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Impact Of Renewable Energy On Economic Growth
 

Impact Of Renewable Energy On Economic Growth

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Impact Of Renewable Energy On Economic Growth

Impact Of Renewable Energy On Economic Growth

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    Impact Of Renewable Energy On Economic Growth Impact Of Renewable Energy On Economic Growth Document Transcript

    • Fall 2012 IMPACT OF RENEWABLENEW YORK UNIVERSITY ENERGY ON ECONOMIC GROWTH Author: Partha Mitra Date: 10-16-2012
    • Revision History Date Version Description Author09/020/2012 1.0 Initial Draft, Table Of Content, Purpose, Partha Mitra introduction09/25/2012 1.1 Added Advantages of using Renewable Energy Partha Mitra Source10/03/2012 1.2 Economic Benefit from Renewable Energy Source Partha Mitra10/06/2012 1.3 Implications of Renewable Energy Partha Mitra10/12/2012 1.4 Added Global Energy Generation Market, Partha Mitra Employment potential in Renewable Energy Sector10/15/2012 1.5 Added Implications of Renewable Energy, Partha Mitra Conclusion10/16/2012 1.6 Added Cover Page, Ending Page, review, cosmetic Partha Mitra changes 2
    • Table of Contents1. Purpose of the Document...................................................................................................................... 52. Introduction............................................................................................................................................ 53. Global Energy Generation Market......................................................................................................... 54. Advantages of using Renewable Energy Source.................................................................................. 7 4.1 Environmental Impact................................................................................................................ 7 4.2 Job Creation .............................................................................................................................. 7 4.3 Trade Deficit .............................................................................................................................. 7 4.4 Alternate Energy Source ........................................................................................................... 8 4.5 More Efficiency .......................................................................................................................... 8 4.6 Benefit in Small Business Sector............................................................................................... 8 4.7 Tax Incentive ............................................................................................................................. 85. Economic Benefit from Renewable Energy Source .............................................................................. 8 5.1 Direct and Indirect Job Creation ................................................................................................ 9 5.2 Induced Job Creation .............................................................................................................. 10 5.3 Overall Job Growth: Renewable Vs. Conventional Fossil Fuels ............................................. 116. Employment potential in Renewable Energy Sector ........................................................................... 12 6.1 Developing the Wind Sector .................................................................................................... 12 6.2 Solar PV installation ................................................................................................................ 13 6.3 Hydro Market ........................................................................................................................... 14 6.4 BioMass Energy Sector ........................................................................................................... 157. Implications of Renewable Energy...................................................................................................... 15 7.1 US investment in Clean Energy............................................................................................... 15 7.2 China’s Push for Clean Energy ............................................................................................... 16 7.3 Rise of Renewable in India...................................................................................................... 17 7.4 Clean Energy Implication in Europe ........................................................................................ 178. Conclusion........................................................................................................................................... 189. Reference ............................................................................................................................................ 18 3
    • Approver / Author / Distribution List Name Role Approvals Professor, Managing in a Global EconomyProf. Bruce Baulch Dept: Management and Information Technology Yes New York University, NYC, USA. Author–Impact of Renewable Energy in EconomicPartha Mitra Growth, Student -Master of Science, Management N/A & Systems, New York University, NYC, USA. 4
    • 1. Purpose of the DocumentThe purpose of this document is to develop a research report on impact of renewable energy oneconomic growth. Without heat, light and power we cannot build or run the factories and cities thatprovide goods, jobs and homes, nor enjoy the amenities that make life more comfortable and enjoyable.In this document we will discuss how renewable energy can help to create jobs, increase opportunitiesand essentially can provide us better economy.2. IntroductionIn times of economic turbulence, the focus quite rightly falls on jobs. The energy industry is known forbeing highly capital intensive, but its impact on employment is often forgotten. In the United States, forexample, the American Petroleum Institute estimates that the industry supports more than nine millionjobs directly and indirectly, which is over 5% of the country’s total employment. In 2009 the energyindustry supported a total value added to the national economy of more than US$ 1 trillion, representing7.7% of US GDP. (Peter Voser, CEO : Royal Dutch Shell)Beyond its direct contributions to the economy, energy is also deeply linked to other sectors in ways thatare not immediately obvious. For example, each calorie of food we consume requires an average input offive calories of fossil fuel, and for high-end products like beef this rises to an average of 80 calories(Fossil Fuel and Energy Use). The energy sector is also the biggest industrial user of fresh water,accounting for 40% of all freshwater withdrawals in the United States. The energy industry significantlyinfluences the vibrancy and sustainability of the entire economy – from job creation to resource efficiencyand the environment.3. Global Energy Generation MarketRenewable energy in 2010 supplied an estimated 16.7% of global final energy consumption. Of this total,an estimated 8.2% came from modern renewable energy counting hydropower, wind, solar, geothermal,biofuels, and modern biomass. (See Figure 1.) Traditional biomass, which is used primarily for cookingand heating in rural areas of developing countries, and could be considered renewable, accounted for 5
    • approximately 8.5% of total final energy. Hydropower supplied about 3.3% of global final energyconsumption, and hydro capacity is growing steadily from a large base. All other modern renewablesprovided approximately 4.9% of final energy consumption in 2010, and have been experiencing rapidgrowth in many developed and developing countries. Figure 1 - Source: Renewables 2012 Global Status ReportModern renewable energy can substitute for fossil fuels in four distinct markets: power generation,heating and cooling, transport fuel and rural/off-grid energy services. Figure 2 - Source: Renewables 2012 Global Status Report 6
    • 4. Advantages of using Renewable Energy SourceMore than 100 countries have set renewable energy targets, about evenly split between the developedand the developing world. As Jean-Marie Chevalier describes in his contribution, Energy and theEconomy in Europe, the European Union has set particularly ambitious goals of obtaining 20% of energyfrom renewable by 2020. He further states, “Europe’s main energy priority is to build a single energymarket through market liberalization and competition. Achieving this goal involves balancing three corepriorities: maintaining economic competitiveness, transitioning to a low-carbon economy and ensuringsecurity of supply.” (Chevalier Jean-Marie, European Review of Energy, 2012)However, reaching higher targets will be no easy achievement given the scale and complexity of theenergy system. Although costs have come down substantially over the years, renewable remain moreexpensive than conventional energy in a number of applications. Today, the future of renewable isprimarily determined at the level of policy and politics, but they are set to become a significant part of theenergy mix in coming years.4.1 Environmental ImpactOne of the most important benefits of renewable energy is the fact that it’s non-polluting. And of course asthe name tells us it is renewable and does not use resources that can never be replaced. Renewableenergy has a much lower environmental impact than conventional sources of energy. But there are otheradvantages to using renewable sources of energy.4.2 Job CreationThe benefits of renewable energy extend to stimulating the economy and creating job opportunities. Themoney that is invested in renewable energy is typically spent on materials and staff that build andmaintain equipment instead of importing energy. The money spent on renewable energy stays in thecountry for the most part, often within the same demographic.4.3 Trade DeficitRenewable energy that is made and developed in any country is being sold to overseas countries. Thismeans that the producing country trade deficit is being improved. This has an impact on energy 7
    • nationwide. The benefits of renewable energy will help to alleviate many issues related to thisdependence.4.4 Alternate Energy SourceThe use of fossil fuels makes the U.S. vulnerable to political instabilities, trade disputes, embargoes and avariety of other impacts. The fact that we rely on other countries for our energy has not done us anyfavors in recent years. Every country should stand to benefit greatly from making the change to usingrenewable fuels to supply our energy needs.4.5 More EfficiencyThere are many benefits of renewable energy to the ordinary citizen and business owner. Homeownerswill reap rewards from using renewable energy and energy-efficient appliances by saving money in thelong run and reducing environmental impacts. It also renders us able to fuel our homes independently inmany cases. Using renewable fuels makes us less dependent.4.6 Benefit in Small Business SectorSmall business owners will also reap the benefits of renewable energy. They will save money on utilities.Even providers of electricity can benefit from selling clean power. There are also many job opportunitiesfor professionals who can invent ways of using renewable energy easily and efficiently in our homes andbusinesses. The more products that are available the cheaper they will become.4.7 Tax IncentiveMany states now offer tax incentives to those who are using or planning to install clean energy systemsfor lighting, heating and the running of appliances. For example in USA current government wants tomake it easier for consumers to make the switch to clean energy. This means that tax credits will enableto reap the benefits of renewable energy. A variety of tax incentives are available for individuals andbusinesses who want to go green in USA. The benefits of renewable energy installations range from taxwaivers, credits, deductions and change in tax status. So not only middle class people save money inutilities also they will save on taxes too.5. Economic Benefit from Renewable Energy SourceSpending money in any area of the countries’ economy will create jobs since people are needed to 8
    • produce any good or service that the economy supplies. This is true regardless of whether the spendingis done by private businesses, households, or a government entity. But spending directed toward a clean-energy investment program will have a much larger positive impact on jobs than spending in other areas,including the oil industry even when taking into account all phases of oil production, refining,transportation, and marketing. Spending on clean energy will create a higher net source of job creation inany developed or developing countries relative to spending the same amount of money on high-carbonfuels because of the three sources of job creation associated with any expansion of spending—direct,indirect, and induced effects. These three effects in, say, investments in home retrofitting and buildingwind turbines can be described in this way:• Direct effects. The jobs created by retrofitting homes to make them more energy efficient, orbuilding wind turbines.• Indirect effects. The jobs associated with industries that supply intermediate goods for thebuilding retrofits or wind turbines, such as lumber, steel, and transportation.• Induced effects. The expansion of employment that results when people who are paid in theconstruction or steel industries spend the money they have earned from producing these immediate andintermediate goods for clean energy industries on other products in the economy.5.1 Direct and Indirect Job CreationBelow Table shows the extent of direct and indirect job creation generated by $1 million in expenditureson producing alternative energy sources in USA. We present the total job creation figures as absolutenumbers of jobs as well as in relative terms, as a percentage of job growth relative to that generated byspending $1 million on oil and natural gas. 9
    • Figure 3 - Source: Political Economy Research InstituteAs the table shows, spending $1 million on energy efficiency and renewable energy produces a muchlarger expansion of employment than spending the same amount on fossil fuels or nuclear energy.Among fossil fuels, job creation in coal is about 32 percent greater than that for oil and natural gas.The employment creation for energy efficiency—retrofitting and mass transit—is 2.5 times to four timeslarger than that for oil and natural gas. With renewable energy, the job creation ranges between 2.5 timesto three times more than that for oil and gas.5.2 Induced Job CreationIt is more difficult to estimate the size of the induced employment effects—or what is commonly termedthe “consumption multiplier” within standard macroeconomic models—than to estimate direct and indirecteffects. There are still aspects of the induced effects we can estimate with a high degree of confidence.In particular, we have a good sense of what is termed the “consumption function,” or what percentage ofthe additional money people receive from being newly employed will be spent. But it is more difficult toproject accurately what the overall employment effects will always be of that extra spending. 10
    • Figure 4 - Source: Political Economy Research Institute5.3 Overall Job Growth: Renewable Vs. Conventional Fossil FuelsWe combine and summarize these results on overall job creation in Figure 1. This figure shows the totalnumber of jobs—direct, indirect, and induced—that we estimate would be created from spending $1million in a combination of six clean energy investment areas—three energy efficiency investment areas(building retrofits, public transportation and freight rail, and smart grid electrical transmission systems)and three renewable energy areas (solar power, wind power, and biomass fuels). This combination ofclean-energy investments will generate about 16.7 jobs per $1 million in spending. As Figure 1 alsoshows, $1 million in spending within the fossil fuel industry, divided according to the actual proportions ofspending in these sectors as of 2007 will generate 5.3 jobs in total. Spending a given amount of moneyon a clean-energy investment agenda generates approximately 3.2 times the number of jobs within theUnited States as does spending the same amount of money within the fossil fuel sectors. 11
    • Figure 5 - Source: Political Economy Research Institute6. Employment potential in Renewable Energy SectorRenewable energy is a growing part of today’s energy supply, embraced as a key solution to the triplechallenges of energy supply, security and climate change. Renewables delivered nearly 20% of globalelectricity generated in 2010. Large hydropower made up more than 80% of global renewable power and16% of global power generation overall. In the following section of the report let’s summarize theinformation on energy and employment potential of wind, solar, geothermal and cost effective energyefficiency measures. Estimated jobs in renewable energy worldwide by industry is provided below. Figure 6 - Source: Renewables 2012 Global Status Report.6.1 Developing the Wind SectorEurope has become the world’s leader in offshore wind development. The first utility-scale offshore windfarm in Europe, with 20 turbines and 40 MW of generating capacity, was installed in Denmark in 2001.Since then offshore wind’s share of new wind installations in Europe has been steadily increasing, from 12
    • 1% in 2001 to 9.5% in 2010.While Western European wind markets are maturing and exploring offshore technologies to generate newcapacity, Eastern European markets—driven by Turkey, Romania and Poland, as well as emergingmarkets including the Ukraine— are expected to contribute significantly to growth in onshore windcapacity in Europe. Eastern Europe’s share of Europe’s total onshore capacity additions has risen from0.3% in 2000 to 21% in 2010. By 2020, Eastern European markets are expected to make up more than30% of annual onshore additions in the region. Wind Power total World capacity is provided below - Figure 7 - Source: Renewables 2012 Global Status ReportAccording to the report of US Department of Energy, constructing wind power generators createsapproximately 2 jobs per megawatt of capacity as constructors prepare the site and install thefoundations, towers, turbines, and connect the generators to the electricity grids. When operational, windgenerators require 5 jobs for every 50-100 megawatts of capacity. These employment estimates excludemanufacturing job associated with wind turbines.6.2 Solar PV installationThe U.S. solar energy industry had its second-best quarter in history. The industry installed 772megawatts (MW) of solar electric (PV and CPV) capacity in Q2 2012, representing a 125 percent increasein deployment over the second quarter of 2011. The utility scale market had its best quarter on record inQ2 2012, with over 477 MW installed. SEIA forecasts that the industry will maintain its rapid growth, as anadditional 2,100 MW of solar electric (PV, CPV and CSP) capacity is projected to be installed in the 13
    • second half of 2012. The U.S. now has over 5,700 MW of installed solar electric capacity, enough topower more than 940,000 average American households. The utility scale segment drove the U.S. marketin Q2, with 477 MW of installed solar electric capacity. Figure 8 - Source: Renewables 2012 Global Status Report6.3 Hydro MarketAn estimated 25 GW of new hydropower capacity came on line in 2011, increasing global installedcapacity by nearly 2.7% to an estimated 970 GW. The top countries for hydro capacity are China, Brazil,the United States, Canada, and Russia, which together account for 51% of total installed capacity.Ranked by generation, the order is the same except that Canada’s generation exceeds that in the UnitedStates, where hydro resources are more load-following. Globally, hydropower generated an estimated3,400 TWh of electricity during 2011, including approximately 663 TWh in China, followed by Brazil (450TWh), Canada (373 TWh). Figure 9 - Source: Renewables 2012 Global Status Report 14
    • 6.4 BioMass Energy SectorThe biomass industry supplies and uses solid, liquid, and gaseous fuels produced from forest,agricultural, and municipal residues, and crops grown for energy purposes. The industry also producesappliances for using these fuels, such as biomass boilers for homes and small businesses, a Figure 10 - Source: Renewables 2012 Global Status ReportOverall, the bioenergy industry remained only slightly affected by global and regional economic turmoil,despite the fact that much of this diverse industry is centered in Europe. Due to rising interest in modernbioenergy, in Europe and elsewhere, local feedstock supplies are failing to keep pace with the rapidlyrising demand in some countries. This trend is driving both an increasein international trade in biomass and the creation of large feedstock plantations in tropical and sub-tropical regions.7. Implications of Renewable Energy7.1 US investment in Clean EnergyThe United States led the world in renewable energy investment in 2011, overtaking China (PewCharitable Trusts 2011) Pews Whos Winning the Clean Energy Race 2011 Edition breaks down cleanenergy investment on a country-by-country basis, illustrating this with a quite useful interactive mapshowing how much each nation has invested, and their renewable energy capacity based upon source.The US invested $48.1 billion in clean energy in 2011, 21.4% of total investment among the G-20 nations.This brings the USs total renewable energy capacity just under 93 GW. Wind power leads the way, with 15
    • 46.7 GW installed. Solar in the US now stands at 4.6 GW, biomass at nearly 13 GW, small hydro 25.3GW, geothermal at 3.3 GW. Ethanol and biodiesel capacity, though listed for other nations, are not givenfor the US—though the nations biofuels target is noted on Pews national factsheet. Globally, cleanenergy investment rose to $263 billion for 2011, an increase of 6.5% over 2010. Figure 11 - Source: Pew Charitable Trusts 20117.2 China’s Push for Clean EnergyEnergy and environment is one of the three key themes in China’s twelfth five-year plan (2011-2015), themaster blueprint for achieving the nation’s economic and social objectives. “Energy security concerns,energy scarcity, high energy costs and mitigation of negative environmental externalities may presentchallenges to China’s ability to continue along a path of sustainable economic growth.” (Lin Boqiang,2011)The plan focuses on combining environmental and energy challenges with market opportunities andthe potential for leadership in new industries. The five-year plan includes a number of initiatives toencourage clean energy development. The plan identifies Strategic Emerging Industries for investment,with a target that these industries contribute 8% of GDP by 2015. Three of the seven targeted industriesare directly related to sustainable energy: energy saving and environmental protection, including efficientindustrial equipment and energy service companies; new energy, including renewable energy, nuclear 16
    • and clean coal; and new energy vehicles, including electric vehicles and hybrid vehicles. The plan alsoincludes targets for reducing energy use and carbon emissions per unit of GDP and increasing the shareof non-fossil fuels in primary energy consumption.7.3 Rise of Renewable in IndiaIndia is being hailed as an emerging economic superpower with its average growth rate of about 8% perannum, even during the financial crisis years of 2009 to 2011. If it is able to sustain this growth rate forthe next 20 years, it will need to quadruple its power generating capacity and increase its supply ofhydrocarbon resources six fold, assuming modest improvements in energy efficiency. This would alsotranslate into huge import dependencies of approximately 90% for oil and over 60% for natural gas andcoal. The associated investments in port infrastructure and logistics would also be massive. According toInternational Energy Association (IEA), India’s power sector has not kept pace with demand – only half ofthe generation capacity expected to come online has been added over the last 15 years. As a result,electricity deficits threaten to restrict the country’s overall economic development. In 2009 and 2010,shortages equaled 10.1% of electricity supply and more than 15 GW of peak capacity.In an effort to modernize its electricity grid and reduce dependency on coal-fired power plants, India hasinstituted a number of policies that promote renewable energy. As stated in Leena Srivastava’scontribution, Economic Growth and the Energy Sector in India: “Several new initiatives bode well forestablishing the technical, human and institutional capacities needed for a rapid expansion of renewableenergy sources. These include introducing renewable purchase obligations (solar and non-solar) fordistribution utilities, and scaling them up over time; trading renewable energy certificates on powerexchanges; and setting an ambitious target to develop 20,000 megawatts (MW) of new solar generatingcapacity by 2022, over and above existing incentives for wind power.” (Leena Srivastava, 2012)7.4 Clean Energy Implication in EuropeWhen it comes to green energy and reducing the impact industry has on the environment, Denmark andScotland stand out, by far – just think about Samso, the world’s ‘greenest guinea pig’. Germany is alsotwo steps ahead of the United States and other developed countries, and countries like Italy, Germany,Spain, the Czech Republic are making significant efforts in this direction. (Mahai Andrei, June 2012) 17
    • Denmark has some clear, and extremely ambitious plans: Denmark’s Parliament at the end of Marchpassed legislation that established two of the most ambitious renewable energy targets of any nation:35% by 2020 and 100% by 2050. Just think about it – in less than 10 years, they want to have a third oftheir energy from renewable sources, and in less than 40 years – all the energy should be renewable.Currently, wind energy amounts for almost a quarter of Denmark’s energy. Scotland has even moreambitious plans: they easily surpassed their 31% target, and are well on pace to meet 100% electricitydemands from renewable sources, and then continue to produce a surplus for export.8. ConclusionOverall conclusions are therefore that the clean-energy components will have significant economicbenefits aside from the contributions they will make to reducing carbon emissions and combating globalwarming. The most important and most clearly established economic benefit is that clean-energyinvestments will be a substantial source of new employment opportunities in developed or developingcountries. Forecasting the impact of these measures on long-run economic growth is fraught withdifficulties. But it is still useful to highlight the fact that all the models that attempt such forecasts find thatany possible negative impacts of a carbon cap on economic growth will be minimal. It is also important torecognize that these models reach this common conclusion even though they do not take account ofseveral channels through which the project of building a clean-energy economy will promote a wide rangeof new job opportunities and the broader expansion of well-being in many countries around the world.9. Reference 1. Fossil Fuel and Energy Use: http://www.sustainabletable.org/issues/energy/ 2. Robert Pollin, James Heintz, and Heidi Garrett-Peltier, Department of Economics and Political Economy Research Institute (PERI) University of Massachusetts, Amherst 2009 “The Economic Benefit of Investign in Clean Energy“ (http://www.americanprogress.org/wp- content/uploads/issues/2009/06/pdf/peri_report.pdf) 3. Mahai Andrei, June 2012, “World’s 40th environment day: Denmark and Scotland pave the way” (http://www.zmescience.com/ecology/environmental-issues/denmark-scotland-renewable-energy- environment-06062012/) 18
    • 4. Chevalier Jean-Marie, Security of energy supply for the European Union, European Review of Energy (http://www-55.mech.kuleuven.be/european-review-of-energy- market/EREM%203%20article%20Jean-Marie%20Chevalier.pdf)5. Peter Voser, Chief Executive Officer, Royal Dutch Shell, the Netherlands; Energy Community Leader 2011, World Economic Forum. (http://www3.weforum.org/docs/WEF_EN_EnergyEconomicGrowth_IndustryAgenda_2012.pdf)6. Renewable Energy Policy Network: Renewable Energy Policy Network for the 21st Century (REN21) (http://www.ren21.net/Portals/97/documents/GSR/GSR2011_Master18.pdf)7. Renewables 2011 Global Status Report. (http://www.ren21.net/Portals/97/documents/GSR/REN21_GSR2011.pdf)8. Pew Charitable Trusts 2011 : Interactive Map: Who’s winning the clean Energy Race ? 2011 Edition. (http://www.pewenvironment.org/news-room/other-resources/interactive-map-whos- winning-the-clean-energy-race-2011-edition-85899378762)9. Lin Boqiang, 2011: Associate Dean , New Huadu Business School (http://reports.weforum.org/energy-for-economic-growth-energy-vision-update-2012/)10. Leena Srivastava, 2012 (http://reports.weforum.org/energy-for-economic-growth-energy-vision- update-2012/)11. Energy & Environment, Whitehouse (http://www.whitehouse.gov/energy)12. World Economic Forum, 2012 (http://www.weforum.org/issues/energy) 19
    • New York UniversitySchool of Continuing Education and Professional Studies70 Washington Sq South, New York City, New York, 10012Partha Mitra, Management & Systems, ppm246@nyu.eduImage Credit: Shutterstock 20