The “Renewable Energy: Investing in energy and resource efficiency” chapter of the United Nations Environment Programme (UNEP) Green Economy Report makes the case for increasing investment in greening the energy sector with a focus on renewable energy supply. According to the report, the current highly carbon-intensive energy system depends on declining stocks of fossil fuels, leaving 2.7 billion people without access to modern energy, and “is, thus, not sustainable in economic, social, and environmental terms”.
Furthermore, the current state of the energy sector also costs billions in public subsidies and leaves many developing countries exposed to large swings in oil import prices. For example, oil accounts for 10-15% of total imports for oil-importing African countries and absorbs over 30% of their export revenue on average.
Some African countries, including Kenya and Senegal, devote more than half of their export earnings to energy imports, while India spends 45%. “Investing in renewable sources that are available locally – in many cases abundantly – could significantly enhance energy security, and by extension, economic and financial security,” says UNEP.
Increasing energy supply from renewable sources not only reduces the risks from rising and volatile prices for fossil fuels, but also brings climate change mitigation benefits, finds the report’s authors, who stress that “the current fossil fuel-based energy system is at the root of climate change”.
$1.7 trillion in investments needed
To achieve a “two degree world” as the authors describe it (i.e. where global temperature rises can be limited to 2ºC), cumulative investments in renewable energy would have to amount to $1.7 trillion by 2020 under the IEA’s 450 ppm scenario. “Every year of delay in bringing the energy sector on the 450 ppm trajectory would add $500 billion to the global costs for mitigating climate change,” they find.
While significant outlays are required to achieve these benefits, UNEP underlines that many opportunities for improving energy efficiency pay for themselves, while investments in renewable energy technologies are already growing in today’s market as they are becoming increasingly competitive. Renewable technologies, says the report, are even more competitive when the societal costs of fossil fuel technologies, which are in part being delayed until the future, are taken into account. In this regard, UNEP calls for “a successful conclusion of a global agreement on carbon emissions and the resulting assurance that there will be a future carbon market and pricing” to act as a “strong incentive for further business investment in renewable energy”.
A shift to renewable energy sources, says UNEP, also brings many new employment opportunities. The modelling used in writing the Green Economy Report shows that due to the higher labour intensity of renewable energy compared with thermal power generation, increased investment in renewable energy would add to employment in the short-term.
In the longer term, employment in energy supply would decline at a rate comparable to that expected under business as usual, but with a substantial substitution of jobs in renewable power generation and biofuels production for many of those lost in coal mining and coal-based power plants.
While UNEP does warn that the overall impacts on employment of investing in renewable energy will vary by national context and deserves careful analysis at that level, it concludes that taking into account an estimated 5 million jobs to be created in goods and service businesses required for energy efficiency, “direct employment from greening the energy sector could exceed business as usual by about 15 percent, with moderately positive indirect employment effects”. State support essential
UNEP uses the Green Economy Report to call on governments to support renewables, stating that “government policy has an essential role to play in enhancing incentives for investing in renewable energy”. The authors highlight that time-bound incentives, notably feed-in tariffs, direct subsidies and tax credits can make the risk/revenue profile of renewable energy investments more attractive. Such incentives can be enhanced with emissions trading schemes or taxes that help capture the full social costs of fossil fuel use. “Various studies from the IEA demonstrate how a concerted package of policy-driven investments, in the general range of 1-2% of global GDP, can shift the global economy to a low-carbon growth path,” they conclude.
To put this figure in perspective, this additional investment is comparable to the level of fossil fuel subsidies, which in 2008 was roughly equivalent to 1% of GDP. The results of these studies are reinforced by modelling for the Green Economy Report, which finds that substituting investments in carbon-intensive energy sources with investments in clean energy would almost triple the penetration rate of renewables in power generation from 16% to 45% by 2050. For the entire energy mix, renewables could double to provide more than 25% of total supply.
UNEP provide a case study in Kenya as an example of the impact of government support for renewables, specifically feed-in tariffs, which have been implemented in more than 30 developed countries and in 17 developing countries. Kenya, for example, introduced a feed-in tariff on electricity from wind, biomass and small hydropower in 2008, and extended the policy in 2010 to include geothermal, biogas and solar energy resource-generated electricity. This could stimulate an estimated 1,300 MW of electricity generation capacity in the coming years or nearly double installed capacity. “As with any kind of positive support, the design of feed-in tariffs is crucial for determining their success, depending on issues such as time periods for support, graduated tariff decreases over time, minimum or maximum capacity limits,” warns the report.
The challenges posed to society by the energy sector, in terms of energy security, climate change, pollution and public health hazards, and energy poverty, are real and pressing, making the greening of the energy sector an imperative. Raising energy efficiency and shifting from fossil fuels to renewable energy are crucial for greening the energy sector” concludes UNEP.
The UNEP-led Green Economy Initiative, launched in late 2008, consists of several components whose collective overall objective is to provide the analysis and policy support for investing in green sectors and in greening environmental unfriendly sectors. Beyond UNEP, the Green Economy Initiative is one of the nine UN-wide Joint Crisis Initiatives launched by the UN System's Chief Executives Board in early 2009. In this context, the Initiative includes a wide range of research activities and capacity building events from more than 20 UN agencies including the Bretton Woods Institutions, as well as an Issue Management Group on Green Economy, launched in Washington, DC, in March 2010.
For the purposes of the Green Economy Initiative, UNEP has developed a working definition of a green economy as “one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities”. In its simplest expression, a green economy can be thought of as one which is “low carbon, resource efficient and socially inclusive”.
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