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Sizing the climate economy

Global green energy markets will at least double in size by 2020, according to the latest research from HSBC’s climate team. But the fruits will not be evenly spread, writes Nick Robins.

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2010 has been a tough year for the global climate agenda. Policy pessimism after Copenhagen has been compounded by (largely unfounded) doubts over climate science along with governments backtracking on commitments in key countries. But looking through the fog of the carbon war, a new climate economy is starting to emerge, driven as much by resource scarcity and industrial innovation as by the raw realities of global warming.

According to the US National Academy of Sciences, it is now a "settled fact" that warming is taking place and that humans are largely responsible. This year’s extreme weather events – fires in Russia and floods in Pakistan and China – have reminded everyone that climate change is a threat that should not be ignored. Beyond this, it is self-evident that mounting pressures on energy, land and water resources require a step-change in economic behaviour, offering growth, employment and trade benefits for those countries that take a lead in climate business.

The low-carbon opportunity is defined by two complementary policy trends: first, taking energy out of the economy through improvements in efficiency; and second, taking carbon out of energy by curbing emissions from fossil fuels. Both trends have been structural features in the global economy over recent decades – but the rate of change needs to be accelerated if dangerous climate change is to be avoided.

The challenge for investors, however, is the lack of certainty over both policy intentions and actual implementation that could drive this shift. To map the range of potential outcomes over the next decade, we have constructed four distinctive scenarios:

–  The Backlash scenario: this assumes that governments either renege on existing commitments and/or fail to implement these in practice.

–  The Copenhagen scenario: this assumes implementation of the policies adopted in 2009 at the time of the Copenhagen climate summit.

–  The Green Growth scenario: this assumes governments exceed their 2009 commitments over the next decade.

–  The Conviction scenario: this projects what we believe is the most likely pathway to 2020 based on our current expectations. We believe that there will be diverging growth paths in the three key markets. In the European Union, we expect renewable but not energy-efficiency targets to be met; in the United States, we project limited growth in clean energy; and in China, we expect current targets for clean energy to be exceeded.

Using these scenarios, we’ve estimated the revenues generated from low carbon energy production (for example renewables, nuclear and clean coal) as well as from energy efficiency in buildings, industry and transport. We calculated both the baseline market in 2009 and also the market sizes that result from our scenario analysis.

Our conclusion is that the global low-carbon energy market was worth around US$740 billion in 2009 and will grow to between US$1.5 (10 trillion yuan) and US$2.7 trillion (18 trillion yuan) in 2020, with our Conviction scenario at US$2.2 trillion (14.7 trillion yuan). From a macroeconomic perspective, this means that the low-carbon energy market moves from 1.3% of global GDP in 2009 to 2.1% of global GDP in 2020. And in terms of market growth, this offers compound annual growth rates (CAGR) through to 2020 of between 6.6% and 12.5%, with our Conviction scenario at 11% for 2009 to 2020. This means that even in our most pessimistic scenario the market doubles.

Currently, the supply side dominates the low-carbon economy; by 2020, we believe this will change, with higher than market average growth in building, industrial and transport efficiency themes. In particular, we believe that the market for plug-in and full electric vehicles will grow substantially over the coming decade, with annual sales reaching more than 17 million units in 2020. This brings the prospect not just of enhanced energy efficiency and reduced greenhouse-gas emissions compared with the internal combustion engine, but offers the potential of providing storage for intermittent renewables.

In terms of low-carbon power generation, we estimate that renewable electricity revenues grow at a CAGR of 9.4% to a market size of US$544 billion (3.6 trillion yuan) in 2020; solar and wind revenues grow at CAGRs of 9% and 10% respectively, to US$115 billion (769 billion yuan) and US$285 billion (1.9 trillion yuan). The nuclear market grows at around 6% to US$368 billion (2.5 trillion yuan), while the market for carbon capture and storage (CCS) remains low at just US$7 billion (46.8 billion yuan), highlighting that this is largely expected to be a post-2020 phenomenon.

Our scenarios also show that the fastest growth is likely to occur in emerging markets, notably China and India, with the low-carbon energy market in both countries offering 14% CAGR. This delivers an important shuffling of the pack in terms of market share. The European Union remains the largest market, but its share falls from 33% to 28% by 2020. China grows from 17% to 24%, pushing the United States into third place. India also rises and becomes the fourth largest market, with Japan falling to fifth. Clearly, these growth rates are strongly influenced by the underlying economic dynamism in Asia – but they also reflect the growing strength of policy frameworks in these countries. Interestingly, our analysis suggests that just two regions – the European Union and China – already make up half the global market, and this proportion is projected to grow further by 2020.

The shift to a low-carbon economy invariably involves higher upfront capital costs, which are matched by lower operating costs, with positive returns in terms of fuel savings, particularly in building, industry and transport sectors. We estimate annual capital investment in our Conviction scenario will grow from an annualised US$460 billion (3 trillion yuan) in 2010 to US$1.5 trillion (10 trillion yuan) in 2020; in total, we estimate around US$10 trillion (67 trillion yuan) in cumulative capital investments will be required from 2010 to 2020.

A continuation of the historical 60:40 split between debt and equity suggests a need for US$6 trillion (40 trillion yuan) in debt and fresh equity of US$2 trillion (13 trillion yuan). Importantly, we expect that a third of investments will come from the household sector in the form of building efficiency improvements, decentralised renewables and low-carbon vehicles. We believe that this is a manageable amount as much of this is not new capital but will substitute for other expenditures.

Our Conviction scenario is one that is easily recognisable from today’s standpoint – a reflection of the limited ambition of most governments’ policies for low-carbon growth. But there are clearly significant uncertainties affecting our estimates. Added to the normal risks of projecting any market a decade into the future, plotting the trajectory of low-carbon economic growth relies on a range of dynamic assumptions, notably around policy frameworks, technological innovation, infrastructure capacity, resource availability, scientific consensus and public opinion.

In terms of our Conviction scenario, downside risks include the withdrawal of key policy incentives, serious implementation delays, in particular for energy efficiency, and higher than expected technology costs. On the upside, a spike in fossil-fuel prices, a global climate deal and faster breakthroughs in key technologies would provide additional momentum. Importantly, our Conviction scenario assumes only loose international cooperation as reflected in agreements such as the Copenhagen Accord. If governments choose to move together in a more decisive fashion in terms of finance, technology and markets, then not only would the size of the prize be larger, but the price-tag would be smaller too.

 

Nick Robins is head of the HSBC Climate Change Centre of Excellence.

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Default thumb avatar
alternativeview

刚跳出油锅,又跳进了火坑

如果文章的分析是基于汽车能源的直接化石燃料向间接化石燃料(如电力)的转变,那么:
1)锂和稀土——目前电池和转换器里被使用的——其实用性很可能成为根本的制约(这种转化政策目光短浅,就像是从油锅跳进了火坑),同样在政治上也存在敏感性;
2)大多数电动自行车的发电来源依然主要依赖于化石燃料(以及高风险、高代价的核燃料),无论在中国还是欧盟;并且
3)碳足迹和其他制造业污染物以及电动汽车的处理(尤其与传统化石燃料能源汽车日益增长的使用寿命相比),还有可能的强制性汽车限速都应该被考虑在内。

Out of the frying pan, into the fire

If the analysis depends on a switch from direct fossil fuel as the energy source for vehicles to indirect fossil fuel (i.e electricity) then:
1] the availability of lithium and rare earths - currently used in batteries and transformers - is likely to be a fundamental constraint (the policy to switch is short-sighted, "out of the frying pan into the fire") and politically sensitive;
2] the source of electricity for most electric vehicles' energy in both China and the EU will remain predominantly fossil fuel (and - high risk, high cost - nuclear); and
3] the footprint of carbon and other pollutants associated with the manufacture and disposal of electric vehicles (especially when compared with increasing the life of vehicles powered directly by fossil fuel) and the likely mandatory reduction in vehicle speed should also be taken into account.

Default thumb avatar
yingyingz

回复评论1

我赞同你的观点。对于电动汽车的节能和环保性能,我个人一直持怀疑态度。我不明白传统燃料汽车和电力汽车在能源消耗方面会有明显的差别,既然大多数的发电依然由传统燃料提供。

同样,我也质疑水力发电对环境产生的负面影响小于传统化石燃料,因为建设水利发电设施的能源消耗以及其对河流生态环境的影戏不可忽视。很明显,所谓的清洁能源或者气候经济,其背后的推动者必定是利益所得者,驱动他们首要因素不是节能或减排。

Respond to comment 1

I agree with you. I have always been suspicious of the energy saving quality and environmental protection function of the electric cars. I don't understand the difference between the energy consumption of traditional fuel cars and electrical cars, when most of the electricity is still provided by traditional fuels.

At the same time, I question whether hydroelectricity has a less negative impact than the traditional fossil fuel because the energy consumed by the hydropower's infrastructure and its impact on the river's ecology cannot be ignored. It's obvious that the promoters behind the so-called clean energy or climate economy are the definite beneficiaries. The main factors for their motivation is not energy conservation or emissions reduction.