The green transition creates new risks and rewards

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Different countries face different risks and opportunities as the world shifts from fossil fuels to renewables, the researchers say.

Green policies have traditionally been seen as costly for the countries that implement them, while other countries can do nothing and “move freely”, leading to global inaction in the face of the climate crisis.

However, the research team – led by the universities of Exeter, Cambridge, the Open University and Cambridge Econometrics – claim that this is a ‘wrong description’ of today’s reality. hui.

Instead, they say the transition is already underway and, for many countries, embracing it is the best strategy to cut costs.

As the global economy transforms, free-riding can now be the risky approach – not only environmentally but economically as well.

Risks and opportunities vary widely from country to country, according to the new study, depending on how competitive they are in fossil fuel markets.

Countries fall into one of three categories – each with different incentives driven by the green transition.

Large importers of fossil fuels like the EU and China will reap many benefits from decarbonization.

Meanwhile, “large competitive fossil fuel exporters” like Saudi Arabia could avert economic decline by flooding global markets with discounted fossil fuels.

The third category – “large uncompetitive exporters” such as the United States, Canada and Russia – could suffer due to stranded fossil fuel assets and lack of investment in new technological areas.

However, losing countries can avoid these impacts by diversifying their fossil fuel economies into new technological sectors, including low-carbon exports.

“The costs and benefits of decarbonization and related policies have been misunderstood and misrepresented for some time,” said Dr Jean-François Mercure, of World Systems Institute at the University of Exeter.

“In fact, the green transition is well underway, whether people realize it or not, and these policies are already in play.

“Decarbonization has traditionally been viewed as expensive, but it really depends on how much high-carbon industries each country has to lose, compared to what can be gained in new technological sectors. “

Professor Jorge Viñuales, University of Cambridge and co-author of the study, said: “The dominant narrative that while others decarbonize you can use them for free to your advantage needs to be reversed.

“As the economy transforms, if you don’t decarbonize, you shoot yourself in the foot.

“The key question is how to do it under the specific conditions of your country.”

The study indicates that the rapid replacement of fossil fuels with renewable energies will entail a “profound reorganization of the value chains of industry, international trade and geopolitics”.

The researchers describe an incentive structure that differs depending on the positions of countries in relation to the fossil fuel industry:

  • Large importers such as the EU, UK, China, India and Japan have a win-win scenario in which they can get rid of their dependence on foreign fuels and create jobs by spending that money nationally and developing new technologies at home. These countries are already in rapid transition.
  • Economic conditions can drive large competitive exporters (some OPEC countries) to flood fossil fuel markets to avoid declining export volumes as demand peaks and declines.
  • The large uncompetitive exporters (the United States, Canada, Russia and possibly some South American countries like Brazil) would be unable to compete on price in this flooded market, suffering a double whammy from the declining demand and low prices for oil and gas. However, unlike large importers, the fossil fuel industry is much more important to economic activity and jobs – reducing economic incentives or creating political barriers to short-term decarbonization. Free-riding would mean exposing these sectors to structural changes without a clear exit strategy. Countries in this situation should think carefully about how to reduce their exposure to abandoned assets and how to take advantage of the transition benefits that can be used to protect exposed workers.

Research suggests that unless this new geopolitical game is recognized and addressed, the world could find itself stuck in an impasse in which some countries embrace the new technological wave, while others could find themselves trapped in a vicious cycle. declining and obsolete fossil fuel industry. , and finally, post-industrial decline.

The solution to industrial decline remains innovation in new sectors and economic diversification.

“The disruptive nature of the low-carbon transition makes a macroeconomic strategy based on the status quo untenable,” said Dr Pablo Salas of the Institute for Sustainability Leadership (ICFTU) at Cambridge University.

“Supporting low-carbon innovation is the only way to maintain long-term competitiveness in a decarbonising economy. “

Researchers stress that they are not advocating specific climate policies, but simply identifying the new global geopolitical situation before the vital crisis COP26 United Nations Climate Change Conference in Glasgow.

Professor Neil Edwards, who led the project funded by the UK Natural Environment Research Council at the Open University, which provided the climate modeling used for the work, said: ‘There remains a widely held belief that politicians don’t have no motivation to adopt the policies necessary to protect the climate as provided for in the Paris Agreement.

“Our document clearly shows that there are strong political incentives and that furthermore, change is happening.”

Commenting on the choices facing countries such as the United States, Canada and Russia, Hector Pollitt, chief economist at Cambridge Econometrics, said: The decision-making.

“However, these bleak prospects can be reversed if they manage an orderly transition, support job creation in new sectors, and facilitate worker mobility between old and new industries.”

Dr Gregor Semieniuk, University of Massachusetts Amherst and another co-author of the study, said: “Developing countries face the greatest challenges in entering the low-tech supply chain. carbon emission.

“Richer countries with a high-cost fossil fuel supply but a diverse economy actually have a choice to participate fully in the low-carbon economy with an appropriate industrial policy. They just have to succeed in making that choice. . “

Dr Mercury added: “Economic diversification away from fossil fuels is complex but necessary to protect economies from the volatility that typically occurs at the end of a technological age. We must recognize that the end of the era of fossil fuels is upon us.

“We hope that our article will help explain the current situation and encourage global cooperation on the issue of climate change, in order to promote economic development around the world.

The research – funded by the Natural Environment Research Council – was conducted by the University of Exeter, Cambridge Econometrics, the Open University, the University of Cambridge Institute for Sustainability Leadership (CISL), the Cambridge Center for Environment, Energy and Natural Resource Governance (C-EENRG), the University of Massachusetts Amherst and the University of Macau.

The researchers involved in this article are part of the Economics of energy innovation and systems transition (EEIST), led by the University of Exeter and funded by the UK Department for Business, Energy and Industrial Strategy (BEIS).

The views expressed in the results of the project do not represent the views or policies of the UK Government.

The article, published in the journal Natural energy, is entitled: “Reframing the incentives for action in the area of ​​climate policy”.



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