right now it has just 1% of the electricity generating capacity of the US.

That’s why access to electricity remains a problem in countries like Nigeria, and indeed much of Sub-Saharan Africa.

To ensure that countries with large off-grid populations don’t simply opt for fossil fuels, then rich countries will likely have to finance both green technology and the underlying infrastructure that will allow people access to electricity.

Offshore wind capacity is set to seriously take off

So “green growth” is necessary, and it’s already happening.

Last year, the global green technology market volume hit a record £3.9 trillion, and is set to grow at an average annual rate of 7.4% through to 2030, according to consultancy Roland Berger.

But which green technology sectors will be the biggest beneficiaries?

Offshore wind will certainly play a major role. It is central to the energy transition plans of many countries, including the UK, Japan, China, and the United States, to name but a few.

At the end of 2020, the offshore wind pipeline stood at 307,815MW.

But wind energy isn’t just a useful way of producing electricity. It also plays a vital role in producing another green fuel…

Green hydrogen.

Hydrogen is, in theory, a super fuel. When burnt, it releases energy, with only water as a by-product.

Since wind and solar power are intermittent, green hydrogen is probably the best means of providing energy when the sun isn’t shining and the wind isn’t blowing.

Currently, just 0.1% of the world’s hydrogen is “green” (i.e. It is produced using renewable energy through electrolysis).

Unsurprisingly, the share of green hydrogen is expected to grow exponentially over the coming decade. Between now and 2028, the green hydrogen market looks set to grow by a compounded annual rate of over 57%.

So, the global economy is becoming increasingly green, which looks like being not only good for the planet, but also good for regional economies, and hopefully also good for jobs.

[Information provided by and credit to Southbank Research]