What Is Green Economics?

In a world that is threatened to be destroyed by its own inhabitants, solutions are always desperately needed. Green Economics is one of them. This theory combines technology with sustainability to achieve a greener and better tomorrow.

“The way to make money is to buy when blood is running down in the streets.”
– John D. Rockefeller

This quote might seem harsh and remind one of the slogan of Lehman Brothers back in 2008. However, it all depends on how you define blood running down the streets. Is it arguable to say that Climate Change is the blood running down the street? Thursday evening, BI’s Business Society had a presentation about Green Economics, a topic of enormous importance. However, the presentation by Statkraft and KLP did not really help students to understand the concept of Green Economics. After the event, I discussed Green Economics with friends. I asked them if they know what it actually means. None of them had a clear idea. They said that it is something about wind and hydro power. I was surprised by that, considering that Gro Harlem Brundtland, three times prime minister and mother of sustainable development, is Norwegian.
According to the United Nations Environment Programme, Green Economics can be described as an economy ‘whose growth in income and employment is driven by public and private investments that reduce carbon emissions and pollution, enhance energy and resource efficiency, and prevent the loss of biodiversity and ecosystem services. These investments need to be catalyzed and supported by targeted public expenditure, policy reforms and regulation changes. This development path should maintain, enhance and, where necessary, rebuild natural capital as a critical economic asset and source of public benefits, especially for poor people whose livelihoods and security depend strongly on nature.’

That means that Green Economics is so much more than renewable energies.

1. Construction & Technology

A part of Green Economics that is even more important is the building efficiency sector with an estimated US$ 209.5 billion in revenues in 2014, accounting for a 12% growth over 2013, and representing the third largest advanced energy market. This sector includes design, HVAC, CCPH, Water heating, IT, and as the biggest part of this segment, namely lightening; with revenue of US$ 103 billion in 2014. Lightening does not only mean putting lamps in a house. It means creating a smart system that does not consume too much energy, and only activates lights when needed. This is part of a way bigger segment called smart buildings. Smart buildings are constructions that use a wide range of sensors, controllers, actuators, switches, air handlers, alarms, and detectors. When all of these systems are linked together, they can reduce energy consumption drastically. As a result of that, Building Efficiency Management Systems (BEMS) had an increase of about 47% since 2011, accounting for nearly US$ 2.8 billion in 2014. Between 2007 and 2013, the European Commission and Norden have invested EUR 5.5 billion combined for efficiency investments and Research & Development.

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Oslo Opera

In recent years, something that has only existed on paper before became finally reality. The concept is called ZNEB or nZEB (Zero Net Energy Buildings and Nearly Zero Energy Buildings). What that means is that a building does not use more energy than it generates from onsite renewables. Most often nZEB and ZNEB use solar PV, smart glass, and BEMS to achieve neutrality. Despite all these developments, euphory should not be too big. ZNEB and nZEB still do not widely spread and only regions where the technology is already established have the potential to benefit. What is also a setback for the technology are cost premiums and unsuitable financing models.

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Tesla Powerwall / Copyright Tesla Motors

Another crucial part of the energy sector is rural electrification. Fostered by solar PV and battery storage systems like the Tesla Powerwall, areas that have never seen electricity before, have now the opportunity to become brightened. This can either be achieved by creating local grid systems or ultra-local systems. Through this concept, electricity can be produced during the day and used during night. However, this technology is not limited to the developing world markets; it can also be used in western civilization. For example, Germany currently has a strongly developed system of a virtual grid. That means that external/private renewable energy is sold into a virtual market. All small providers create combined a huge virtual market, in which notable companies buy their energy. In 2014, more than 100 venture capital or private equity deals totaling around US$ 1.3 billion were invested into grid technology.

 

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Virtual Grid

One of the increasingly important concepts of Green Economics is the creation of a smart grid technology that can create smart cities. Smart grids help cities to deal with severe weather events and other similar situations. The networks “heal” themselves by automatically responding to outages and demand changes. These grids in return help to reduce energy losses worth 2 to 16 million metric tons of CO2. Researchers estimate that similar technologies have the potential of reducing CO2 emissions by more than 2 gigatons per year by 2050.
This market is the most important because it offers a simple way of reducing CO2 while still offering a good return on investment.

 

2. Redefine Transportation

Another aspect of Green Economics is transportation. This does not only mean creating an environmentally friendly public transportation network, but also personal and commercial transportation. Many people argue that sustainable transportation is only a small fraction of the green cake, but actually, it accounted for 29% of total advanced energy revenues worldwide in 2014. Only Plug-in electric vehicles (PEVs), that are cars that run 100% on electricity, accounted for US$ 12.4 billion in global revenue in 2014. That is an increase of about 80% over 2013, and of 567% since 2011. When I read such numbers, all the bells are ringing in my head. Having such a significant increase of revenues means that there is a rapidly growing demand from the consumer. It is important to keep in mind that at this point electric cars are still on the more expensive end of the market spectrum. Once the prices will drop so that average citizens can afford them, the revenue potential will immensely increase. Of course, many conservative voices may say that there is no real demand for electric vehicles anymore due to the low oil price. Well, it is correct that the oil price is currently at a painfully low level, but it is still important to note that PEVs still have a notable cost saving variable through a significant efficiency improvement in electric motors. Another reason that electric cars will be on the rise is the active vehicle-to-grid integration (VGI) technology. This system offers a new source of income to the currently troubled utilities market. In addition, as we all know, if there is a way to create a stream of money to a MNE (Multinational Enterprise) then it will happen eventually.

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Tesla Model X / Copyright Tesla Motors

However, sustainable transportation are not only PEVs, but also hybrid and natural gas cars. The currently low cost of natural gas compared to petrol, is incentivizing the creation of a growing infrastructure for natural gas that will help to supply a large market of heavy-duty long-haul trucks. This interest has the potential of becoming an important part of sustainable growth. Plug-in hybrid electric vehicles (PHEVs), that are cars that have a combustion and an electric motor, will increase by around 72%, mostly due to the introduction of PHEVs and PEV in the SUV segment. What is interesting to note at this point is that while the US is the biggest market, China is the fastest growing market for these technologies.

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Volvo XC90 / Copyright Volvo Cars

Another very important part of sustainable transportation is one of the fastest growing technologies, the electric power two-wheeler (e-PTW), that are e-bicycles, e-scooters, and e-motorcycles. Experts predict that this segment will grow by about 60% until 2024. In 2014, Yamaha announced that they would enter the market in 2016. Harley Davidson said that they would begin to sell e-motorcycle in 2018. Again, this shows that many companies have not touched the market yet, and this means that there is a huge potential for companies to get a piece of the pie.

3. Renewable Energies

It is not so surprising why many people still believe that Green Economics is just renewable energies. The electricity generation market remains to be the largest advanced energy segment, with US$ 426 billion in revenues worldwide in 2014. This was a growth of 16% in just one year. Hydropower is the biggest share with US$ 122.5 billion worth of orders. However, wind is on the rise with orders worth US$ 94.6 billion. Solar PV is the third most important part with orders worth US$ 90.3 billion. One source of energy that is still under development is wave energy. The dream of creating energy from the waves is heavily explored by many MNEs. The reason for that is the immense potential for creating billions in revenue.

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Sheringham Shoal Offshore Wind Farm Statkraft

Another interesting trend under the current oil crisis is the increase of order for combined cycle and simple cycle gas turbines. The reason for that is the further decreasing price for natural gas. In 2013, these turbines accounted for US$ 48.5 billion in revenues, and even surpassed the order for new nuclear facilities. One fact that makes investment in renewable energies even more interesting is the falling cost for it. Currently the United Arabic Emirates are building the world’s lowest-cost utility-scale solar PV power plants that will provide energy for just about US$ cents 5.84 per kilowatt-hour. The biggest low cost competition among renewables are onshore wind parks in the Nordics that provide electricity for about US$ cents 4 per kilowatt-hour.

4. Support Sustainable Development Goals

The most interesting part is that Green Economics also helps the world to achieve the Sustainable Development Goals (SDG). Off-grid renewables accelerate access to energy, which can increase climate resilience of farmers. One example is solar-powered irrigation that will help to increase yields and income. Furthermore, solar PV and wind consume about 200 times less water than conventional options like coal or nuclear power. Renewables can even keep the water supply chain going by supplying energy for pumping, desalination, and heating. This helps the water and energy SDG. It is even shown that renewables create more jobs than fossil fuel technologies. For example, solar PV creates twice as many jobs as coal. Alone in 2014 renewables created around 7.7 million jobs directly and indirectly, and help to achieve the SDGs by:
Decreasing poverty and hunger, increasing quality of education, health, clean water and sanitation, quality of infrastructure and innovation, income, quality of ecosystems, gender equality, climate actions, and sustainable cities and deliver clean and affordable energy.

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Sustainable Development Goals (SDG)

This shows that Green Economics is far more than just wind, water, and sun. It is the combination of renewable energies with advanced technologies that will increase sustainability, and mitigate climate change.
In order to create Green Economies, a country will need hybrid models consisting of private and public investments. That is the reason why I believe that every business school should offer a degree in Green Economics. Creating a sustainable world does not only depend on engineers and biologists. It is important that people, who have knowledge about what keeps societies and countries running, have knowledge about Green Economics.

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Some people might ask why do we need Green Economics? Everything is working fine the way it is right now; I get my paycheck every month and the world still spins on its axis. Those people I would like to remind that the COP21 in Paris last December recognized, that ‘climate change represents an urgent and potentially irreversible threat to human societies and the planet and thus requires the widest possible cooperation by all countries, and their participation in an effective and appropriate international response…..”

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5. Fuel Production

One of the markets that many people see is as an outdated one is the fuel production market. However, in 2014 it was still the fourth largest sector in the advanced energy segment with US$ 148.1 billion in revenues globally, representing a 34% increase from 2011. Many might say that fuel production cannot be part of Green Economics, but it is: Bio-methane, bio-oil, and synthetic petrol reached combined revenues of US$ 3.2 billion in 2014. This shows that fuel production can and will be part of green economies. Of course, it is less certain if biofuels will be growing significantly in terms of an alternative fuel for ground transportation in developed countries, but there are opportunities in the fuel markets of emerging markets. The only thing that stops this from happening at this point is the sudden and painful fall in oil prices to currently only US$ 40 per barrel.

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Statoil

The reason I am interested in Green Economics and sustainability is that climate change and green growth has always played a big role in my life. My mother works as Climate Change Technical Advisor at the United Nations Development Programme, and always brings her work with home. There has not been one day in my life that my mother has not been talking about her job. This might also have been one of the reasons that made me choose to take advanced courses at Stanford University, The University Chicago, and Princeton University that in the long run would help me foster on a personal and professional level, and give me the knowhow to actively engage in discussions about climate change and green growth management.

All scientific claims and data in this article are backed by findings of the International Renewable Energy Agency, Frankfurt School/FS-UNEP Collaborating Centre for Climate Change & Sustainable Energy Finance, Advanced Energy Economy, PA Consulting, Stanford University, The University of Chicago, UC Berkeley, Harvard University, and the United Nations Development Programme.

 

This article was written by Johannes Sorger 

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