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The Economics of Clean Energy

By Antonio Galvao, CSCP | July/August 2012 | 22 | 4

Investments are slowed by financial uncertainty

With much of the developed world plagued by low- and no-growth economies, last year’s 6.5 percent increase in worldwide spending on clean energy might appear to be the silver lining to an ominous financial cloud. However, the fact is that rate of growth is the lowest it’s been in the last eight years.  

New data suggest that the usual suspects—policy uncertainty in the United States following the Great Recession and questions about the long-term viability of the European Union—are to blame. “There is no sign of a rapid turnaround in either of these regions in the next 12 months,” says Michael Liebreich, chief executive of Bloomberg New Energy Finance, a market research firm focused on renewable energy. “Clean-energy technologies, particularly solar photovoltaics and onshore wind, continue to fall in price and approach competitiveness with fossil fuel power, but politicians in many countries appear to be ducking the decisions that would ensure that the sector maintains its growth trajectory.” 

Perhaps the most important of the ducked decisions involves the failure to forge a global consensus on climate change. Yvo de Boer, former executive secretary for the United Nations Framework Convention on Climate Change and current global advisor on sustainability for professional services giant KPMG, says, “A global, legally binding agreement on climate could provide a guarantee and a level of confidence and certainty that could foster an even bigger wave of investment in renewable energy technologies and serious efforts to cut greenhouse gases.” 

Still, the 6.5 percent increase in clean-energy investment in 2011 outpaced overall growth in the G-20 countries, whose combined spending on clean energy accounted for more than 95 percent of all investments worldwide. The United States reclaimed the top position among G-20 members, unseating China for the first time since 2009, with an investment of $48 billion. Germany, Italy, the United Kingdom, and India also attracted significant private investment. In all, 2011 investments in clean-energy technologies totaled $263 billion worldwide. 

Solar technologies were the principle beneficiary, attracting investments totaling $128 billion, which accounted for more than half of all clean-energy outlays made by G-20 countries. That was a 44 percent increase compared to the year before and was driven by sharp drops in solar-module prices. The spike in solar spending helped offset declines of 15 percent in both wind and energy-efficient investments.  

The G-20 countries aren’t the only nations influencing the clean-energy movement. In fact, some of the smallest countries on the planet are making bold sustainability statements, motivated in part by the desire to ensure their long-term survival. The Tokelau Islands in the Pacific, threatened by rising sea levels, are intently focused on becoming carbon neutral. Officials there say that a hybrid system of solar energy and coconut oil will supply enough energy for every resident by the end of the year, while reducing energy costs approximately $1 million annually. 

Other islands are making similar progress. Samoa and Tuvalu will derive all of their electricity from renewable sources by 2020. The Cook Islands plan to convert to solar panels and wind turbines for their energy. United Nations studies have shown that imports of fossil fuels represent up to 30 percent of the gross internal product of some of these island nations, due to the great distances they need to travel. Survival, therefore, has both a physical and economic dimension.  

While global investments in clean energy were down in 2011, the trend over the last several years has been positive. “Clean-energy investment, excluding research and development, has grown by 600 percent since 2004 on the basis of effective national policies that create market certainty,” says Phyllis Cuttino, director of Pew Charitable Trusts’ clean-energy program. 
In that context, it’s difficult to imagine a more effective policy than a global, legally binding agreement on climate. As de Boer of KPMG argues, an agreement of that sort would level the regulatory playing field to the benefit of all businesses, which would be secure in the knowledge that their rivals were following the same rules.   

The question is: How long can we wait for such an agreement? Clearly, any answer other than “no longer” is simply too risky to consider. 

Antonio Galvao, CSCP, is vice president supply chain—global I&L at Diversey, now part of Sealed Air. He may be contacted at antonio.galvao@diversey.com.

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