Renewable energy is reshaping the global economy – new report

Amid concerns about delays in reducing global carbon dioxide emissions, world leaders gathered at the United Nations Climate Change Summit (COP30) in Belém, Brazil. A decade after the historic Paris Climate Agreement was signed, we are off track in achieving its core goal of keeping global warming below 2°C above pre-industrial levels.

But there are rays of hope, and none more important than the incredible advances in renewable energy. Renewable energy is now so cheap that the transition to clean energy is no longer an economic burden, but a significant opportunity.

Climate change activists tend to see renewable energy as an environmental imperative and an effective way to reduce emissions. Of course they are. But they are also powerful drivers of investment, employment and growth. They are reshaping the world economy. My team’s new report lays out the evidence.

The first economic benefit of renewable energy is inclusivity. Access to affordable energy remains a key sustainable development goal, shaping everything from education to health to women’s empowerment. From home solar power systems to mini-grids, distributed renewable energy represents the greatest opportunity to provide affordable energy for all.

Across Africa, Asia and Latin America, renewable energy entrepreneurs are reaching remote villages and doing what national power grids have struggled to do: replace polluting diesel generators with clean, reliable electricity.

Because it is modular, renewable power can be built quickly, scaled flexibly, and maintained locally. Renewable energy companies combine these technological advantages with new business models to make renewable energy more accessible (e.g., through pay-as-you-go models) and keep it profitable in local communities (e.g., by providing not only electricity but also energy services such as cold storage, phone charging, and water pumping).

investment, jobs and growth

If investing is the first dividend, investing is the second. Every dollar invested in renewable energy has a greater economic impact than every dollar spent on fossil fuels. The International Monetary Fund estimates that clean energy investments generate about 1.5 times the cost of economic activity, while fossil fuel returns are less than 1:1. Renewable energy doesn’t just pay the bills. They pay it forward through supply chains and spending on local wages.

The numbers are staggering. From 2017 to 2022, climate finance inflows to the 100 largest developing countries (excluding China) boosted GDP by a total of US$1.2tn (£0.9tn). This equates to 2% to 5% of GDP for most countries. According to our report, COP30 host Brazil increased its GDP by USD 128 billion over six years due to investments in renewable energy.

Climate finance flows are still insufficient. Increasing these will require more concessional funding, more risk guarantees and more partnerships between governments, investors and communities.

Through a combination of policy reforms, clear incentives, and blended finance, the Dominican Republic was able to mobilize more than USD 6.5 billion in clean energy investment and double its renewable energy capacity in just three years.

The energy transition is often portrayed as a job killer, but the evidence suggests otherwise. The intergovernmental organization predicts that clean energy jobs will grow by 43 million by 2050, far more than those lost to fossil fuels.

Our report takes an in-depth look at the South African job market. We collected data from job ads for 12 months and discovered something surprising. Clean energy jobs pay an average of 16% more than all other advertised jobs. In most cases, higher wages reflect the fact that clean energy jobs are highly skilled jobs that require experience, training, and problem-solving skills.

The high level of skill required is both an advantage and a challenge. Making the most of the clean jobs revolution requires active skill development both in the classroom and in the workplace. But for the young workforce in many developing countries, the message is clear: renewable energy is more than just a climate solution, it’s a job opportunity.

Perhaps the most underappreciated economic benefit of renewable energy relates to productivity. Cheap and efficient energy is the lifeblood of industrial growth. Renewable energy is currently much cheaper than fossil fuels, especially when you consider what is lost when turning energy (such as car fuel) into usable services (propulsion).

We estimate that with a rapid transition to renewable energy, energy sector productivity could double by 2050 compared to both current levels and the future of fossil fuels. This has significant benefits for the economy as a whole, as energy is a ubiquitous input to all other economic activities. In some developing countries, simply providing more efficient energy services could boost GDP by as much as 9% to 12%.

These productivity gains are not evenly distributed. Developing countries may benefit the most right now. Developed countries have become wealthy due to cheap and abundant energy. In a low-carbon economy, solar-rich developing countries will have the cheapest and most abundant energy sources. This important shift in comparative advantage could ultimately help reduce global prosperity disparities.

At COP30, leaders are discussing climate change targets, financing mechanisms and transition schedules. But they should also recognize the deeper reality that renewable energy is not a drag on growth, but a new driver of growth. In a world anxious about growth and prosperity, the transition to clean energy is as much an economic strategy as it is an environmental one.

The challenge, as our report reminds us, is to share these benefits equitably. Without fair distribution of benefits, the transition risks repeating the inequities of the fossil fuel era. But if done right, renewable energy can power not just a cleaner economy, but a fairer one as well.

This article is republished from The Conversation under a Creative Commons license. Read the original article.