Impact Of Renewable Energy On Economic Growth

1. Fall 2012
IMPACT OF RENEWABLE
NEW YORK UNIVERSITY
ENERGY ON ECONOMIC GROWTH
Author: Partha Mitra
Date: 10-16-2012

2. Revision History
Date Version Description Author
09/020/2012 1.0 Initial Draft, Table Of Content, Purpose, Partha Mitra
introduction
09/25/2012 1.1 Added Advantages of using Renewable Energy Partha Mitra
Source
10/03/2012 1.2 Economic Benefit from Renewable Energy Source Partha Mitra
10/06/2012 1.3 Implications of Renewable Energy Partha Mitra
10/12/2012 1.4 Added Global Energy Generation Market, Partha Mitra
Employment potential in Renewable Energy Sector
10/15/2012 1.5 Added Implications of Renewable Energy, Partha Mitra
Conclusion
10/16/2012 1.6 Added Cover Page, Ending Page, review, cosmetic Partha Mitra
changes
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3. Table of Contents
1. Purpose of the Document...................................................................................................................... 5
2. Introduction............................................................................................................................................ 5
3. Global Energy Generation Market......................................................................................................... 5
4. Advantages of using Renewable Energy Source.................................................................................. 7
4.1 Environmental Impact................................................................................................................ 7
4.2 Job Creation .............................................................................................................................. 7
4.3 Trade Deficit .............................................................................................................................. 7
4.4 Alternate Energy Source ........................................................................................................... 8
4.5 More Efficiency .......................................................................................................................... 8
4.6 Benefit in Small Business Sector............................................................................................... 8
4.7 Tax Incentive ............................................................................................................................. 8
5. Economic Benefit from Renewable Energy Source .............................................................................. 8
5.1 Direct and Indirect Job Creation ................................................................................................ 9
5.2 Induced Job Creation .............................................................................................................. 10
5.3 Overall Job Growth: Renewable Vs. Conventional Fossil Fuels ............................................. 11
6. Employment potential in Renewable Energy Sector ........................................................................... 12
6.1 Developing the Wind Sector .................................................................................................... 12
6.2 Solar PV installation ................................................................................................................ 13
6.3 Hydro Market ........................................................................................................................... 14
6.4 BioMass Energy Sector ........................................................................................................... 15
7. Implications of Renewable Energy...................................................................................................... 15
7.1 US investment in Clean Energy............................................................................................... 15
7.2 China’s Push for Clean Energy ............................................................................................... 16
7.3 Rise of Renewable in India...................................................................................................... 17
7.4 Clean Energy Implication in Europe ........................................................................................ 17
8. Conclusion........................................................................................................................................... 18
9. Reference ............................................................................................................................................ 18
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4. Approver / Author / Distribution List
Name Role Approvals
Professor, Managing in a Global Economy
Prof. Bruce Baulch Dept: Management and Information Technology
Yes
New York University, NYC, USA.
Author–Impact of Renewable Energy in Economic
Partha Mitra Growth, Student -Master of Science, Management
N/A
& Systems, New York University, NYC, USA.
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5. 1. Purpose of the Document
The purpose of this document is to develop a research report on impact of renewable energy on
economic growth. Without heat, light and power we cannot build or run the factories and cities that
provide goods, jobs and homes, nor enjoy the amenities that make life more comfortable and enjoyable.
In this document we will discuss how renewable energy can help to create jobs, increase opportunities
and essentially can provide us better economy.
2. Introduction
In times of economic turbulence, the focus quite rightly falls on jobs. The energy industry is known for
being highly capital intensive, but its impact on employment is often forgotten. In the United States, for
example, the American Petroleum Institute estimates that the industry supports more than nine million
jobs directly and indirectly, which is over 5% of the country’s total employment. In 2009 the energy
industry supported a total value added to the national economy of more than US$ 1 trillion, representing
7.7% of US GDP. (Peter Voser, CEO : Royal Dutch Shell)
Beyond its direct contributions to the economy, energy is also deeply linked to other sectors in ways that
are not immediately obvious. For example, each calorie of food we consume requires an average input of
five calories of fossil fuel, and for high-end products like beef this rises to an average of 80 calories
(Fossil Fuel and Energy Use). The energy sector is also the biggest industrial user of fresh water,
accounting for 40% of all freshwater withdrawals in the United States. The energy industry significantly
influences the vibrancy and sustainability of the entire economy – from job creation to resource efficiency
and the environment.
3. Global Energy Generation Market
Renewable energy in 2010 supplied an estimated 16.7% of global final energy consumption. Of this total,
an estimated 8.2% came from modern renewable energy counting hydropower, wind, solar, geothermal,
biofuels, and modern biomass. (See Figure 1.) Traditional biomass, which is used primarily for cooking
and heating in rural areas of developing countries, and could be considered renewable, accounted for
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6. approximately 8.5% of total final energy. Hydropower supplied about 3.3% of global final energy
consumption, and hydro capacity is growing steadily from a large base. All other modern renewables
provided approximately 4.9% of final energy consumption in 2010, and have been experiencing rapid
growth in many developed and developing countries.
Figure 1 - Source: Renewables 2012 Global Status Report
Modern renewable energy can substitute for fossil fuels in four distinct markets: power generation,
heating and cooling, transport fuel and rural/off-grid energy services.
Figure 2 - Source: Renewables 2012 Global Status Report
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7. 4. Advantages of using Renewable Energy Source
More than 100 countries have set renewable energy targets, about evenly split between the developed
and the developing world. As Jean-Marie Chevalier describes in his contribution, Energy and the
Economy in Europe, the European Union has set particularly ambitious goals of obtaining 20% of energy
from renewable by 2020. He further states, “Europe’s main energy priority is to build a single energy
market through market liberalization and competition. Achieving this goal involves balancing three core
priorities: maintaining economic competitiveness, transitioning to a low-carbon economy and ensuring
security of supply.” (Chevalier Jean-Marie, European Review of Energy, 2012)
However, reaching higher targets will be no easy achievement given the scale and complexity of the
energy system. Although costs have come down substantially over the years, renewable remain more
expensive than conventional energy in a number of applications. Today, the future of renewable is
primarily determined at the level of policy and politics, but they are set to become a significant part of the
energy mix in coming years.
4.1 Environmental Impact
One of the most important benefits of renewable energy is the fact that it’s non-polluting. And of course as
the name tells us it is renewable and does not use resources that can never be replaced. Renewable
energy has a much lower environmental impact than conventional sources of energy. But there are other
advantages to using renewable sources of energy.
4.2 Job Creation
The benefits of renewable energy extend to stimulating the economy and creating job opportunities. The
money that is invested in renewable energy is typically spent on materials and staff that build and
maintain equipment instead of importing energy. The money spent on renewable energy stays in the
country for the most part, often within the same demographic.
4.3 Trade Deficit
Renewable energy that is made and developed in any country is being sold to overseas countries. This
means that the producing country trade deficit is being improved. This has an impact on energy
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8. nationwide. The benefits of renewable energy will help to alleviate many issues related to this
dependence.
4.4 Alternate Energy Source
The use of fossil fuels makes the U.S. vulnerable to political instabilities, trade disputes, embargoes and a
variety of other impacts. The fact that we rely on other countries for our energy has not done us any
favors in recent years. Every country should stand to benefit greatly from making the change to using
renewable fuels to supply our energy needs.
4.5 More Efficiency
There are many benefits of renewable energy to the ordinary citizen and business owner. Homeowners
will reap rewards from using renewable energy and energy-efficient appliances by saving money in the
long run and reducing environmental impacts. It also renders us able to fuel our homes independently in
many cases. Using renewable fuels makes us less dependent.
4.6 Benefit in Small Business Sector
Small business owners will also reap the benefits of renewable energy. They will save money on utilities.
Even providers of electricity can benefit from selling clean power. There are also many job opportunities
for professionals who can invent ways of using renewable energy easily and efficiently in our homes and
businesses. The more products that are available the cheaper they will become.
4.7 Tax Incentive
Many states now offer tax incentives to those who are using or planning to install clean energy systems
for lighting, heating and the running of appliances. For example in USA current government wants to
make it easier for consumers to make the switch to clean energy. This means that tax credits will enable
to reap the benefits of renewable energy. A variety of tax incentives are available for individuals and
businesses who want to go green in USA. The benefits of renewable energy installations range from tax
waivers, credits, deductions and change in tax status. So not only middle class people save money in
utilities also they will save on taxes too.
5. Economic Benefit from Renewable Energy Source
Spending money in any area of the countries’ economy will create jobs since people are needed to
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9. produce any good or service that the economy supplies. This is true regardless of whether the spending
is done by private businesses, households, or a government entity. But spending directed toward a clean-
energy investment program will have a much larger positive impact on jobs than spending in other areas,
including the oil industry even when taking into account all phases of oil production, refining,
transportation, and marketing. Spending on clean energy will create a higher net source of job creation in
any developed or developing countries relative to spending the same amount of money on high-carbon
fuels because of the three sources of job creation associated with any expansion of spending—direct,
indirect, and induced effects. These three effects in, say, investments in home retrofitting and building
wind turbines can be described in this way:
• Direct effects. The jobs created by retrofitting homes to make them more energy efficient, or
building wind turbines.
• Indirect effects. The jobs associated with industries that supply intermediate goods for the
building retrofits or wind turbines, such as lumber, steel, and transportation.
• Induced effects. The expansion of employment that results when people who are paid in the
construction or steel industries spend the money they have earned from producing these immediate and
intermediate goods for clean energy industries on other products in the economy.
5.1 Direct and Indirect Job Creation
Below Table shows the extent of direct and indirect job creation generated by $1 million in expenditures
on producing alternative energy sources in USA. We present the total job creation figures as absolute
numbers of jobs as well as in relative terms, as a percentage of job growth relative to that generated by
spending $1 million on oil and natural gas.
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10. Figure 3 - Source: Political Economy Research Institute
As the table shows, spending $1 million on energy efficiency and renewable energy produces a much
larger expansion of employment than spending the same amount on fossil fuels or nuclear energy.
Among fossil fuels, job creation in coal is about 32 percent greater than that for oil and natural gas.
The employment creation for energy efficiency—retrofitting and mass transit—is 2.5 times to four times
larger than that for oil and natural gas. With renewable energy, the job creation ranges between 2.5 times
to three times more than that for oil and gas.
5.2 Induced Job Creation
It is more difficult to estimate the size of the induced employment effects—or what is commonly termed
the “consumption multiplier” within standard macroeconomic models—than to estimate direct and indirect
effects. There are still aspects of the induced effects we can estimate with a high degree of confidence.
In particular, we have a good sense of what is termed the “consumption function,” or what percentage of
the additional money people receive from being newly employed will be spent. But it is more difficult to
project accurately what the overall employment effects will always be of that extra spending.
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11. Figure 4 - Source: Political Economy Research Institute
5.3 Overall Job Growth: Renewable Vs. Conventional Fossil Fuels
We combine and summarize these results on overall job creation in Figure 1. This figure shows the total
number of jobs—direct, indirect, and induced—that we estimate would be created from spending $1
million in a combination of six clean energy investment areas—three energy efficiency investment areas
(building retrofits, public transportation and freight rail, and smart grid electrical transmission systems)
and three renewable energy areas (solar power, wind power, and biomass fuels). This combination of
clean-energy investments will generate about 16.7 jobs per $1 million in spending. As Figure 1 also
shows, $1 million in spending within the fossil fuel industry, divided according to the actual proportions of
spending in these sectors as of 2007 will generate 5.3 jobs in total. Spending a given amount of money
on a clean-energy investment agenda generates approximately 3.2 times the number of jobs within the
United States as does spending the same amount of money within the fossil fuel sectors.
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12. Figure 5 - Source: Political Economy Research Institute
6. Employment potential in Renewable Energy Sector
Renewable energy is a growing part of today’s energy supply, embraced as a key solution to the triple
challenges of energy supply, security and climate change. Renewables delivered nearly 20% of global
electricity generated in 2010. Large hydropower made up more than 80% of global renewable power and
16% of global power generation overall. In the following section of the report let’s summarize the
information on energy and employment potential of wind, solar, geothermal and cost effective energy
efficiency measures. Estimated jobs in renewable energy worldwide by industry is provided below.
Figure 6 - Source: Renewables 2012 Global Status Report.
6.1 Developing the Wind Sector
Europe has become the world’s leader in offshore wind development. The first utility-scale offshore wind
farm in Europe, with 20 turbines and 40 MW of generating capacity, was installed in Denmark in 2001.
Since then offshore wind’s share of new wind installations in Europe has been steadily increasing, from
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13. 1% in 2001 to 9.5% in 2010.
While Western European wind markets are maturing and exploring offshore technologies to generate new
capacity, Eastern European markets—driven by Turkey, Romania and Poland, as well as emerging
markets including the Ukraine— are expected to contribute significantly to growth in onshore wind
capacity in Europe. Eastern Europe’s share of Europe’s total onshore capacity additions has risen from
0.3% in 2000 to 21% in 2010. By 2020, Eastern European markets are expected to make up more than
30% of annual onshore additions in the region. Wind Power total World capacity is provided below -
Figure 7 - Source: Renewables 2012 Global Status Report
According to the report of US Department of Energy, constructing wind power generators creates
approximately 2 jobs per megawatt of capacity as constructors prepare the site and install the
foundations, towers, turbines, and connect the generators to the electricity grids. When operational, wind
generators require 5 jobs for every 50-100 megawatts of capacity. These employment estimates exclude
manufacturing job associated with wind turbines.
6.2 Solar PV installation
The U.S. solar energy industry had its second-best quarter in history. The industry installed 772
megawatts (MW) of solar electric (PV and CPV) capacity in Q2 2012, representing a 125 percent increase
in deployment over the second quarter of 2011. The utility scale market had its best quarter on record in
Q2 2012, with over 477 MW installed. SEIA forecasts that the industry will maintain its rapid growth, as an
additional 2,100 MW of solar electric (PV, CPV and CSP) capacity is projected to be installed in the
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14. second half of 2012. The U.S. now has over 5,700 MW of installed solar electric capacity, enough to
power more than 940,000 average American households. The utility scale segment drove the U.S. market
in Q2, with 477 MW of installed solar electric capacity.
Figure 8 - Source: Renewables 2012 Global Status Report
6.3 Hydro Market
An estimated 25 GW of new hydropower capacity came on line in 2011, increasing global installed
capacity by nearly 2.7% to an estimated 970 GW. The top countries for hydro capacity are China, Brazil,
the United States, Canada, and Russia, which together account for 51% of total installed capacity.
Ranked by generation, the order is the same except that Canada’s generation exceeds that in the United
States, where hydro resources are more load-following. Globally, hydropower generated an estimated
3,400 TWh of electricity during 2011, including approximately 663 TWh in China, followed by Brazil (450
TWh), Canada (373 TWh).
Figure 9 - Source: Renewables 2012 Global Status Report
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15. 6.4 BioMass Energy Sector
The biomass industry supplies and uses solid, liquid, and gaseous fuels produced from forest,
agricultural, and municipal residues, and crops grown for energy purposes. The industry also produces
appliances for using these fuels, such as biomass boilers for homes and small businesses, a
Figure 10 - Source: Renewables 2012 Global Status Report
Overall, the bioenergy industry remained only slightly affected by global and regional economic turmoil,
despite the fact that much of this diverse industry is centered in Europe. Due to rising interest in modern
bioenergy, in Europe and elsewhere, local feedstock supplies are failing to keep pace with the rapidly
rising demand in some countries. This trend is driving both an increase
in international trade in biomass and the creation of large feedstock plantations in tropical and sub-
tropical regions.
7. Implications of Renewable Energy
7.1 US investment in Clean Energy
The United States led the world in renewable energy investment in 2011, overtaking China (Pew
Charitable Trusts 2011) Pew's Who's Winning the Clean Energy Race 2011 Edition breaks down clean
energy investment on a country-by-country basis, illustrating this with a quite useful interactive map
showing how much each nation has invested, and their renewable energy capacity based upon source.
The US invested $48.1 billion in clean energy in 2011, 21.4% of total investment among the G-20 nations.
This brings the US's total renewable energy capacity just under 93 GW. Wind power leads the way, with
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16. 46.7 GW installed. Solar in the US now stands at 4.6 GW, biomass at nearly 13 GW, small hydro 25.3
GW, geothermal at 3.3 GW. Ethanol and biodiesel capacity, though listed for other nations, are not given
for the US—though the nation's biofuels target is noted on Pew's national factsheet. Globally, clean
energy investment rose to $263 billion for 2011, an increase of 6.5% over 2010.
Figure 11 - Source: Pew Charitable Trusts 2011
7.2 China’s Push for Clean Energy
Energy and environment is one of the three key themes in China’s twelfth five-year plan (2011-2015), the
master blueprint for achieving the nation’s economic and social objectives. “Energy security concerns,
energy scarcity, high energy costs and mitigation of negative environmental externalities may present
challenges to China’s ability to continue along a path of sustainable economic growth.” (Lin Boqiang,
2011)The plan focuses on combining environmental and energy challenges with market opportunities and
the potential for leadership in new industries. The five-year plan includes a number of initiatives to
encourage clean energy development. The plan identifies Strategic Emerging Industries for investment,
with a target that these industries contribute 8% of GDP by 2015. Three of the seven targeted industries
are directly related to sustainable energy: energy saving and environmental protection, including efficient
industrial equipment and energy service companies; new energy, including renewable energy, nuclear
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17. and clean coal; and new energy vehicles, including electric vehicles and hybrid vehicles. The plan also
includes targets for reducing energy use and carbon emissions per unit of GDP and increasing the share
of non-fossil fuels in primary energy consumption.
7.3 Rise of Renewable in India
India is being hailed as an emerging economic superpower with its average growth rate of about 8% per
annum, even during the financial crisis years of 2009 to 2011. If it is able to sustain this growth rate for
the next 20 years, it will need to quadruple its power generating capacity and increase its supply of
hydrocarbon resources six fold, assuming modest improvements in energy efficiency. This would also
translate into huge import dependencies of approximately 90% for oil and over 60% for natural gas and
coal. The associated investments in port infrastructure and logistics would also be massive. According to
International Energy Association (IEA), India’s power sector has not kept pace with demand – only half of
the generation capacity expected to come online has been added over the last 15 years. As a result,
electricity deficits threaten to restrict the country’s overall economic development. In 2009 and 2010,
shortages equaled 10.1% of electricity supply and more than 15 GW of peak capacity.
In an effort to modernize its electricity grid and reduce dependency on coal-fired power plants, India has
instituted a number of policies that promote renewable energy. As stated in Leena Srivastava’s
contribution, Economic Growth and the Energy Sector in India: “Several new initiatives bode well for
establishing the technical, human and institutional capacities needed for a rapid expansion of renewable
energy sources. These include introducing renewable purchase obligations (solar and non-solar) for
distribution utilities, and scaling them up over time; trading renewable energy certificates on power
exchanges; and setting an ambitious target to develop 20,000 megawatts (MW) of new solar generating
capacity by 2022, over and above existing incentives for wind power.” (Leena Srivastava, 2012)
7.4 Clean Energy Implication in Europe
When it comes to green energy and reducing the impact industry has on the environment, Denmark and
Scotland stand out, by far – just think about Samso, the world’s ‘greenest guinea pig’. Germany is also
two steps ahead of the United States and other developed countries, and countries like Italy, Germany,
Spain, the Czech Republic are making significant efforts in this direction. (Mahai Andrei, June 2012)
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18. Denmark has some clear, and extremely ambitious plans: Denmark’s Parliament at the end of March
passed legislation that established two of the most ambitious renewable energy targets of any nation:
35% by 2020 and 100% by 2050. Just think about it – in less than 10 years, they want to have a third of
their energy from renewable sources, and in less than 40 years – all the energy should be renewable.
Currently, wind energy amounts for almost a quarter of Denmark’s energy. Scotland has even more
ambitious plans: they easily surpassed their 31% target, and are well on pace to meet 100% electricity
demands from renewable sources, and then continue to produce a surplus for export.
8. Conclusion
Overall conclusions are therefore that the clean-energy components will have significant economic
benefits aside from the contributions they will make to reducing carbon emissions and combating global
warming. The most important and most clearly established economic benefit is that clean-energy
investments will be a substantial source of new employment opportunities in developed or developing
countries. Forecasting the impact of these measures on long-run economic growth is fraught with
difficulties. But it is still useful to highlight the fact that all the models that attempt such forecasts find that
any possible negative impacts of a carbon cap on economic growth will be minimal. It is also important to
recognize that these models reach this common conclusion even though they do not take account of
several channels through which the project of building a clean-energy economy will promote a wide range
of new job opportunities and the broader expansion of well-being in many countries around the world.
9. Reference
1. Fossil Fuel and Energy Use: http://www.sustainabletable.org/issues/energy/
2. Robert Pollin, James Heintz, and Heidi Garrett-Peltier, Department of Economics and Political
Economy Research Institute (PERI) University of Massachusetts, Amherst 2009 “The Economic
Benefit of Investign in Clean Energy“ (http://www.americanprogress.org/wp-
content/uploads/issues/2009/06/pdf/peri_report.pdf)
3. Mahai Andrei, June 2012, “World’s 40th environment day: Denmark and Scotland pave the way”
(http://www.zmescience.com/ecology/environmental-issues/denmark-scotland-renewable-energy-
environment-06062012/)
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19. 4. Chevalier Jean-Marie, Security of energy supply for the European Union, European Review of
Energy (http://www-55.mech.kuleuven.be/european-review-of-energy-
market/EREM%203%20article%20Jean-Marie%20Chevalier.pdf)
5. Peter Voser, Chief Executive Officer, Royal Dutch Shell, the Netherlands; Energy Community
Leader 2011, World Economic Forum.
(http://www3.weforum.org/docs/WEF_EN_EnergyEconomicGrowth_IndustryAgenda_2012.pdf)
6. Renewable Energy Policy Network: Renewable Energy Policy Network for the 21st Century
(REN21) (http://www.ren21.net/Portals/97/documents/GSR/GSR2011_Master18.pdf)
7. Renewables 2011 Global Status Report.
(http://www.ren21.net/Portals/97/documents/GSR/REN21_GSR2011.pdf)
8. Pew Charitable Trusts 2011 : Interactive Map: Who’s winning the clean Energy Race ? 2011
Edition. (http://www.pewenvironment.org/news-room/other-resources/interactive-map-whos-
winning-the-clean-energy-race-2011-edition-85899378762)
9. Lin Boqiang, 2011: Associate Dean , New Huadu Business School
(http://reports.weforum.org/energy-for-economic-growth-energy-vision-update-2012/)
10. Leena Srivastava, 2012 (http://reports.weforum.org/energy-for-economic-growth-energy-vision-
update-2012/)
11. Energy & Environment, Whitehouse (http://www.whitehouse.gov/energy)
12. World Economic Forum, 2012 (http://www.weforum.org/issues/energy)
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20. New York University
School of Continuing Education and Professional Studies
70 Washington Sq South, New York City, New York, 10012
Partha Mitra, Management & Systems, ppm246@nyu.edu
Image Credit: Shutterstock
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