Powering Progress: Policy shifts and economic frameworks to enable South Africa’s energy transition
Powering Progress: Policy shifts and economic frameworks to enable South Africa’s energy transition
South Africa is currently in the midst of its worst power crisis in recent decades. The country is set to face 250 days of blackouts this year and a US$13bn loss to the economy. The crisis has been decades in the making, a result of mismanagement of the monopoly utility firm Eskom, an overreliance on coal and limited power generation capacity.
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US energy pricing, policy, security and emissions: next steps
Energy independence has been a stated, albeit ill-defined, goal of the United States since the Nixon administration. Recent developments in both the unconventional oil and gas and renewable energy industries have brought this goal closer than it has been in decades.
At 24% in 2015 [1], petroleum imports as a share of total national consumption are at their lowest since 1970 and Henry hub (the US benchmark for natural gas) prices are hovering around $2.8/Mbtu, down from $12 in June 2008. Meanwhile, the costs of utility-scale solar photovoltaic and onshore wind energy have dropped more than 60% and 40% respectively since 2008, and in recent years these sources have accounted for the majority of newly installed generation capacity in the United States.
That this has happened so fast is remarkable. In less than fifteen years, unconventional oil and gas production, mainly using hydraulic fracturing (“fracking”), rose from negligible to supplying around half of domestic production [2] [3].
This growth is a testament to the US economy’s ability to combine technological progress, flexible regulation and financial innovation to develop new opportunities. When, in 2014, OPEC decided to maintain production levels despite an oil-price crash, shale production was projected to stop abruptly. According to data from the Energy Information Agency (EIA), however, oil production continued to grow in the US for another six months, reaching record highs before it peaked. Various factors drove this counterintuitive dynamic.
First, rig efficiency has increased in many of the unconventional oil plays, as a result, in part, of producers focusing on their most productive plays. New-well oil production per rig in the Bakken region, for instance, has doubled since 2014 [4]. Along with a decline in the oil and gas rig count and a large drop in employment in the oil and gas sector, these efficiency gains have cut both labour and equipment costs, lowering the breakeven point. “People are trying to cut costs as much as they can, wherever they can. Even the accounting firms have been asked to halve their fees,” says Peter R. Hartley, an energy economics scholar at Rice University.
Another important lever has been to finance operations through debt. This, however, has reached daunting proportions. Onshore oil producers tracked by EIA, collectively accounting for 2.7m barrels per day of US production, spent 83% of their cash-flow revenues on debt repayments as of June 2015, the highest levels since 2011. Many companies have also engaged in asset write-downs. The 46 international and US upstream oil companies regularly tracked by the EIA, for instance, wrote down $38bn in Q3 2015 alone — the largest write-down since 2008. While no one wants to sell at low valuations, consolidation becomes more likely the longer the oil price remains low.
On the whole, however, the geostrategic energy situation for the United States remains quite positive. As Mr Hartley highlights, “The fact the oil price is down is less a result of investments in America than it is a decision of OPEC to keep the tap open.” However, he notes, “the much greater flexibility of unconventional production — and the large amount of resources available — means the US supply response is now much more elastic. And that reduces OPEC’s monopoly power over oil prices."
These advantages in terms of energy security are even more pronounced for natural gas, a commodity for which a single global price does not exist. Since 2006, lasting spreads have favoured the US Henry hub benchmarks versus the price of natural gas in Europe or Japan. Sustained low prices have created competitive gains for industries relying on natural gas as feedstock, with the petrochemicals industry an obvious long-term winner, although a low oil price also limits the gains from the ethane-naphtha spread. The metals industry should also benefit. Steelmaking in the US, for instance, has seen resurgence in the use of direct reduced iron (DRI), with US DRI output potentially reaching up to 10m tonnes by 2020 from just 1.3m in 2013. Cheap natural gas is also saving consumers money on their heating and electricity bills. According to an evaluation by Harvard Business School, these savings totalled $800 per average US household in 2014. While some of that will be saved, the rest will result in increased consumer spending, thus benefitting the economy.
Energy abundance is an opportunity, not an excuse
One of the most crucial questions facing the US in the future is how newly abundant fossil fuel resources will affect the trajectory of the country’s carbon emissions. Left unchecked, climate change could leave critical parts of the US housing stock and infrastructure exposed to climate-induced sea level rise as well as more frequent and stronger extreme weather events such as hurricanes or droughts. Such events already cost the US tens of billions of dollars a year in damaged property, other economic harms and health consequences. Climate change could also impact the power generation infrastructure due to higher temperatures and reduced water availability, according to the Department of Energy (DOE). “In the absence of concerted action to improve resilience, energy system vulnerabilities pose a threat to America’s national security, energy security, economic wellbeing, and quality of life,” warns a DOE report published in 2015 evaluating the vulnerability of the US energy sector to climate change. It is in the US’s long-term interest to address the climate problem today.
Under the United Nations climate accord agreed to in December 2015, the US has also pledged to take action on climate change. The agreement, signed in Paris by more than 190 countries, recognises the need to achieve “global peaking of greenhouse gas emissions as soon as possible” to keep temperature increases below 2°C by the end of the century. By ratifying the agreement and issuing the Clean Power Plan (CPP), the US’ first policy to explicitly target carbon emissions from the power sector at the national level, the country has taken a step in the right direction. But the US can and should do more.
The need for a clear, coherent and long-term signal
A successful transition requires policy and price signals that are clear, long-term, and strong enough to shift investments towards low-carbon infrastructure. These signals are critical to achieving a low-carbon future for two primary reasons. First, free-market competition requires a level playing field, including a firm price on carbon emissions to account for their negative externalities. Second, for markets to adjust in a non-disruptive manner the price should be gradually more stringent, thus enabling the private sector to shift gradually towards a low-carbon economy.
Until recently, the pattern of US governance in the energy sector had been driven mostly by short-term opportunism rather than a pro-active redesign of the US’s infrastructure base. The production tax credit (PTC) for onshore wind, which provides tax credits per unit of electricity generated for a period of 10 years, had been notoriously hard to predict, for instance, leading to surges in instalments in the quarter preceding possible renewal as companies pushed projects forward in a race to completion prior to the PTC’s expiry. Last-minute policy uncertainty, of course, is not the best way to promote long-term investment in enduring, capital-intensive infrastructure.
The US seems to have learned this lesson. In December 2015, the PTC and the Investment Tax Credit – PTC’s solar equivalent – were both extended for a duration of five years. The impact of this longer-term signal is substantial: the extension is expected to bring an additional 19GW of wind and 18GW of solar online over the next five years respectively, according to analysis by Bloomberg New Energy Finance [5].
As for pricing carbon, the US has limited, regional markets, covering a mere 10% of the country’s total emissions. Although California’s cap-and-trade programme currently boasts the highest price in the US (~13$/tCO2e as of Sept 2016) and is close to the $20/tCO2e the International Energy Agency (IEA) estimates the US will have to apply to its power sector by 2020 to keep its emissions compatible with a 2°C scenario, the current carbon price is still far from the $100/tCO2e the IEA assumes will be needed in the US by 2030.
Despite this suboptimal policy context, the US has done relatively well in reducing emissions cost-effectively. As of 2015, it had the second-largest installed base of non-hydro renewables in the world and was the second largest country in terms of investments, albeit well below those of China, which has been ahead of the US on both accounts since 2011. As for coal, the US has gradually replaced it with renewables and natural gas, with the latter accounting for around 35% of total electricity production in the second quarter of 2016 — up from just 17% in 2001. However, coal’s current displacement is not a result of carbon policies but rather a consequence of low-cost natural gas and regulations aimed at local — not global — pollution.
“Given the current set of regulations in the US to mitigate carbon emissions, it is difficult to say with confidence how effective the combination of these policies is going to be,” says Justin Gundlach, climate-change fellow at the Sabin Center for Climate Change Law at Columbia Law School. The problem of policy coherence is hardly exclusive to America, but it does hinder the US’s ability to realign its energy system to meet the country’s long-term economic and environmental needs.
One positive development in that regard is the CPP. A key feature of the CPP, according to Mr Gundlach, is that it forces states to tackle the issue of policy coherence in a transparent and coordinated way, which facilitates implementation and reduces compliance costs. Another advantage of the CPP is that it opens up the possibility for carbon emissions trading between participating states. Under the proposed plan, currently under review by the U.S. Court of Appeals for the D.C. Circuit, states are allowed to choose between a rate-based goal, set in tCO2e/MWh — effectively a performance standard for carbon intensity— or a mass-based goal, with a cap on total tons of CO2 equivalent. Under the latter option, states would then “readily qualify to trade with affected electricity generating units in states that adopt the same approach”.
Leading by example
Beyond increasing policy coherence, both state and federal governments can open up new markets through public procurement strategies. A clear example of that is the role the public sector has played in expanding the market for energy service companies in the buildings sector — over a fifth of the total floorspace in the US is owned by federal, state, or local governments. Government mandates and purchasing decisions have helped improve energy efficiency through procurement and fostered a broader private-sector market.
Not every state is active in promoting sustainability, however. California has led in energy efficiency initiatives for decades while states like New York or Connecticut have established green investment banks dedicated to promoting clean-energy investments in the state. By contrast, other states such as North Dakota or Wyoming still lack even a mandatory building energy code at the state level. [6]
Another important role for government will be fostering innovation. The government can help expand R&D efforts to help lower the cost of technologies currently in labs. The country’s announced goal to double clean-energy R&D spending, along with 19 other nations leading in clean energy R&D, is an important step in that direction. Should the US reach that objective, clean-energy R&D levels in the US would roughly double from ~$5bn today to some $10bn by 2020.
Complementing this R&D push will be ‘demand pull’ efforts such as policies that create new markets for technologies that are nearing commercialization. California’s 2013 mandate to install 1.3GW of storage by 2020, for instance, has helped utilities diversify their energy-storage technology portfolios while fostering an environment for technologies to compete, from utility-scale solutions to decentralized ones. The reason, says Nancy Pfund, managing partner at DBL Investors, is that “these policies de-risk it for investors, it’s not a pilot to nowhere”. One of the technologies enabled by the mandate, and in which DBL has invested, is Advanced Microgrid Solutions, a startup that managed to secure a 50MW storage contract in 2014 with one of California’s utilities. “That’s unheard of for a start-up company,” notes Pfund.
A critical time for climate action
By explicitly stating the goal of keeping temperature increases “well below 2°C”, the Paris agreement is a clear signal of the international community’s resolve to combat climate change. Current pledges are far from meeting that goal, however, and the agreement emphasises the urgent need to address the significant gap between the countries’ mitigation pledges and the aggregate emission pathways actually necessary to hold the increase in global average temperature well below 2°C. With that in mind, a key element of the Paris agreement is the commitment to review climate pledges every 5 years to increase ambitions based on policy progress and technological developments.
On 5 October 2016, the threshold for operationalization of the Paris Agreement (55 countries representing at least 55% of global emissions) was achieved, meaning the agreement will enter into force on 4 November 2016.
The next five years will thus be crucial for climate action. Acting now will not be free: under existing US policies, including the CPP, some $2.19trn worth of investments will be required over the next 25 years in the US power sector alone, with some 39% going to transmission and distribution (T&D) infrastructure, followed by renewables (37%), fossil-fuel power generation (13%) and nuclear (11%). Acting later will cost even more, as abatement costs and the value of US assets exposed to climate-change risks will rise over time. In such a context, it is of grave concern that new US president Donald Trump rejects the overwhelming scientific evidence of climate change [7] [8].
Low energy prices represent a unique opportunity to reduce carbon emissions. As Mark Brownstein, vice president of the climate and energy program at the Environmental Defense Fund, notes, “The decline in natural gas price is creating economic headroom to ramp up investment in electric transmission and distribution infrastructure with minimal impact on the customer’s total monthly energy bill”. This is because, from an end-user point of view, the increased costs associated with the investment in T&D are offset by the lower costs of electricity generation thanks to cheap natural gas.
How to spend that low gas price dividend matters, says Brownstein. Avoiding lock-in to a carbon-intensive infrastructure will be critical, he notes. In fact, as Mr Gundlach warns, "Integrating means changing the electric system. Natural gas provides an easy way around that in the short-term. It does not, however, constitute a long-term solution to the decarbonisation of the electricity sector.”
Similar considerations apply to the natural-gas distribution side. States will thus have to carefully evaluate the costs and benefits of building new pipelines to feed rising demand from the power sector against those of investing in clean-power generation and demand-side responses to reduce the demand for natural gas in the first place — and thus avoid the need for pipeline investments.
America’s opportunity to shine
The next administration faces a unique responsibility to position the United States on a path towards a low-carbon future. Success will require leveraging the benefits of the switch away from coal while avoiding a permanent lock-in to fossil-fuel-dependent infrastructure. This will be a difficult yet crucial balance to strike. The good news is that, thanks to cheap energy, the US is in a uniquely favourable position to act. Achieving a clean energy transition will not only be good for the US economy, it will also help consolidate US leadership on the international fight against climate change. The Paris agreement on climate change is a clear signal that the world is ready to act on the issue. It’s time for America to rise to the challenge.
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FOOTNOTES:
1 http://www.eia.gov/tools/faqs/faq.cfm?id=32&t=6
2 https://www.eia.gov/tools/faqs/faq.cfm?id=847&t=6
3 https://www.eia.gov/tools/faqs/faq.cfm?id=847&t=6
4 https://www.eia.gov/petroleum/drilling/pdf/dpr-full.pdf #page=3
5 http://www.bbhub.io/bnef/sites/4/2016/04/BNEF-Summit-Keynote-2016.pdf
6 http://database.aceee.org/state/public-building-requirements
[7] http://www.scientificamerican.com/article/trump-picks-top-climate-skepti...
[8] http://fortune.com/2016/10/01/trump-paris-climate-agreement/
Driving energy efficiency: A comparison of five mature markets
The study focuses on the following areas:
The main types of strategies for encouraging energy savings How information campaigns and incentives can be tailored to specific audiences The role played by product labelling and standard-setting for energy efficiency An assessment of what strategies work best in encouraging efficiencyKey findings:
Conservation initiatives can be grouped into three broad categories: raising awareness, tightening technical standards for buildings and energy-using products, and offering incentives to cut energy use. Ownership of buildings determines the strategy for saving energy. For owner-occupied buildings, investments in efficiency pay back over time in lower energy bills. In rented housing and workplaces, a gains-sharing approach, in which owners as well as tenants benefit from efficiency investments, work best. Raising awareness I: Tailoring the message to the audience is important. Some respond best to appeals based on environmental protection, while others care most about financial incentives and returns. Raising awareness II: Choosing a trusted messenger is also key to successful awareness campaigns. For example in the US, regulated utilities tend to be trusted sources, whereas in the UK, privatised energy companies encountered resistance to their conservation messages. Setting standards and applying labels: Product-labelling schemes that rate the efficiency of buildings or homes have proven effective tools for cutting energy use. An example is the US ‘Energy Star’ programme. Incentives count: Various government incentive programmes, as well as private-sector gains-sharing schemes, have proven effective in promoting energy efficiency. Avoiding the ‘rebound effect’: While investment in efficiency lowers energy bills, governments should guard against the “rebound effect”, in which consumers—encouraged by the greater efficiency—buy more appliances and devices and thereby end up using more energy, not less.
Power Up: Delivering renewable energy in Africa
Following high-level declarations at the Sustainable Development Goals and the Paris Climate Conference in late 2015, there is a growing appetite for renewable energy in Africa. This is much-needed; the continent’s energy supplies are not meeting the needs and aspirations of its people. A better system will promote economic diversification, raise productivity, and improve the health and wellbeing of citizens. Africa requires between $60 and $90 billion annually to address its energy shortfall, roughly quadruple 2014 investment levels.
While fossil fuels, notably coal, oil and gas, continue to provide a significant quantity of energy - especially in South Africa - renewables need to play a greater role. Africa has plentiful resources, from geothermal power in Kenya and Ethiopia to hydropower in Zambia and the Democratic Republic of Congo. Solar and wind are especially promising, thanks to falling costs and resource abundance. From solar-powered hospitals in Lagos to wind farms in Lake Turkana, renewable energy is not just a pipe dream - it is a reality. Renewables can increase energy security, reduce energy import bills, and diversify and de-risk the energy mix. Through off-grid technologies, they can provide direct, affordable power to rural regions beyond the reach of the grid system.
But to harness renewables at scale, very significant infrastructure is needed: both core assets like wind and solar farms1 and transmission grids, as well as connective infrastructures, like roads to and from sites for transporting kit and manpower, or for bringing products, like solar-powered mobile phones, to market. This requires effective regulation, sufficient financing, appropriate technologies and smart business models. The ambitions are there.
The African Renewable Energy Initiative, led by institutions including the African Union and the United Nations Environment Programme, has set a goal of 300 GW of renewable energy capacity by 2030. But this requires a 680% increase in current deployment rates. According to IRENA’s latest data, the installed renewable power generation capacity in Sub-Saharan Africa currently stands slightly below 30 GW, roughly 25-30% of the installed power base, but this is dominated by large hydro, with other renewables collectively accounting for just 4-5% of power generation. Can the investment be achieved? Who are the current players and how is the market evolving?
This report, combining country fieldwork and 28 expert interviews, looks at the current renewable power capacity on the continent, identifies the market leaders and looks at the key enablers and constraints.
Clean Growth: Trade challenges and opportunities post pandemic
Clean Growth: Trade challenges and opportunities post pandemic
Clean growth means facilitating economic development and improving standards of living, while protecting natural resources and ecosystems on which our well-being relies. The transition to a low-carbon economy requires mobilising investment and innovation to develop opportunities for inclusive and sustainable growth.
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Consumer Goods: Trade challenges and opportunities post pandemic
Prior to the Covid-19 pandemic, consumer goods accounted for a quarter of the world’s trade in goods, representing US$4.8trn in 2019.1 In 2020 private consumption declined by nearly 11% in the UK and Italy, 6-7% in Germany, France and Japan and 4% and 3% in the US and China respectively.2 Some goods sectors suffered more than others. Travel, entertainment and hospitality were some of the hardest hit, while others, like electronics, saw demand increase as remote working became widespread. The pandemic has further accelerated several structural changes already underway. These include a rapid growth in e-commerce and digitalisation of global supply chains, an increased focus on sustainability, a move towards greater servicification and the reshaping of global value chains.
Pandemic shock: Change in private consumption during the Global recession (2009) and Covid-19 pandemic (2020) | Real annual change (%)
During the pandemic, consumers pivoted to digital channels, with 60% of consumers worldwide changing their shopping behaviors during the pandemic, most of whom intend to continue with their new behaviors.3 The migration from high street stores to e-commerce platforms has accelerated digitalisation, with businesses that had already invested in e-commerce coming out as chief beneficiaries. Amazon, for example, posted a 70% increase in earnings during the first nine months of 20204, with profits three times higher than 2019.5
The pandemic also highlighted the issue of resilience and sustainability of global supply chains. Multinational enterprises (MNEs) in 2020 slowly started to scale back their supply chains, considering the geopolitical and economic tensions between the US and China and the growing issue of sourcing from a single geography. Significant supply chain disruptions were faced by businesses during the pandemic, with one survey on supply chain executives in the food and consumer goods industries highlighting that at the height of the pandemic, 91% of respondents said they had problems with suppliers.6 These tensions are playing out in the context of rapidly changing geographical distribution of global trade patterns. In the decade since the 2008 financial crisis, Chinese share of global exports has increased to 17% (from 11.5%) and 13.4% of global imports (from 8.7%).7 The Asia-Pacific region is now largely expected to outgrow developed markets in consumer goods, accounting for up to 35% of the global industry share by 2022.8
The changing game of trade: The export volume of goods index rebased to 2010=100
The rise of digital and sustainable consumption poses significant opportunities and challenges for businesses in the consumer goods sector. The online retail market is forecast to double in size by 20259, with new or low frequency users expected to drive a 160% increase in e-commerce purchases over the coming years. Businesses are showing some strong interest in harnessing the trends of digitalization with 80% of executives in the industry specifically allocating investments to improve their e-commerce shopping platforms in 2021.10
Digital future: Share of on-line retail on total retail sales (%)Sustainability has also moved high in the consumer goods agenda, with more than half of consumers across all markets intending to purchase more sustainable products once the pandemic subsides.11Businesses are adapting to increase resilience and sustainability of their internal businesses and their supply chains. Advances in cloud software, blockchain, artificial intelligence (AI) and satellite technology can be harnessed to enable flexibility and resilience in supply chains.
1 UNCTAD. ‘Key statistics and trends in international trade 2020’ (internet). United Nations Conference on Trade and Development. 2021 (accessed 9.6.21). Available at: https://unctad.org/system/files/official-document/ditctab2020d4_en.pdf 2 Remes, J. Manyika, J et al. ‘The consumer demand recovery and lasting effects of COVID-19’ internet). McKinsey. 2021 (accessed 9.6.21). Available at: https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/the-consumer-demand-recovery-and-lasting-effects-of-covid-19 3 McKinsey. ‘Perspectives on retail and consumer goods’ (internet). McKinsey & Company, 2020 (accessed 7.6.21). Available at:https://www.mckinsey.com/~/media/McKinsey/Industries/Retail/Our%20Insights/Perspectives%20on%20retail%20and%20consumer%20goods%20Number%208/Perspectives -on-Retail-and-Consumer-Goods_Issue-8.pdf 4Takefman, B. ‘Amazon profits increased nearly 200% since start of Covid-19 pandemic’ (internet). ResearchFDI. 2021 (accessed 14.6.21). Available at: https://researchfdi.com/amazon-covid-19-pandemic-profits/ 5Sky News. ‘Amazon’s profits more than tripled in the first three months of 2021’ (internet). Sky. 2021. Accessed 14.6.21). Available at: https://news.sky.com/story/amazons-profits-more-than-tripled-in-the-firs... 6 Alicke, K. Gupta, R. Trautwein, V. ‘Resetting supply chains for the next normal’ (internet). McKinsey. 2020 (accessed 8.6.21). Available at: https://www.mckinsey.com/business-functions/operations/our-insights/resetting-supply-chains-for-the-next-normal 7 Eurostat. ‘World trade in goods’ (internet). Eurostat - statistics explained. 2020 (accessed 8.6.21). Available at:https://ec.europa.eu/eurostat/statisticsexplained/index.php?title=World_trade_in_goods#World_trade_in_goods:_developments_between_2008_a nd_201f 8 Accenture. ‘A new era of trade for consumer goods industry’ (internet). Accenture, 2020 (accessed 8.6.21). Available at: https://www.accenture.com/_acnmedia/pdf-73/accenture-new-era-of-trade-for-consumer-goods-industry.pdf 9 EIU. ‘Digital disruption: risks and opportunities in the shift to online’ (internet). Economist Intelligence Unit. 2020 (accessed 14.6.21). Available at: https://www.eiu.com/n/digital-disruption-risks-and-opportunities-in-the-shift-to-online/ 10 Deloitte. ‘2021 consumer products industry outlook: No-regret moves in the face of uncertainty’ (internet). Deloitte. 2021 (accessed 14.6.21). Available at: https://www2.deloitte.com/us/en/pages/consumer-business/articles/consumer-products-industry-outlook.html 11 YouGov. ‘International FMCG/CPG report 2021’ (internet). YouGov. 2021 (accessed 14.6.21). Available at: https://db42aa43a2d5ed566294-81964d36a501d7a15be4d8350b0feec4.ssl.cf3.rackcdn.com/YouGov-International-FMCG-Report- 2021%20(2).pdf
Creative Industries: Trade challenges and opportunities post pandemic
The pandemic has brought sections of the creative industry to a halt, but also accelerated structural changes within the industry, such as the transition towards digital platforms and a greater role for individual ‘content creators’.
The pandemic has impacted the creative industries asymmetrically. Segments dependent on live audiences and cross-border travel, such as performing arts, theatre and cinema, were hard hit by social distances measures, while digital creative industries boomed. Europe’s performing arts sector lost 90% of its revenue, while its music sector registered a 76% decline.3 The sector also suffered from low state welfare provisions, as most creative industry workers are self-employed or freelancers and therefore not always eligible for job protection policies put in place. In Europe 32% of cultural sector workers are self-employed and lack job protection, a total of 7.3m jobs in the sector at risk, representing 3.7% of total EU employment.4 The pandemic has also accelerated the digital transition of the sector, highlighting the centrality of digital technology for economic resilience. Quickened innovation in digitalisation and technology, as live performance shut down has given rise to streaming platform as well as unique digital creative assets built on the blockchain, like non-fungible tokens (NFTs). Growth has been notable in digital publishing, with the UK seeing a 37% increase in audio downloads, and a 24% increase in digital book downloads.5 The shift to online sales favored players that already had an established online presence, as well as those who swiftly adapted. This is seen to favor the advertising sector, which is forecasted to a strong recovery in 2021 in the UK, increasing to £29bn in 2022.6 This is largely attributed to the digital shift.
Annual revenue of global entertainment market (US$ bn)The digital transition shift has given birth to new producer tools, new distribution and dissemination platforms and the rise of the ‘creator economy’. These have profound implications for the sector’s growth, development and international trade. The music streaming and video on-demand revolution has established a new market and increased competitive tensions between players. On-demand video grew by 31% in 2020. There are now 1.1bn online video subscribers online, up 26% from 2019.7 The rise of the ’creator economy’, aided by the emergence of a growing range of tools allowing the production of high-quality content with minimal financial requirements, has also given birth to new forms of revenue in the creator space. One fifth of companies surveyed in a 2019 poll spend at least half their marketing budget on influencers.8, is a niche market that is growing rapidly. The rise of TikTok, for example, has generated US$20bn in sales from China in 2020 and forecasted global sales of US$40bn in 2021.9
Crucially, as a highly globalised, employment-intensive sector with a significant growth potential, creative industries are an important part of rapid and inclusive post-pandemic recovery. One study estimated that creative industries contributed 4.5% to US GDP – more than construction, transportation, mining or agriculture – and can significantly improve, not merely reflect, the health of the economy following a downturn.10 The creative sector offers economic diversification and can rapidly recover from a downturn, without being impacted by other slow growing sectors, or external volatility. As recognised by the UN, the creative economy has the potential to support developing and transition economies in diversifying production and exports and to deliver sustainable and inclusive development.11
1 UNCTAD, 2021: https://unctad.org/news/creative-economy-have-its-year-sun-2021#:~:text=UNCTAD%20has%20tracked%20trade%20 in,prospects%20look%20bleak%2C%E2%80%9D%20Ms. 2 UNESCO, 2018: https://en.unesco.org/creativity/sites/creativity/files/global_report_fact_sheet_en.pdf 3 The Guardian, 2020: https://www.theguardian.com/technology/2021/mar/12/non-fungible-tokens-revolutionising-art-world-theft 4 European Commission, 2020: https://ec.europa.eu/jrc/en/news/expert-investigating-pandemic-s-impact-europe-s-cultural-activities 5 Publishing in 2020 6 City AM, 2021: https://www.cityam.com/uk-advertising-sector-on-track-for-strongest-global-recovery/ 7 The Motion Picture Association, 2021: https://www.motionpictures.org/wp-content/uploads/2021/03/MPA-2020-THEME-Report.pdf 8 Wired, 2020: https://www.wired.com/story/influencer-economy-hurtles-first-recession/ 9 Bloomberg, 2021: https://www.bloomberg.com/news/articles/2021-06-10/tiktok-is-jacking-up-prices-as-it-builds-its-ad-business 10 Douglas Noonan: https://nasaa-arts.org/wp-content/uploads/2021/01/ArtsCultureContribEconRecovery-KeyFindings.pdf 11 UNCTAD, 2021: https://unctad.org/news/creative-economy-have-its-year-sun-2021
Financial and Professional Services: Trade challenges and opportunities pos...
Alongside professional services, it plays a pivotal role in the modern economy and international trade flows. The Covid-19 pandemic significantly disrupted the industry that was already being reshaped by the effects of the global financial crisis, sustainability drive and digital innovation. Digital transformation, changing customer preferences and regulatory pressures, are also challenging existing business models in financial and related professional services.
Despite entering the pandemic more resilient than it has been prior to the previous crisis, and stronger than expected performance in 2021, the global banking sector may register losses as a result of the pandemic over the next years. These will show in the form of credit losses, with defaults expected to soar as state support is withdrawn. One estimate forecast the industry’s loss in revenue at US$3.7trn over the next five years.1 Moreover, the uneven nature of the post-pandemic recovery will hit some regions and sectors harder than others. There is limited scope for wider margins in developed markets, with interest rates low and financial services utilisation high. In developed economies there is much greater space to reach new customers, despite the increase in credit risks.2 Digital technologies are restructuring the way financial services are provided, the competition dynamics and how the customers interact with the industry. The rise of financial technology (fintech), blockchain and artificial intelligence companies, are threatening traditional providers of financial services through increased competition. Challenger neobanks (digital-only providers) and telecom providers are gradually increasing their share in the market, both in terms of processes and services offered to customers. Traditional providers that struggle to shift activities to digital channels risk losing market share and the ability to reach new customers. In 2018 fintech companies already accounted for 38% of unsecured personal lending in the US, while they are “economically relevant” in SME financing in China, the US and the UK, according the Bank for International Settlements (BIS).3
Fintech boom: Number of UK Fintech companies (rebased at year 2000), 2000-2020Digital currencies have increasingly become the focus in central banks around the world amid growing government, business and consumer interest. A Central Bank Digital Currency (CBDC) would allow central banks to issue electronic money available to all households and businesses, allowing them to make payments in CBDC. A report from the Bank for International Settlements highlighted that 28% of 50 central banks surveyed were looking into CBDC interoperability.4 Of the major world economies, China is thought to be the most advanced CBDC testing, with the e-CNY digital yuan expected to launch in 2022.5 CBDCs could bring wider access, stronger governance and privacy standards to digital payments systems, currently dominated by cryptocurrencies such as Bitcoin.
Going digital: Willingness of central Banks to adopt range of approaches to interoperabilty of Central Bank Digital Currency (CBDCs) (%), 2021There is also growing consensus that financial services actors need to upgrade their agenda towards climate finance, as net zero cannot be achieved without the funding needed to mitigate the physical risks of the impact of climate change. Global climate financing was estimated to have reached up to US$620 in 2019, the bulk of which through debt issuance. Financing a transition to a climate-resilient economy will require much greater investment than is currently being committed, and failure to provide it will result in even more investment for climate adaptation and mitigation in the longer term. Estimates suggest that US$100-150trn will be needed to reach the 1.5-degree target by 2050.6
Climate finance growth: Total global climate finance flows (US$bn), 2012-2019The growing prominence of institutional and private investment in climate financing has prompted regulatory efforts to drive climate related activities. Regulation is responding to market developments with new tools, such as green bonds, and shaping the disclosure requirements through the launch of the Taskforce on Climate-related Financial Disclosures. However, more needs to be done to incentivise climate financing and the financial services industry has a vital role in facilitating the tools and mechanisms that will help address climate change.
1 McKinsey. ‘Interim Results 2021’. 2021. https://www.mckinsey.com/industries/financial-services/our-insights/global-banking-annual-review 2 The Economist Intelligence Unit (EIU).’Financial Services Global Outlook. 2021 3 Frost, J. ‘The economic forces driving fintech adoption across countries’. Bank for International settlements. https://www.bis.org/publ/work838.pdf, p.2 4 Auer, R et al. ‘CBDCs beyond borders: results from a survey of central banks’. Bank for International Settlements. 2021.https://www.bis.org/publ/bppdf/bispap116.htm 5 Lim, M. ‘What lies ahead for CBDCs, Bitcoin and other digital currencies?’. Fintech News. 2021.https://www.fintechnews.org/what-lies-ahead-for-cbdcs-bitcoin-and-other-digital-currencies/ 6 GFMA. ‘GFMA and BCG Report on Climate Finance Markets and the Real Economy‘. Global Financial Markets Association. 2020.https://www.gfma.org/policies-resources/gfma-and-bcg-report-on-climate-finance-markets-and-the-real-economy/
Video | China's cooling imperative
Video | China's cooling imperative
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In this setting, the need to integrate environmental, social and governance (ESG) factors when investing has become even more critical. Institutional investors must employ ESG not just to mitigate risks and identify opportunities, but to engage with companies to bring about the positive change needed to drive a sustainable economic recovery in the post-Covid world.
In order to understand how ESG could be both a new performance marker and a growth driver in this environment, as well as how institutional investors are using ESG to make investment decisions and to assess their own performance, The Economist Intelligence Unit (EIU), sponsored by UBS, surveyed 450 institutional investors working in asset and wealth management firms, corporate pension funds, endowment funds, family offices, government agencies, hedge funds, insurance companies, pension funds, sovereign wealth funds and reinsurers in North America, Europe and Asia-Pacific.
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China's Cooling Imperative
China's Cooling Imperative
Cooling is a major contributor to climate change, accounting for at least 9% of greenhouse gas emissions globally. China is the world’s largest producer of cooling equipment. 70% of the world’s air conditioners are made in and exported from China. China is also the world’s leading user of household cooling equipment, accounting for 22% of installed household air conditioning units and 18% of the world’s residential refrigerators.
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The Covid-19 pandemic has exposed a wealth of interconnections – between ecological and human wellbeing, between economic and environmental fragility, between social inequality and health outcomes, and more. The consequences of these connections are now filtering through, reshaping our society and economy.
In this setting, the need to integrate environmental, social and governance (ESG) factors when investing has become even more critical. Institutional investors must employ ESG not just to mitigate risks and identify opportunities, but to engage with companies to bring about the positive change needed to drive a sustainable economic recovery in the post-Covid world.
In order to understand how ESG could be both a new performance marker and a growth driver in this environment, as well as how institutional investors are using ESG to make investment decisions and to assess their own performance, The Economist Intelligence Unit (EIU), sponsored by UBS, surveyed 450 institutional investors working in asset and wealth management firms, corporate pension funds, endowment funds, family offices, government agencies, hedge funds, insurance companies, pension funds, sovereign wealth funds and reinsurers in North America, Europe and Asia-Pacific.
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Charting the course for ocean sustainability in the Indian Ocean Rim is an Economist Intelligence Unit report, sponsored by Environment Agency Abu Dhabi and the Department of Economic Development Abu Dhabi, which highlights key ocean challenges facing the Indian Ocean Rim countries and showcases initiatives undertaken by governments and the private sector in the region to address these challenges.
Click here to view the report.
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The urgency for change in Asia's food system comes largely from the fact that Asian populations are growing, urbanising and changing food tastes too quickly for many of the regions’ food systems to cope with. Asian cities are dense and are expected to expand by 578m people by 2030. China, Indonesia and India will account for three quarters of these new urban dwellers.
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US energy pricing, policy, security and emissions: next steps
Energy independence has been a stated, albeit ill-defined, goal of the United States since the Nixon administration. Recent developments in both the unconventional oil and gas and renewable energy industries have brought this goal closer than it has been in decades.
At 24% in 2015 [1], petroleum imports as a share of total national consumption are at their lowest since 1970 and Henry hub (the US benchmark for natural gas) prices are hovering around $2.8/Mbtu, down from $12 in June 2008. Meanwhile, the costs of utility-scale solar photovoltaic and onshore wind energy have dropped more than 60% and 40% respectively since 2008, and in recent years these sources have accounted for the majority of newly installed generation capacity in the United States.
That this has happened so fast is remarkable. In less than fifteen years, unconventional oil and gas production, mainly using hydraulic fracturing (“fracking”), rose from negligible to supplying around half of domestic production [2] [3].
This growth is a testament to the US economy’s ability to combine technological progress, flexible regulation and financial innovation to develop new opportunities. When, in 2014, OPEC decided to maintain production levels despite an oil-price crash, shale production was projected to stop abruptly. According to data from the Energy Information Agency (EIA), however, oil production continued to grow in the US for another six months, reaching record highs before it peaked. Various factors drove this counterintuitive dynamic.
First, rig efficiency has increased in many of the unconventional oil plays, as a result, in part, of producers focusing on their most productive plays. New-well oil production per rig in the Bakken region, for instance, has doubled since 2014 [4]. Along with a decline in the oil and gas rig count and a large drop in employment in the oil and gas sector, these efficiency gains have cut both labour and equipment costs, lowering the breakeven point. “People are trying to cut costs as much as they can, wherever they can. Even the accounting firms have been asked to halve their fees,” says Peter R. Hartley, an energy economics scholar at Rice University.
Another important lever has been to finance operations through debt. This, however, has reached daunting proportions. Onshore oil producers tracked by EIA, collectively accounting for 2.7m barrels per day of US production, spent 83% of their cash-flow revenues on debt repayments as of June 2015, the highest levels since 2011. Many companies have also engaged in asset write-downs. The 46 international and US upstream oil companies regularly tracked by the EIA, for instance, wrote down $38bn in Q3 2015 alone — the largest write-down since 2008. While no one wants to sell at low valuations, consolidation becomes more likely the longer the oil price remains low.
On the whole, however, the geostrategic energy situation for the United States remains quite positive. As Mr Hartley highlights, “The fact the oil price is down is less a result of investments in America than it is a decision of OPEC to keep the tap open.” However, he notes, “the much greater flexibility of unconventional production — and the large amount of resources available — means the US supply response is now much more elastic. And that reduces OPEC’s monopoly power over oil prices."
These advantages in terms of energy security are even more pronounced for natural gas, a commodity for which a single global price does not exist. Since 2006, lasting spreads have favoured the US Henry hub benchmarks versus the price of natural gas in Europe or Japan. Sustained low prices have created competitive gains for industries relying on natural gas as feedstock, with the petrochemicals industry an obvious long-term winner, although a low oil price also limits the gains from the ethane-naphtha spread. The metals industry should also benefit. Steelmaking in the US, for instance, has seen resurgence in the use of direct reduced iron (DRI), with US DRI output potentially reaching up to 10m tonnes by 2020 from just 1.3m in 2013. Cheap natural gas is also saving consumers money on their heating and electricity bills. According to an evaluation by Harvard Business School, these savings totalled $800 per average US household in 2014. While some of that will be saved, the rest will result in increased consumer spending, thus benefitting the economy.
Energy abundance is an opportunity, not an excuse
One of the most crucial questions facing the US in the future is how newly abundant fossil fuel resources will affect the trajectory of the country’s carbon emissions. Left unchecked, climate change could leave critical parts of the US housing stock and infrastructure exposed to climate-induced sea level rise as well as more frequent and stronger extreme weather events such as hurricanes or droughts. Such events already cost the US tens of billions of dollars a year in damaged property, other economic harms and health consequences. Climate change could also impact the power generation infrastructure due to higher temperatures and reduced water availability, according to the Department of Energy (DOE). “In the absence of concerted action to improve resilience, energy system vulnerabilities pose a threat to America’s national security, energy security, economic wellbeing, and quality of life,” warns a DOE report published in 2015 evaluating the vulnerability of the US energy sector to climate change. It is in the US’s long-term interest to address the climate problem today.
Under the United Nations climate accord agreed to in December 2015, the US has also pledged to take action on climate change. The agreement, signed in Paris by more than 190 countries, recognises the need to achieve “global peaking of greenhouse gas emissions as soon as possible” to keep temperature increases below 2°C by the end of the century. By ratifying the agreement and issuing the Clean Power Plan (CPP), the US’ first policy to explicitly target carbon emissions from the power sector at the national level, the country has taken a step in the right direction. But the US can and should do more.
The need for a clear, coherent and long-term signal
A successful transition requires policy and price signals that are clear, long-term, and strong enough to shift investments towards low-carbon infrastructure. These signals are critical to achieving a low-carbon future for two primary reasons. First, free-market competition requires a level playing field, including a firm price on carbon emissions to account for their negative externalities. Second, for markets to adjust in a non-disruptive manner the price should be gradually more stringent, thus enabling the private sector to shift gradually towards a low-carbon economy.
Until recently, the pattern of US governance in the energy sector had been driven mostly by short-term opportunism rather than a pro-active redesign of the US’s infrastructure base. The production tax credit (PTC) for onshore wind, which provides tax credits per unit of electricity generated for a period of 10 years, had been notoriously hard to predict, for instance, leading to surges in instalments in the quarter preceding possible renewal as companies pushed projects forward in a race to completion prior to the PTC’s expiry. Last-minute policy uncertainty, of course, is not the best way to promote long-term investment in enduring, capital-intensive infrastructure.
The US seems to have learned this lesson. In December 2015, the PTC and the Investment Tax Credit – PTC’s solar equivalent – were both extended for a duration of five years. The impact of this longer-term signal is substantial: the extension is expected to bring an additional 19GW of wind and 18GW of solar online over the next five years respectively, according to analysis by Bloomberg New Energy Finance [5].
As for pricing carbon, the US has limited, regional markets, covering a mere 10% of the country’s total emissions. Although California’s cap-and-trade programme currently boasts the highest price in the US (~13$/tCO2e as of Sept 2016) and is close to the $20/tCO2e the International Energy Agency (IEA) estimates the US will have to apply to its power sector by 2020 to keep its emissions compatible with a 2°C scenario, the current carbon price is still far from the $100/tCO2e the IEA assumes will be needed in the US by 2030.
Despite this suboptimal policy context, the US has done relatively well in reducing emissions cost-effectively. As of 2015, it had the second-largest installed base of non-hydro renewables in the world and was the second largest country in terms of investments, albeit well below those of China, which has been ahead of the US on both accounts since 2011. As for coal, the US has gradually replaced it with renewables and natural gas, with the latter accounting for around 35% of total electricity production in the second quarter of 2016 — up from just 17% in 2001. However, coal’s current displacement is not a result of carbon policies but rather a consequence of low-cost natural gas and regulations aimed at local — not global — pollution.
“Given the current set of regulations in the US to mitigate carbon emissions, it is difficult to say with confidence how effective the combination of these policies is going to be,” says Justin Gundlach, climate-change fellow at the Sabin Center for Climate Change Law at Columbia Law School. The problem of policy coherence is hardly exclusive to America, but it does hinder the US’s ability to realign its energy system to meet the country’s long-term economic and environmental needs.
One positive development in that regard is the CPP. A key feature of the CPP, according to Mr Gundlach, is that it forces states to tackle the issue of policy coherence in a transparent and coordinated way, which facilitates implementation and reduces compliance costs. Another advantage of the CPP is that it opens up the possibility for carbon emissions trading between participating states. Under the proposed plan, currently under review by the U.S. Court of Appeals for the D.C. Circuit, states are allowed to choose between a rate-based goal, set in tCO2e/MWh — effectively a performance standard for carbon intensity— or a mass-based goal, with a cap on total tons of CO2 equivalent. Under the latter option, states would then “readily qualify to trade with affected electricity generating units in states that adopt the same approach”.
Leading by example
Beyond increasing policy coherence, both state and federal governments can open up new markets through public procurement strategies. A clear example of that is the role the public sector has played in expanding the market for energy service companies in the buildings sector — over a fifth of the total floorspace in the US is owned by federal, state, or local governments. Government mandates and purchasing decisions have helped improve energy efficiency through procurement and fostered a broader private-sector market.
Not every state is active in promoting sustainability, however. California has led in energy efficiency initiatives for decades while states like New York or Connecticut have established green investment banks dedicated to promoting clean-energy investments in the state. By contrast, other states such as North Dakota or Wyoming still lack even a mandatory building energy code at the state level. [6]
Another important role for government will be fostering innovation. The government can help expand R&D efforts to help lower the cost of technologies currently in labs. The country’s announced goal to double clean-energy R&D spending, along with 19 other nations leading in clean energy R&D, is an important step in that direction. Should the US reach that objective, clean-energy R&D levels in the US would roughly double from ~$5bn today to some $10bn by 2020.
Complementing this R&D push will be ‘demand pull’ efforts such as policies that create new markets for technologies that are nearing commercialization. California’s 2013 mandate to install 1.3GW of storage by 2020, for instance, has helped utilities diversify their energy-storage technology portfolios while fostering an environment for technologies to compete, from utility-scale solutions to decentralized ones. The reason, says Nancy Pfund, managing partner at DBL Investors, is that “these policies de-risk it for investors, it’s not a pilot to nowhere”. One of the technologies enabled by the mandate, and in which DBL has invested, is Advanced Microgrid Solutions, a startup that managed to secure a 50MW storage contract in 2014 with one of California’s utilities. “That’s unheard of for a start-up company,” notes Pfund.
A critical time for climate action
By explicitly stating the goal of keeping temperature increases “well below 2°C”, the Paris agreement is a clear signal of the international community’s resolve to combat climate change. Current pledges are far from meeting that goal, however, and the agreement emphasises the urgent need to address the significant gap between the countries’ mitigation pledges and the aggregate emission pathways actually necessary to hold the increase in global average temperature well below 2°C. With that in mind, a key element of the Paris agreement is the commitment to review climate pledges every 5 years to increase ambitions based on policy progress and technological developments.
On 5 October 2016, the threshold for operationalization of the Paris Agreement (55 countries representing at least 55% of global emissions) was achieved, meaning the agreement will enter into force on 4 November 2016.
The next five years will thus be crucial for climate action. Acting now will not be free: under existing US policies, including the CPP, some $2.19trn worth of investments will be required over the next 25 years in the US power sector alone, with some 39% going to transmission and distribution (T&D) infrastructure, followed by renewables (37%), fossil-fuel power generation (13%) and nuclear (11%). Acting later will cost even more, as abatement costs and the value of US assets exposed to climate-change risks will rise over time. In such a context, it is of grave concern that new US president Donald Trump rejects the overwhelming scientific evidence of climate change [7] [8].
Low energy prices represent a unique opportunity to reduce carbon emissions. As Mark Brownstein, vice president of the climate and energy program at the Environmental Defense Fund, notes, “The decline in natural gas price is creating economic headroom to ramp up investment in electric transmission and distribution infrastructure with minimal impact on the customer’s total monthly energy bill”. This is because, from an end-user point of view, the increased costs associated with the investment in T&D are offset by the lower costs of electricity generation thanks to cheap natural gas.
How to spend that low gas price dividend matters, says Brownstein. Avoiding lock-in to a carbon-intensive infrastructure will be critical, he notes. In fact, as Mr Gundlach warns, "Integrating means changing the electric system. Natural gas provides an easy way around that in the short-term. It does not, however, constitute a long-term solution to the decarbonisation of the electricity sector.”
Similar considerations apply to the natural-gas distribution side. States will thus have to carefully evaluate the costs and benefits of building new pipelines to feed rising demand from the power sector against those of investing in clean-power generation and demand-side responses to reduce the demand for natural gas in the first place — and thus avoid the need for pipeline investments.
America’s opportunity to shine
The next administration faces a unique responsibility to position the United States on a path towards a low-carbon future. Success will require leveraging the benefits of the switch away from coal while avoiding a permanent lock-in to fossil-fuel-dependent infrastructure. This will be a difficult yet crucial balance to strike. The good news is that, thanks to cheap energy, the US is in a uniquely favourable position to act. Achieving a clean energy transition will not only be good for the US economy, it will also help consolidate US leadership on the international fight against climate change. The Paris agreement on climate change is a clear signal that the world is ready to act on the issue. It’s time for America to rise to the challenge.
_____________________________________________________________
FOOTNOTES:
1 http://www.eia.gov/tools/faqs/faq.cfm?id=32&t=6
2 https://www.eia.gov/tools/faqs/faq.cfm?id=847&t=6
3 https://www.eia.gov/tools/faqs/faq.cfm?id=847&t=6
4 https://www.eia.gov/petroleum/drilling/pdf/dpr-full.pdf #page=3
5 http://www.bbhub.io/bnef/sites/4/2016/04/BNEF-Summit-Keynote-2016.pdf
6 http://database.aceee.org/state/public-building-requirements
[7] http://www.scientificamerican.com/article/trump-picks-top-climate-skepti...
[8] http://fortune.com/2016/10/01/trump-paris-climate-agreement/
Driving energy efficiency: A comparison of five mature markets
The study focuses on the following areas:
The main types of strategies for encouraging energy savings How information campaigns and incentives can be tailored to specific audiences The role played by product labelling and standard-setting for energy efficiency An assessment of what strategies work best in encouraging efficiencyKey findings:
Conservation initiatives can be grouped into three broad categories: raising awareness, tightening technical standards for buildings and energy-using products, and offering incentives to cut energy use. Ownership of buildings determines the strategy for saving energy. For owner-occupied buildings, investments in efficiency pay back over time in lower energy bills. In rented housing and workplaces, a gains-sharing approach, in which owners as well as tenants benefit from efficiency investments, work best. Raising awareness I: Tailoring the message to the audience is important. Some respond best to appeals based on environmental protection, while others care most about financial incentives and returns. Raising awareness II: Choosing a trusted messenger is also key to successful awareness campaigns. For example in the US, regulated utilities tend to be trusted sources, whereas in the UK, privatised energy companies encountered resistance to their conservation messages. Setting standards and applying labels: Product-labelling schemes that rate the efficiency of buildings or homes have proven effective tools for cutting energy use. An example is the US ‘Energy Star’ programme. Incentives count: Various government incentive programmes, as well as private-sector gains-sharing schemes, have proven effective in promoting energy efficiency. Avoiding the ‘rebound effect’: While investment in efficiency lowers energy bills, governments should guard against the “rebound effect”, in which consumers—encouraged by the greater efficiency—buy more appliances and devices and thereby end up using more energy, not less. Power Up: Delivering renewable energy in Africa
Following high-level declarations at the Sustainable Development Goals and the Paris Climate Conference in late 2015, there is a growing appetite for renewable energy in Africa. This is much-needed; the continent’s energy supplies are not meeting the needs and aspirations of its people. A better system will promote economic diversification, raise productivity, and improve the health and wellbeing of citizens. Africa requires between $60 and $90 billion annually to address its energy shortfall, roughly quadruple 2014 investment levels.
While fossil fuels, notably coal, oil and gas, continue to provide a significant quantity of energy - especially in South Africa - renewables need to play a greater role. Africa has plentiful resources, from geothermal power in Kenya and Ethiopia to hydropower in Zambia and the Democratic Republic of Congo. Solar and wind are especially promising, thanks to falling costs and resource abundance. From solar-powered hospitals in Lagos to wind farms in Lake Turkana, renewable energy is not just a pipe dream - it is a reality. Renewables can increase energy security, reduce energy import bills, and diversify and de-risk the energy mix. Through off-grid technologies, they can provide direct, affordable power to rural regions beyond the reach of the grid system.
But to harness renewables at scale, very significant infrastructure is needed: both core assets like wind and solar farms1 and transmission grids, as well as connective infrastructures, like roads to and from sites for transporting kit and manpower, or for bringing products, like solar-powered mobile phones, to market. This requires effective regulation, sufficient financing, appropriate technologies and smart business models. The ambitions are there.
The African Renewable Energy Initiative, led by institutions including the African Union and the United Nations Environment Programme, has set a goal of 300 GW of renewable energy capacity by 2030. But this requires a 680% increase in current deployment rates. According to IRENA’s latest data, the installed renewable power generation capacity in Sub-Saharan Africa currently stands slightly below 30 GW, roughly 25-30% of the installed power base, but this is dominated by large hydro, with other renewables collectively accounting for just 4-5% of power generation. Can the investment be achieved? Who are the current players and how is the market evolving?
This report, combining country fieldwork and 28 expert interviews, looks at the current renewable power capacity on the continent, identifies the market leaders and looks at the key enablers and constraints.
The business case for the 2°C climate target
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The Covid-19 pandemic has exposed a wealth of interconnections – between ecological and human wellbeing, between economic and environmental fragility, between social inequality and health outcomes, and more. The consequences of these connections are now filtering through, reshaping our society and economy.
In this setting, the need to integrate environmental, social and governance (ESG) factors when investing has become even more critical. Institutional investors must employ ESG not just to mitigate risks and identify opportunities, but to engage with companies to bring about the positive change needed to drive a sustainable economic recovery in the post-Covid world.
In order to understand how ESG could be both a new performance marker and a growth driver in this environment, as well as how institutional investors are using ESG to make investment decisions and to assess their own performance, The Economist Intelligence Unit (EIU), sponsored by UBS, surveyed 450 institutional investors working in asset and wealth management firms, corporate pension funds, endowment funds, family offices, government agencies, hedge funds, insurance companies, pension funds, sovereign wealth funds and reinsurers in North America, Europe and Asia-Pacific.
Download the report and infographic to learn more.
Charting the course for ocean sustainability in the Indian Ocean Rim
Charting the course for ocean sustainability in the Indian Ocean Rim is an Economist Intelligence Unit report, sponsored by Environment Agency Abu Dhabi and the Department of Economic Development Abu Dhabi, which highlights key ocean challenges facing the Indian Ocean Rim countries and showcases initiatives undertaken by governments and the private sector in the region to address these challenges.
Click here to view the report.
Fixing Asia's food system
The urgency for change in Asia's food system comes largely from the fact that Asian populations are growing, urbanising and changing food tastes too quickly for many of the regions’ food systems to cope with. Asian cities are dense and are expected to expand by 578m people by 2030. China, Indonesia and India will account for three quarters of these new urban dwellers.
To study what are the biggest challenges for change, The Economist Intelligence Unit (EIU) surveyed 400 business leaders in Asia’s food industry. According to the respondents, 90% are concerned about their local food system’s ability to meet food security needs, but only 32% feel their organisations have the ability to determine the success of their food systems. Within this gap is a shifting balance of responsibility between the public and private sectors, a tension that needs to and can be strategically addressed.
Latin America’s emerging sectors: A closer look at fintech and renewable energy
Latin America’s emerging sectors: A closer look at fintech and renewable energy
There is a strong consensus in the market that 2018 will be a better year than 2017 for LAC economies. Private demand is expected to bolster growth and a rebound in commodity prices will ease macroeconomic pressures. However, the region’s ultimate performance hinges on a number of critical factors—one among them is the outcome of elections in the region’s largest economies, including Brazil and Mexico. This, more than other factors, may prove to be a deterrent to foreign investors and an impediment to local business activity.
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The Hinrich Foundation Sustainable Trade Index 2018
Yet the enthusiasm in Asia for trade does not appear to have waned. This broad societal consensus behind international trade has enabled Asian countries to continue broadening and deepening existing trading relationships, for example, by quickly hammering out a deal for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in early 2018 following the US’s withdrawal from its predecessor in 2017.
Asia, then, finds itself in the unique position of helping lead and sustain the global economy’s commitment to free and fair trade. It is in this context that the need for sustainability in trade is ever more crucial.
The Hinrich Foundation Sustainable Trade Index was created for the purpose of stimulating meaningful discussion of the full range of considerations that policymakers, business executives, and civil society leaders must take into account when managing and advancing international trade.
The index was commissioned by the Hinrich Foundation, a non-profit organisation focused on promoting sustainable trade. This, the second edition of the study, seeks to measure the capacity of 20 economies—19 in Asia along with the US—to participate in the international trading system in a manner that supports the long-term domestic and global goals of economic growth, environmental protection, and strengthened social capital. The index’s key findings include:
Countries in Asia, especially the richer ones, have broadly regressed in terms of trade sustainability. Hong Kong is developed Asia’s bright spot, recording a slight increase in its score and topping the 2018 index. Several middle-income countries perform admirably, led by Sri Lanka. For the economic pillar, countries generally performed well in terms of growing their labour forces as well as their per-head GDPs. For the social pillar, sharp drops for some countries in certain social pillar indicators contribute to an overall decline. For the environmental pillar, with deteriorating environmental sustainability in many rich countries, China, Laos and Pakistan are the only countries to record increases in scores. Sustainability is an ever more important determinant of FDI and vendor selection in choosing supply-chain partners. Companies are improving the sustainability of their supply chains by restructuring and broadening relationships with competitors and vendors.
The Global Illicit Trade Environment Index 2018
To measure how nations are addressing the issue of illicit trade, the Transnational Alliance to Combat Illicit Trade (TRACIT) has commissioned The Economist Intelligence Unit to produce the Global Illicit Trade Environment Index, which evaluates 84 economies around the world on their structural capability to protect against illicit trade. The global index expands upon an Asia-specific version originally created by The Economist Intelligence Unit in 2016 to score 17 economies in Asia.
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Breaking Barriers: Agricultural trade between GCC and Latin America
The GCC-LAC agricultural trading relationship has thus far been dominated by the GCC’s reliance on food imports, specifically meat, sugar, and cereals. Over the past two years, however, there has been a notable decline in the share of sugar imported from LAC, and 2017 saw the biggest importers in the GCC—Saudi Arabia and the UAE—impose a ban on Brazilian meat.
Market players on both sides of the aisle are keen to grow the relationship further, but there are hurdles to overcome. In this report, we explore in greater depth the challenges that agricultural exporters and importers in LAC and the GCC face. We consider both tariff and non-tariff barriers and assess key facets of the trading relationship including transport links, customs and certification, market information, and trade finance.
Key findings of the report:
GCC will need to continue to build partnerships to ensure a secure supply of food. Concerns over food security have meant that the GCC countries are exploring ways to produce more food locally. However, given the region’s climate and geology, food imports will remain an important component of the food supply. Strengthening partnerships with key partners such as those in LAC, from which it sourced 9% of its total agricultural imports in 2016, will be vital to food security in the region.
There is a wider range of products that the LAC countries can offer the GCC beyond meat, sugar and cereals. Providing more direct air links and driving efficiencies in shipping can reduce the time and cost of transporting food products. This will, in turn, create opportunities for LAC exporters to supply agricultural goods with a shorter shelf life or those that are currently too expensive to transport. Exporters cite examples such as berries and avocados.
The GCC can engage small and medium-sized producers that dominate the LAC agricultural sector by offering better trade financing options and connectivity. More direct air and sea links can reduce the cost of transporting food products, making it viable for smaller players to participate in agricultural trade. The existing trade financing options make it prohibitive for small and medium-sized players too. Exporters in LAC suggest that local governments and private companies in the GCC can offer distribution services with immediate payments to smaller suppliers at a discount.
Blockchain technology is poised to address key challenges market players face in agricultural trade. Through a combination of smart contracts and data captured through devices, blockchain technology can help to reduce paperwork, processing times and human error in import and export processes. It can improve transparency, as stakeholders can receive information on the state of goods and status of shipments in real time. Finally, it can help with food safety and quality management—monitoring humidity and temperature, for instance, along the supply chain can help to pinpoint batches that may be contaminated, minimising the need for a blanket ban on a product.
Being competitive in a low-carbon world
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US energy pricing, policy, security and emissions: next steps
Energy independence has been a stated, albeit ill-defined, goal of the United States since the Nixon administration. Recent developments in both the unconventional oil and gas and renewable energy industries have brought this goal closer than it has been in decades.
At 24% in 2015 [1], petroleum imports as a share of total national consumption are at their lowest since 1970 and Henry hub (the US benchmark for natural gas) prices are hovering around $2.8/Mbtu, down from $12 in June 2008. Meanwhile, the costs of utility-scale solar photovoltaic and onshore wind energy have dropped more than 60% and 40% respectively since 2008, and in recent years these sources have accounted for the majority of newly installed generation capacity in the United States.
That this has happened so fast is remarkable. In less than fifteen years, unconventional oil and gas production, mainly using hydraulic fracturing (“fracking”), rose from negligible to supplying around half of domestic production [2] [3].
This growth is a testament to the US economy’s ability to combine technological progress, flexible regulation and financial innovation to develop new opportunities. When, in 2014, OPEC decided to maintain production levels despite an oil-price crash, shale production was projected to stop abruptly. According to data from the Energy Information Agency (EIA), however, oil production continued to grow in the US for another six months, reaching record highs before it peaked. Various factors drove this counterintuitive dynamic.
First, rig efficiency has increased in many of the unconventional oil plays, as a result, in part, of producers focusing on their most productive plays. New-well oil production per rig in the Bakken region, for instance, has doubled since 2014 [4]. Along with a decline in the oil and gas rig count and a large drop in employment in the oil and gas sector, these efficiency gains have cut both labour and equipment costs, lowering the breakeven point. “People are trying to cut costs as much as they can, wherever they can. Even the accounting firms have been asked to halve their fees,” says Peter R. Hartley, an energy economics scholar at Rice University.
Another important lever has been to finance operations through debt. This, however, has reached daunting proportions. Onshore oil producers tracked by EIA, collectively accounting for 2.7m barrels per day of US production, spent 83% of their cash-flow revenues on debt repayments as of June 2015, the highest levels since 2011. Many companies have also engaged in asset write-downs. The 46 international and US upstream oil companies regularly tracked by the EIA, for instance, wrote down $38bn in Q3 2015 alone — the largest write-down since 2008. While no one wants to sell at low valuations, consolidation becomes more likely the longer the oil price remains low.
On the whole, however, the geostrategic energy situation for the United States remains quite positive. As Mr Hartley highlights, “The fact the oil price is down is less a result of investments in America than it is a decision of OPEC to keep the tap open.” However, he notes, “the much greater flexibility of unconventional production — and the large amount of resources available — means the US supply response is now much more elastic. And that reduces OPEC’s monopoly power over oil prices."
These advantages in terms of energy security are even more pronounced for natural gas, a commodity for which a single global price does not exist. Since 2006, lasting spreads have favoured the US Henry hub benchmarks versus the price of natural gas in Europe or Japan. Sustained low prices have created competitive gains for industries relying on natural gas as feedstock, with the petrochemicals industry an obvious long-term winner, although a low oil price also limits the gains from the ethane-naphtha spread. The metals industry should also benefit. Steelmaking in the US, for instance, has seen resurgence in the use of direct reduced iron (DRI), with US DRI output potentially reaching up to 10m tonnes by 2020 from just 1.3m in 2013. Cheap natural gas is also saving consumers money on their heating and electricity bills. According to an evaluation by Harvard Business School, these savings totalled $800 per average US household in 2014. While some of that will be saved, the rest will result in increased consumer spending, thus benefitting the economy.
Energy abundance is an opportunity, not an excuse
One of the most crucial questions facing the US in the future is how newly abundant fossil fuel resources will affect the trajectory of the country’s carbon emissions. Left unchecked, climate change could leave critical parts of the US housing stock and infrastructure exposed to climate-induced sea level rise as well as more frequent and stronger extreme weather events such as hurricanes or droughts. Such events already cost the US tens of billions of dollars a year in damaged property, other economic harms and health consequences. Climate change could also impact the power generation infrastructure due to higher temperatures and reduced water availability, according to the Department of Energy (DOE). “In the absence of concerted action to improve resilience, energy system vulnerabilities pose a threat to America’s national security, energy security, economic wellbeing, and quality of life,” warns a DOE report published in 2015 evaluating the vulnerability of the US energy sector to climate change. It is in the US’s long-term interest to address the climate problem today.
Under the United Nations climate accord agreed to in December 2015, the US has also pledged to take action on climate change. The agreement, signed in Paris by more than 190 countries, recognises the need to achieve “global peaking of greenhouse gas emissions as soon as possible” to keep temperature increases below 2°C by the end of the century. By ratifying the agreement and issuing the Clean Power Plan (CPP), the US’ first policy to explicitly target carbon emissions from the power sector at the national level, the country has taken a step in the right direction. But the US can and should do more.
The need for a clear, coherent and long-term signal
A successful transition requires policy and price signals that are clear, long-term, and strong enough to shift investments towards low-carbon infrastructure. These signals are critical to achieving a low-carbon future for two primary reasons. First, free-market competition requires a level playing field, including a firm price on carbon emissions to account for their negative externalities. Second, for markets to adjust in a non-disruptive manner the price should be gradually more stringent, thus enabling the private sector to shift gradually towards a low-carbon economy.
Until recently, the pattern of US governance in the energy sector had been driven mostly by short-term opportunism rather than a pro-active redesign of the US’s infrastructure base. The production tax credit (PTC) for onshore wind, which provides tax credits per unit of electricity generated for a period of 10 years, had been notoriously hard to predict, for instance, leading to surges in instalments in the quarter preceding possible renewal as companies pushed projects forward in a race to completion prior to the PTC’s expiry. Last-minute policy uncertainty, of course, is not the best way to promote long-term investment in enduring, capital-intensive infrastructure.
The US seems to have learned this lesson. In December 2015, the PTC and the Investment Tax Credit – PTC’s solar equivalent – were both extended for a duration of five years. The impact of this longer-term signal is substantial: the extension is expected to bring an additional 19GW of wind and 18GW of solar online over the next five years respectively, according to analysis by Bloomberg New Energy Finance [5].
As for pricing carbon, the US has limited, regional markets, covering a mere 10% of the country’s total emissions. Although California’s cap-and-trade programme currently boasts the highest price in the US (~13$/tCO2e as of Sept 2016) and is close to the $20/tCO2e the International Energy Agency (IEA) estimates the US will have to apply to its power sector by 2020 to keep its emissions compatible with a 2°C scenario, the current carbon price is still far from the $100/tCO2e the IEA assumes will be needed in the US by 2030.
Despite this suboptimal policy context, the US has done relatively well in reducing emissions cost-effectively. As of 2015, it had the second-largest installed base of non-hydro renewables in the world and was the second largest country in terms of investments, albeit well below those of China, which has been ahead of the US on both accounts since 2011. As for coal, the US has gradually replaced it with renewables and natural gas, with the latter accounting for around 35% of total electricity production in the second quarter of 2016 — up from just 17% in 2001. However, coal’s current displacement is not a result of carbon policies but rather a consequence of low-cost natural gas and regulations aimed at local — not global — pollution.
“Given the current set of regulations in the US to mitigate carbon emissions, it is difficult to say with confidence how effective the combination of these policies is going to be,” says Justin Gundlach, climate-change fellow at the Sabin Center for Climate Change Law at Columbia Law School. The problem of policy coherence is hardly exclusive to America, but it does hinder the US’s ability to realign its energy system to meet the country’s long-term economic and environmental needs.
One positive development in that regard is the CPP. A key feature of the CPP, according to Mr Gundlach, is that it forces states to tackle the issue of policy coherence in a transparent and coordinated way, which facilitates implementation and reduces compliance costs. Another advantage of the CPP is that it opens up the possibility for carbon emissions trading between participating states. Under the proposed plan, currently under review by the U.S. Court of Appeals for the D.C. Circuit, states are allowed to choose between a rate-based goal, set in tCO2e/MWh — effectively a performance standard for carbon intensity— or a mass-based goal, with a cap on total tons of CO2 equivalent. Under the latter option, states would then “readily qualify to trade with affected electricity generating units in states that adopt the same approach”.
Leading by example
Beyond increasing policy coherence, both state and federal governments can open up new markets through public procurement strategies. A clear example of that is the role the public sector has played in expanding the market for energy service companies in the buildings sector — over a fifth of the total floorspace in the US is owned by federal, state, or local governments. Government mandates and purchasing decisions have helped improve energy efficiency through procurement and fostered a broader private-sector market.
Not every state is active in promoting sustainability, however. California has led in energy efficiency initiatives for decades while states like New York or Connecticut have established green investment banks dedicated to promoting clean-energy investments in the state. By contrast, other states such as North Dakota or Wyoming still lack even a mandatory building energy code at the state level. [6]
Another important role for government will be fostering innovation. The government can help expand R&D efforts to help lower the cost of technologies currently in labs. The country’s announced goal to double clean-energy R&D spending, along with 19 other nations leading in clean energy R&D, is an important step in that direction. Should the US reach that objective, clean-energy R&D levels in the US would roughly double from ~$5bn today to some $10bn by 2020.
Complementing this R&D push will be ‘demand pull’ efforts such as policies that create new markets for technologies that are nearing commercialization. California’s 2013 mandate to install 1.3GW of storage by 2020, for instance, has helped utilities diversify their energy-storage technology portfolios while fostering an environment for technologies to compete, from utility-scale solutions to decentralized ones. The reason, says Nancy Pfund, managing partner at DBL Investors, is that “these policies de-risk it for investors, it’s not a pilot to nowhere”. One of the technologies enabled by the mandate, and in which DBL has invested, is Advanced Microgrid Solutions, a startup that managed to secure a 50MW storage contract in 2014 with one of California’s utilities. “That’s unheard of for a start-up company,” notes Pfund.
A critical time for climate action
By explicitly stating the goal of keeping temperature increases “well below 2°C”, the Paris agreement is a clear signal of the international community’s resolve to combat climate change. Current pledges are far from meeting that goal, however, and the agreement emphasises the urgent need to address the significant gap between the countries’ mitigation pledges and the aggregate emission pathways actually necessary to hold the increase in global average temperature well below 2°C. With that in mind, a key element of the Paris agreement is the commitment to review climate pledges every 5 years to increase ambitions based on policy progress and technological developments.
On 5 October 2016, the threshold for operationalization of the Paris Agreement (55 countries representing at least 55% of global emissions) was achieved, meaning the agreement will enter into force on 4 November 2016.
The next five years will thus be crucial for climate action. Acting now will not be free: under existing US policies, including the CPP, some $2.19trn worth of investments will be required over the next 25 years in the US power sector alone, with some 39% going to transmission and distribution (T&D) infrastructure, followed by renewables (37%), fossil-fuel power generation (13%) and nuclear (11%). Acting later will cost even more, as abatement costs and the value of US assets exposed to climate-change risks will rise over time. In such a context, it is of grave concern that new US president Donald Trump rejects the overwhelming scientific evidence of climate change [7] [8].
Low energy prices represent a unique opportunity to reduce carbon emissions. As Mark Brownstein, vice president of the climate and energy program at the Environmental Defense Fund, notes, “The decline in natural gas price is creating economic headroom to ramp up investment in electric transmission and distribution infrastructure with minimal impact on the customer’s total monthly energy bill”. This is because, from an end-user point of view, the increased costs associated with the investment in T&D are offset by the lower costs of electricity generation thanks to cheap natural gas.
How to spend that low gas price dividend matters, says Brownstein. Avoiding lock-in to a carbon-intensive infrastructure will be critical, he notes. In fact, as Mr Gundlach warns, "Integrating means changing the electric system. Natural gas provides an easy way around that in the short-term. It does not, however, constitute a long-term solution to the decarbonisation of the electricity sector.”
Similar considerations apply to the natural-gas distribution side. States will thus have to carefully evaluate the costs and benefits of building new pipelines to feed rising demand from the power sector against those of investing in clean-power generation and demand-side responses to reduce the demand for natural gas in the first place — and thus avoid the need for pipeline investments.
America’s opportunity to shine
The next administration faces a unique responsibility to position the United States on a path towards a low-carbon future. Success will require leveraging the benefits of the switch away from coal while avoiding a permanent lock-in to fossil-fuel-dependent infrastructure. This will be a difficult yet crucial balance to strike. The good news is that, thanks to cheap energy, the US is in a uniquely favourable position to act. Achieving a clean energy transition will not only be good for the US economy, it will also help consolidate US leadership on the international fight against climate change. The Paris agreement on climate change is a clear signal that the world is ready to act on the issue. It’s time for America to rise to the challenge.
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FOOTNOTES:
1 http://www.eia.gov/tools/faqs/faq.cfm?id=32&t=6
2 https://www.eia.gov/tools/faqs/faq.cfm?id=847&t=6
3 https://www.eia.gov/tools/faqs/faq.cfm?id=847&t=6
4 https://www.eia.gov/petroleum/drilling/pdf/dpr-full.pdf #page=3
5 http://www.bbhub.io/bnef/sites/4/2016/04/BNEF-Summit-Keynote-2016.pdf
6 http://database.aceee.org/state/public-building-requirements
[7] http://www.scientificamerican.com/article/trump-picks-top-climate-skepti...
[8] http://fortune.com/2016/10/01/trump-paris-climate-agreement/
Driving energy efficiency: A comparison of five mature markets
The study focuses on the following areas:
The main types of strategies for encouraging energy savings How information campaigns and incentives can be tailored to specific audiences The role played by product labelling and standard-setting for energy efficiency An assessment of what strategies work best in encouraging efficiencyKey findings:
Conservation initiatives can be grouped into three broad categories: raising awareness, tightening technical standards for buildings and energy-using products, and offering incentives to cut energy use. Ownership of buildings determines the strategy for saving energy. For owner-occupied buildings, investments in efficiency pay back over time in lower energy bills. In rented housing and workplaces, a gains-sharing approach, in which owners as well as tenants benefit from efficiency investments, work best. Raising awareness I: Tailoring the message to the audience is important. Some respond best to appeals based on environmental protection, while others care most about financial incentives and returns. Raising awareness II: Choosing a trusted messenger is also key to successful awareness campaigns. For example in the US, regulated utilities tend to be trusted sources, whereas in the UK, privatised energy companies encountered resistance to their conservation messages. Setting standards and applying labels: Product-labelling schemes that rate the efficiency of buildings or homes have proven effective tools for cutting energy use. An example is the US ‘Energy Star’ programme. Incentives count: Various government incentive programmes, as well as private-sector gains-sharing schemes, have proven effective in promoting energy efficiency. Avoiding the ‘rebound effect’: While investment in efficiency lowers energy bills, governments should guard against the “rebound effect”, in which consumers—encouraged by the greater efficiency—buy more appliances and devices and thereby end up using more energy, not less. Power Up: Delivering renewable energy in Africa
Following high-level declarations at the Sustainable Development Goals and the Paris Climate Conference in late 2015, there is a growing appetite for renewable energy in Africa. This is much-needed; the continent’s energy supplies are not meeting the needs and aspirations of its people. A better system will promote economic diversification, raise productivity, and improve the health and wellbeing of citizens. Africa requires between $60 and $90 billion annually to address its energy shortfall, roughly quadruple 2014 investment levels.
While fossil fuels, notably coal, oil and gas, continue to provide a significant quantity of energy - especially in South Africa - renewables need to play a greater role. Africa has plentiful resources, from geothermal power in Kenya and Ethiopia to hydropower in Zambia and the Democratic Republic of Congo. Solar and wind are especially promising, thanks to falling costs and resource abundance. From solar-powered hospitals in Lagos to wind farms in Lake Turkana, renewable energy is not just a pipe dream - it is a reality. Renewables can increase energy security, reduce energy import bills, and diversify and de-risk the energy mix. Through off-grid technologies, they can provide direct, affordable power to rural regions beyond the reach of the grid system.
But to harness renewables at scale, very significant infrastructure is needed: both core assets like wind and solar farms1 and transmission grids, as well as connective infrastructures, like roads to and from sites for transporting kit and manpower, or for bringing products, like solar-powered mobile phones, to market. This requires effective regulation, sufficient financing, appropriate technologies and smart business models. The ambitions are there.
The African Renewable Energy Initiative, led by institutions including the African Union and the United Nations Environment Programme, has set a goal of 300 GW of renewable energy capacity by 2030. But this requires a 680% increase in current deployment rates. According to IRENA’s latest data, the installed renewable power generation capacity in Sub-Saharan Africa currently stands slightly below 30 GW, roughly 25-30% of the installed power base, but this is dominated by large hydro, with other renewables collectively accounting for just 4-5% of power generation. Can the investment be achieved? Who are the current players and how is the market evolving?
This report, combining country fieldwork and 28 expert interviews, looks at the current renewable power capacity on the continent, identifies the market leaders and looks at the key enablers and constraints.
How to limit global warming to 1.5°C
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Fixing Asia's food system
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To study what are the biggest challenges for change, The Economist Intelligence Unit (EIU) surveyed 400 business leaders in Asia’s food industry. According to the respondents, 90% are concerned about their local food system’s ability to meet food security needs, but only 32% feel their organisations have the ability to determine the success of their food systems. Within this gap is a shifting balance of responsibility between the public and private sectors, a tension that needs to and can be strategically addressed.
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