Renewable Resources: The Impact of Green Energy on the Economy

Business.com / Strategy / Last Modified: February 22, 2017

Find out why more countries are shifting away from non-renewables and harnessing wind, water, and solar to secure their future economies.

Currently, the world depends heavily on coal, oil, and natural gas to meet its energy needs. However, the utilization of these energy sources has a drastic impact on our environment, which is well documented.

Furthermore, these sources of energy are non-renewable, that is, they will not last forever. As their supplies dwindle, they will become too expensive, difficult to retrieve, and will also have a damaging impact on the environment.

Eco-friendly sources of energy, also known as Green energy or renewable energy sources, have acquired tremendous attention and acceptance in the past few years as governments, organizations and people all over the world are embracing their environmental responsibilities.

Renewable energy sources include solar, wind, water, snow, and rain. In addition to not having an adverse impact on the environment, these energy sources will never die out as they are continuously replenished.

The objective of this article is to provide a view on the economic impact of green energy.

Current and Projected Global Market for Energy

Monopoly-based organizational structures defined the energy market during its early history. Due to extraordinary circumstances in the 1970s, the market saw a radical overhaul that led to liberalization in some countries. Today, we are at the cusp of what may be another radical overhaul in the market.

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Fossil fuels dominate the power sector and will continue to do so in the foreseeable future. Strong growth in non-OECD (Organization for Economic Co-operation and Development) countries exceeds the reductions in OECD countries, thereby extending a lifeline of fossil fuels. However, their share of the energy generation market is expected to decline from 68 percent in 2011 to 57 percent in 2035.

For 2010, the share of renewable energy in the global energy consumption was estimated at around 16.7 percent. This translated to $224 billion in terms of value. The valuation of renewable energy is expected to hit 331 billion by 2015. China's adoption of the technology would generate value greater than that derived from the European Union, United States, and Japan put together. This would propel the sector to greater heights with its share in power generation rising from 20 percent in 2011 to 31 percent in 2035 making it the leading source of the world's energy.

Within the European Union, renewable energy had a 24.3 percent share of the total energy produced from all sources. The amount of renewable energy produced within the region increased by 84.4 percent between 2003 and 2013.

The renewable energy sector is almost evenly divided between modern and traditional renewable sources. Modern renewables include solar, wind, hydropower, and geothermal. Traditional renewables include biomass, which is usually employed in rural regions of developing countries. Of the global energy market share, modern renewables contributed an estimated 8.2 percent while traditional renewables accounted for approximately 8.5 percent.

Hydropower is one of the biggest renewable sources of energy. As of 2010, it supplied about 3.3 percent of the world’s energy consumption and was estimated to be worth $62 billion. The sector is projected to touch $74 billion in 2015.

The most dramatic growth is expected from the solar energy sector. Valued at $44 billion in 2010, the sector is expected to grow at a CAGR of 17 percent and hit $97 billion by 2015. Some reports suggest that the sector will experience 25 to 50 percent growth in 2016.

Impact on the Economy

Over a hundred countries – an even mix of developing and developing countries – have set renewable energy targets. The European Union, in particular, has defined an ambitious goal of acquiring 20 percent of its energy needs from renewable sources by 2020. The United States too is focused on transforming from a carbon-intensive economy to an energy-based economy as the reality of global climate change approaches rapidly. Some of the major changes would include:

A. Increase in Jobs

Making the switch from fossil fuels to renewable energy sources could provide the much-needed kick to the economy. According to a 2007 study from the University of Tennessee, the state of Pennsylvania could generate about 44,000 new jobs and increase net farm income by $460 million by adopting renewable energy.

Among all renewable sources of energy, bioenergy arguably has the most lasting influence, locally and regionally. This could be due to the fact that the fuel is created, prepared and transported within a small area. It is also extremely labor-intensive.

Hydropower and wind power constructions create most jobs during the project development and construction phase. After the system is completed and commissioned, only a few personnel are required to carry out the limited operational work.

Data released by a trade association of wind and marine energy providers suggest that three to four indirect jobs were generated for every person employed directly within the wind industry.

B. Lower Consumer Expense

Production of renewable energy is usually more efficient compared to traditional energy. The American Wind Energy Association claims that a sufficient number of wind plants – that could be built in four years – could eliminate the gas shortage. All other forms of renewable energy sources also turn out to be way cheaper than traditional non-renewable sources. What this means for consumers is that they can save money on their utility bills.

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C. Good Business Sense

For many years, environmentalists have argued for the adoption of renewable energy as a replacement for traditional energy resources. Today, governments and corporations are singing the same tune simply because it makes good business sense.

Consider General Electric, for example, which leads the wind energy market in the United States. They launched a grassroots campaign to promote renewable energy by showcasing a 131-foot wind turbine in a few states. Such campaigns aim to spread awareness about renewable energy and its many advantages. However, several countries have already moved towards renewable energy. Providers in such countries have seen the tremendous impact renewable energy can have on the bottom-line.

Investing in renewable energy can also have a massive impact on the government’s expenses. For example, Germany is a major net importer of power. As per estimations, the country could be using only renewable energy by 2050 that could help it save billions of dollars as it would not need to import energy.

D. Universal Access to Energy

Dependence on fossil fuels continues to distort the energy market resulting in a significant number of people having no access to power. It is estimated that almost 1.3 billion people across the world had no access to electricity in 2011. A total of 2.6 billion people relied on traditional biomass for cooking for the same year. The vast majority of these individuals were in Asia and sub-Saharan Africa. Renewable energy can reach even these deprived areas.

E. Ethical Investment Avenue

It should also be noted that the renewables sector is an ethical and attractive investment destination for those who desire to place their finances beyond and outside the traditional channels. Rising investments create a healthy and positive outlook for the sector, which can have an intangible impact on job creation and community cohesion.

Probability of Success

Can renewable energy expand consistently to dominate the energy market as suggested by several independent reports? More importantly, can adoption of this technology translate into economic benefits for nations? Looking at countries that have embraced renewable energy while reducing their dependence on traditional sources, the answer seems to be a resounding “yes” for both the questions.

Data released by the government of the United Kingdom revealed that the country experienced the steepest drop in carbon emissions in 2014, after more than two decades. The United Kingdom's economy grew by 2.6 percent despite its greenhouse gas emissions falling by 8.4 percent. The disclosure is encouraging for a country that has made a legal commitment to reduce its carbon emissions to a mere 20 percent of its 1990 levels by the middle of the 21st century. Currently, a fifth of the country’s energy is derived from renewable sources like solar farms and the wind.

Costa Rica achieved an arguably bigger energy milestone. From January 1 to March 16 of 2015, it generated all of its energy without using any traditional energy sources like coal or gas. For 75 days, the Central American country produced power using a combination of renewable sources – heavy rainfall, solar energy, wind energy, and geothermal energy. Like the United Kingdom, Costa Rica enjoyed significant economic growth even as its carbon emissions decreased.

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The Green Energy Movement in the Corporate World

The sensitivity towards global warming is increasing across the globe and several big companies claim to be functioning entirely on green energy to reduce carbon emission and do their part in saving the planet. Corporate giants like Intel, Apple, Microsoft, Kohl’s Department Stores, Unilever and many more are utilizing 100% green power in the United States, thus reducing their carbon footprint significantly.

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