Renewable energy development is one of the key priorities for both developed and developing countries. Many studies focus on renewable energy-climate interaction [Jones and Warner, 2016]. At the same time, benefits from renewable energy development are wide. They vary from job creation to its positive contribution to economic growth. Renewable energy development reduces dependence on traditional fuels for import-dependent countries, decreasing risks of price volatility. This is especially important for low-income countries. Therefore, this commentary aims to analyze the economic effects of renewable energy development.
According to the International Renewable Energy Agency [IRENA, 2016], doubling the share of renewables in the global energy mix by 2030 would increase global gross domestic product (GDP) and welfare. Global GDP will grow by up to 1.1% or $1.3 trillion, while global welfare will increase by 2.7%. Positive impact on global welfare will be achieved through economic, social and environmental effects. Economic impact will be based on consumption and investment. Expenditure on health and education will determine social impact, while environmental impact is measured as greenhouse gas emissions and materials consumption. At the same time, direct and indirect employment in the sector is expected to increase to 24.4 million people. Development of renewables will change patterns of international trade by creating new markets.
Since the early 1990-s, total renewable energy consumption has been increasing in the majority of countries. Country-group level analysis reveals that the percentage of renewable energy consumption in OECD countries has increased over time. However, despite higher usage of renewable energy in non-OECD developing countries, its share in the total energy consumption has been declining. This fact had important implications for economic growth. Various estimates identified a positive relationship between renewable energy and economic growth for OECD countries. At the same time, higher consumption of renewable energy had no effect on economic growth in non-OECD developing countries despite the fact that they would benefit significantly from investing in renewable energy sources [Chen et al., 2020].
A list of indicators, which substantially and positively affected higher consumption of renewable energy in the OECD economies, include per capita income, carbon emissions per capita and real oil prices. This means that higher incomes, understanding of the harmfulness of carbon emissions and higher costs connected with rising oil prices stimulate higher demand for renewables. It is important to note that a higher level of economic globalization also promotes renewable energy development. These findings are crucial for policymakers and governments. Therefore, they should focus on creation of knowledge among societies to move for extensive usage of renewable energy. Moreover, governments need to increase investments in the generation of renewable energy and promote international trade and foreign direct investment flows. These policies will be able to enhance energy security [Gozgor et al., 2020].
According to data from the IRENA (2020), the renewable energy sector gained importance in terms of job creation. Employment in the sector demonstrates a permanently increasing trend. While in 2012 a number of workers in the sector amounted to 7.28 million, in 2019 it increased to 11.46 million. In 2018, renewable energy employment was equal to almost 11 million. Asia remained a major contributor to the job creation and accounted for 63% of total jobs in renewables globally. The following Figure 1 shows global renewable energy employment by technology.
Figure 1. Global Renewable Energy Employment by Technology, 2012 and 2019, million.
Source: The Author’s compilation based on the IRENA (2020) data.
Data shows that employment in 2019 was considerably higher than in 2012, excluding solar heating/cooling, which demonstrated insignificant reduction. In 2019, hydropower employed 1.96 million workers, up from 1.66 million in 2012. Growth in employment in the solar photovoltaic (PV) industry was substantial. While in 2012 it was equal to 1.36 million workers, in 2019, it reached 3.75 million, increasing by almost 2.8 times. The solar PV industry employed almost 33% of the total renewable energy workforce. For the same period, employment in bioenergy increased from 2.4 to 3.58 million. The indicator for the wind energy was estimated at 1.17 million in 2019, up from 0.75 million in 2012.
Individual countries show significant progress in terms of increasing renewable energy employment. For instance, renewable energy jobs are booming across the United States (US) and the country’s renewable energy industry has become a major employer. Clean energy employment in the US is estimated at 3.3 million, outnumbering fossil fuel workers by 3-to-1. The number of workers in solar and wind industries correspondingly equaled 335 and 111 thousand people, while their number in coal mining or other fossil fuel extraction amounted to 211 thousand workers. The solar industry added nearly 150 thousand news jobs since 2010 [Marcacci, 2019].
Understanding the importance of new trends towards renewable industry development, many corporations around the world started to reconsider their strategies and values. One of the most successful examples is Danish multinational Ørsted, which has gone from supplying 85% of its power with fossil fuels in 2009 to supplying 88% with renewables today. The company will reach net-zero energy generation and operations by 2025 and eliminate all emissions associated with its business by 2040. New development strategy resulted in significant benefits. Shares in the company have more than doubled since its listing in 2016, giving Ørsted a valuation of $56 billion. This substantial transformation of the company is recognized as the ‘new measure of corporate success’ [Fredeau and Kortenhorst, 2021].
In Central Asia and Turkic world renewable energy development remains low. For instance, Kazakhstan started to develop a legal framework for renewable energy development in 2006. However, the share of renewables in total energy consumption remains insignificant. Data shows that in 2018, the share of energy from fossil fuels in Kazakhstan was 81.3%, hydro 9.7%, gas turbine 8.5%, and solar, wind, and bio energy 0.5%. It should be noted that the share of energy from solar and wind amounted to 0.2% in 2015. Problems for development of the industry in Kazakhstan include gaps in governance, in particular bureaucratic procedures, insufficient accountability and ineffective incentives for agencies. For instance, in order to approve projects, an investor has to complete at least nine stages including at least 40 sub-stages. Lack of opportunities for long-term borrowing to finance renewable energy projects also restrict development of the industry [Mouraviev, 2021]. Moreover, fossil fuel producers remain a powerful lobby, who promote development of traditional energy. The government of Kazakhstan addresses all these issues by simplifying approval procedures and attracting private investment in the sector, including foreign investors.
Countries of Central Asia and the Turkic world differ substantially in terms of economic development. Moreover, they remain important players in traditional energy markets. Therefore, renewable energy development can become one of the most important issues, which can foster their economic integration. They should take into consideration broader benefits from renewable energy such as contribution to GDP and welfare growth, job creation and changing patterns of international trade. Policymakers should not ignore social and environmental benefits, which result in improvement of healthcare, education and climate. At the same time, government-led efforts are not enough to foster energy and economic integration. Policymakers should understand a crucial role of business, in particular companies that adjust their corporate strategies to contribute to the process of sustainable development. It is worth noting that better understanding of all climate change-related challenges by population is important for development of the industry. As the countries differ substantially in terms of economic development, resource rich states may finance renewable energy development from resource revenues simultaneously investing in other resource poor and low-income Turkic and Central Asian countries. These joint efforts of the governments, private sector, population and expert community can foster energy integration of the Central Asian region and the Turkic world countries.
References:
Chen, Chaoyi, Pinar, Mehmet and Thanasis Stengos (2020). Renewable energy consumption and economic growth nexus: Evidence from a threshold model. Energy Policy, 139.
Fredeau, Michel and Jules Kortenhorst (2021). The New Measure of Corporate Success. Retrieved from https://www.project-syndicate.org/commentary/ceos-business-leaders-must-take-on-climate-by-michel-fredeau-and-jules-kortenhorst-2021-03. Accessed on 29.03.2021.
Gozgor, Giray, Mahalik, Mantu Kumar, Demir, Ender and Hemachandra Padhan (2020). The impact of economic globalization on renewable energy in the OECD countries. Energy Policy, 139.
IRENA (2016). Renewable Energy Benefits: Measuring the Economics. Retrieved from https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2020/Sep/IRENA_RE_Jobs_2020.pdf. Accessed on 26.03.2021.
IRENA (2020). Renewable Energy and Jobs. Annual Review 2020. Retrieved from https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2020/Sep/IRENA_RE_Jobs_2020.pdf. Accessed on 26.03.2021.
Jones, Glenn A. and Kevin J. Warner (2016). The 21st century population-energy-climate nexus. Energy Policy (93): 206–212.
Marcacci, Silvio (2019). Renewable Energy Job Boom Creates Economic Opportunity As Coal Industry Slumps. Retrieved from https://www.forbes.com/sites/energyinnovation/2019/04/22/renewable-energy-job-boom-creating-economic-opportunity-as-coal-industry-slumps/?sh=c957aba36654. Accessed on 28.03.2021.
Mouraviev, Nikolai (2021). Renewable energy in Kazakhstan: Challenges to policy and governance. Energy Policy, 149.
Note: The views expressed in this blog are the author’s own and do not necessarily reflect the Institute’s editorial policy.