Different countries have different challenges when changing from fossil fuels to renewable energy, a news study has found (1). New technologies are often seen as expensive for the countries that decide to use them, while other nations still benefit but are not prepared to invest. In the past, this has led to a global state of inaction, delaying our response to climate change.
However, a team of researchers from Exeter and Cambridge Universities, the Open University, and Cambridge Econometrics now suggest embracing this change is the most cost-effective strategy to reduce overall costs.
“The prevailing narrative that, while others decarbonise, you can free-ride them to your benefit must be turned on its head. As the economy transforms, if you do not decarbonise, you are shooting yourself in the foot”, said Professor Jorge Viñuales of the University of Cambridge and co-author of the study. “The key question is how to do it in the specific conditions of your country.”
As more and more countries start moving towards renewable energies, taking no action is becoming a risky approach, both environmentally and economically. However, the risks and opportunities vary between countries depending on how competitive they are in fossil fuel markets.
In this respect, large importers of fossil fuels —like China and the EU —can benefit significantly from this change. On the other end of the scale, large exporters —like Saudi Arabia—may choose to avoid economic decline by flooding markets with low-priced fossil fuels, but this is not a long-lasting option. The countries that are likely to suffer the most are uncompetitive exporters —like Canada and Russia—with stranded fossil fuel assets and a lack of investment in renewable energies. The way forward for these countries is to diversify their economies away from fossil fuels.
“The costs and benefits of decarbonisation and related politics have been misunderstood and misrepresented for some time,” said Dr. Jean-Francois Mercure of the Global Systems Institute at the University of Exeter. “In fact, the green transition is well under way, whether people realise it or not, and those politics are already at play. Decarbonising is traditionally seen as expensive, but it really depends on how much high-carbon industry each country has to lose, versus how much can be gained in new technological sectors.”
The researchers outline a possible structure of incentives for each country:
- Large importers, such as the EU, China, and India, have the perfect opportunity to create more jobs in the renewable energy industry. They can spend extra money domestically instead of buying fossil fuels. Most of these countries are already transitioning.
- Large exporters may prefer to flood fossil fuel markets to avoid drops in export volumes as the demand declines.
- Uncompetitive exporters, such as the Russia, US, and Canada, cannot compete as larger countries flood the market. These countries need to consider carefully how to reduce their reliance on fossil fuels and start benefiting from renewable energies.
This analysis shows that the world could quickly become stuck in a deadlock, with some countries fully embracing the new technologies and others trapped in a cycle of declining and obsolete industry that needs fossil fuels. “We are predicting a bleak outlook that is conditional to policy-makers, businesses and people in countries not changing their strategic behaviour and decision-making,” said Cambridge Econometrics Chief Economist Hector Pollitt. “However, this bleak outlook can be turned around if they manage an orderly transition, support job creation in new sectors, and facilitate the mobility of workers between the old and new industries.”
Dr. Mercure added, “Economic diversification away from fossil fuels is complex but necessary to protect economies from the volatility that usually occurs at the end of a technological era. We have to recognise that the end of the fossil fuel era is at our doorstep. We hope our paper helps to explain the current situation and encourages global cooperation on the issue of climate change, to promote economic development worldwide.”
Researchers involved in this work are part of the Economics of Energy Innovation and System Transition (EEIST) project, led by the University of Exeter and funded by the UK’sUK’s Department for Business, Energy and Industrial Strategy (BEIS).
(1) Mercure, JF., Salas, P., Vercoulen, P. et al. Reframing incentives for climate policy action.Nat Energy (2021). https://doi.org/10.1038/s41560-021-00934-2