Nairobi — Falling Solar Photovoltaic Prices, Low Manufacturing Costs and Regional Cooperation Offer Developing Countries Green Economy Advantage
Renewable energy (RE) trade among developing countries is growing faster than global and north-south RE trade as developing countries, led by China, take advantage of decreasing manufacturing costs, increased investment, and the falling costs of renewables, says a new report released during the first United Nations Environment Assembly (UNEA).
Solar Photovoltaic (PV) capacity installed globally during 2013 was almost a quarter larger than in 2012. Whereas there was a further decline in growth in Europe, there was strong growth in China and several developing country markets. Developing countries collectively accounted for well above one-third of new capacity additions in 2013.
The Green Economy report, South-South Trade in Renewable Energy: A Trade Flow Analysis of Selected Environmental Goods, produced by the United Nations Environment Programme (UNEP), identifies key growth markets for the trade in environmental goods and services (EGS). The report focuses on the RE sector and maps the flow of trade of RE goods among developing countries. It also outlines how countries can accelerate more inclusive growth in South-South RE trade.
"The EGS market - which is expected to grow to around $US1.9 trillion by 2020 - offers developing countries an unprecedented opportunity to drive the green economy transition," said UN Under-Secretary General and UNEP Executive Director Achim Steiner.
"A significant contributor to South-South EGS trade, renewable energy technologies now represents one of the fastest-growing markets in the world," he added. "They are critical to reducing greenhouse gas emissions, enhancing rural and off-grid energy access and improving energy security, as well as creating jobs and livelihood opportunities. This report highlights the need for targeted investments, enabling policies and capacity building to support the global transition to a low-carbon, resource-efficient green economy."
The global market in low-carbon and energy-efficient technologies is projected to nearly triple between 2010 and 2020. The report highlights how these expanding markets are opening new economic opportunities for developing countries and provide a key means of better integrating the economic, social and environmental dimensions of sustainable development.
The job generation potential of RE is particularly high. Estimates suggest that by 2030, 20 million people could be employed in the renewable energy sector, either directly or indirectly. Job generation potential is most pronounced in manufacturing and services activities related to solar PV and wind-powered energy.
While the report focuses primarily on RE markets, it also points out that small and dynamic emerging markets in water treatment equipment and water supply - valued at US$50 billion globally - present developing economies with promising growth potential, and the opportunity to provide more than 700 million people with access to improved drinking water.
South-South trade in organic food and beverage - with a global market value of over US$63 billion - is also identified as another growing market, where greater regional cooperation could help generate commercially-viable products for export to developed-country markets.
The report calls for increased South-South trade cooperation - with a focus on more low-cost environmental goods, establishing favourable trade policies and agreements, and developing a skilled energy labour force - to increase significantly South-South trade in EGS, and accelerate the green economy transition.
The challenge for policymakers is to unlock the potential for South-South trade, in particular intra-regional trade, in EGS.
The report issues key findings across the board, looking at the role renewables can play in the transition to a green economy, trends in trade, and the domination of solar power.
Renewables can play a decisive role in developing country green economy transitions
South-South trade in EGS is critical to the transition to a green economy for a number of reasons. South-South trade can:
Allow developing countries to export EGS to the dynamic markets of other developing economies, providing new opportunities for participation in global value chains.
Provide access to more appropriate and affordable goods for developing countries, responding to similar technology needs and prevailing local conditions.
Stimulate employment growth in industries where developing countries have a comparative advantage, such as organic agriculture.
Be important as regional economic cooperation expands globally, facilitated by regional trade and investment agreements that allow developing countries to increase regional production and trade of EGS.
Prevailing Trends in South-South EGS Trade, with a focus on RE
Global prices for EGS and, in particular, for RE technologies have been falling. As the cost of producing RE increasingly approaches the cost of fossil fuel energy production, investment in RE is likely to increase.
Government policy - including fiscal incentives, feed-in tariffs and minimum-use requirements - has had a major impact on EGS market and trade trends in recent years. In the RE sector, fluctuations in government policy have both stimulated and, more recently, also repressed demand for new installations.
Trade policies remain critical to EGS deployment worldwide. The reduction or elimination of trade restrictions among developing countries facilitates South-South access to lower cost EGS, but also introduces trade competition. In order for trade liberalization to contribute to the green economy transition, efforts require flanking policies such as taxation or regulation to ensure the positive economic, social and environmental benefits of trade.
South-South trade of RE on the rise
South-South trade in RE goods analyzed in this report - including solar PV cells and modules, wind-powered generating sets, hydraulic turbines and products associated with RE generation from biomass - grew faster (at 29.4 per cent ) than global trade (at 26.7 per cent, excluding intra-EU trade) in the same sectors.
In 2012, new solar PV capacities in developing countries were more than twice the previous year's. In the European Union, new capacities were almost a quarter lower.
Between 2010 and 2013, developing countries added more new wind-energy installations than developed countries. South-South trade in wind turbines accounted for US$1.3 billion in the period 2008 to 2012 (US$270 million per year on average), with Chinese sales making up the majority of this trade.
In 2013, developing countries collectively added 20.7 GW of new wind installations. In all, developing countries accounted for 58 per cent of new capacity added during 2013. That's enough energy to power 188 million average American homes for a year.
Green Economy Recommendation
For renewables to replace fossil fuels at a rate necessary to mitigate climate change, enabling policy environments should keep pace in both developed and developing countries.
China and Eastern and South-Eastern Asia dominate trade figures, but trade in other regions is set to grow
While China, Eastern and South-Eastern Asia dominate South-South renewables trade, other regions of the developing world also show promising trade growth.
African countries collectively imported US$342 million in wind-powered generating sets from other developing countries in the period 2009 to 2013. The largest importers were South Africa (US$238 million in 2013), Ethiopia (US$19 million in 2011-12) and Egypt (US$14 million in 2009).
China exported US$869 million worth of PV cells and modules to African countries in the period 2009 to 2013. The majority of exports went to South Africa.
Green Economy Recommendations
Countries can seek to improve South-South trade cooperation for the installation, innovation and dissemination of renewable energy technologies.
Standards, mutual recognition and labelling initiatives, both globally and regionally, can facilitate South-South trade in environmental goods. Organic agriculture, water purification equipment and installation, certified timber goods, sustainable fisheries and eco-tourism all present opportunities for growth which should be pursued.
Solar dominates South-South RE trade
Trade in solar PV cells and panels has largely driven developing countries' graduation from net importers to net exporters of renewable energy goods.
Declining global costs of renewable energy equipment, in particular solar PV cells and modules are making investments in renewable energy more attractive. In many countries, 'off-grid' renewable energy projects in solar, wind and hydro are already cost-competitive with conventional sources.
During 2013, China's exports of PV cells and modules to other developing countries increased 145 per cent to a record of US$2.3 billion (72 per cent above the value of 2011 exports).
Green Economy Recommendation
Appropriate targets, incentives and flanking environmental and social policies can be put in place to help developing countries to take advantage of current favourable conditions for renewable energy generation.
UNEA is the highest-level UN body ever convened on the environment. It enjoys universal membership of all 193 UN member states as well as other stakeholder groups. With this wide reach into the legislative, financial and development arenas, the new body presents a ground-breaking platform for leadership on global environmental policy. UNEA boasts over 1200 participants, 170 national delegations, 80 ministers and 40 events during the five-day event from 23 to 27 June 2014 at UNEP's Headquarters in Nairobi, Kenya. www.unep.org/unea