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Sustain to gain: January 2010 Archives

Prices of solar energy and wind turbines are dropping world wide. This article in the New York Times highlights the role of China in this market. The bottom line is as follows: China by now is the world leading manufacturer of solar panels and wind turbines. By this is achieves economics of scale and can offer products at a relatively low world market price.

There are two immediate consequences:

  1. Installation of renewable energies becomes cheaper worldwide 
  2. Manufacturing competitors in other countries have a tough stand competing against Chinese manufacturers

Why could China get into this position in first place? The NYT article delivers the following explanation:

"China's biggest advantage may be its domestic demand for electricity, rising 15 percent a year [...] In the United States, power companies frequently face a choice between buying renewable energy equipment or continuing to operate fossil-fuel-fired power plants that have already been built and paid for. In China, power companies have to buy lots of new equipment anyway, and alternative energy, particularly wind and nuclear, is increasingly priced competitively."

In other words: in the US and Europe, renewable energies have to compete against existing energy supply, in China they don't have to: there is enough space for both rapid expansion of coal power plants, and renewable energy. Practically unlimited demand requires expansion of energy supply across the board. Another reason the low prices, of course, is the lower labor costs in China.

An interesting exercise is to consider the consequences of this observation the other way around. If saturated economies decided to phase out conventional power plants - coal and nuclear - rapidly, there could be room for economies of scale in renewable energy supply locally, too. However, such a decision can only be made politically as those who would massively invest into renewable energy supply are the current owners of existing coal plants.

Understanding the dynamics of this game (and the relevance of the argument above) is of high relevance for OECD countries. For example, in Germany the phase-out of nuclear plants is renegotiated, with stakeholder arguing that longer running time of nuclear plants serves as a 'bridge' towards a renewable energy future. From a different perspective the nuclear power plants pose a barrier towards economies of scale in renewable energy supply with the two consequences of (a) losing an edge advantage in international economic competition in renewable energy technologies and (b) getting the intertemporal optimization wrong. The intertemporal optimization point is that investing now into renewable helps to get the prices down quicker, and have lower abatement costs in the future (this argument is so central that is deserves another blog).

The debate pro/con nuclear power from the climate perspective is still open. The Chinese evidence of the economies of scale, however, provides some quantitative indication in favor of phasing out conventional plans rapidly. 

How do we get land transport on the track towards sustainability?

This was one of the questions of last week that witnessed intense and exciting exchange at the Transport Research Board, and a special conference on Transforming Transportation in Washington, D.C. From a climate perspective, sustainable translates into low-carbon transportation. However, sustainable transportation also comprises equity and accesssibility, public heat, such as air pollution and noise but also effects related to physical activity, and time and monetary cost of transportation.

Land transportation is responsible for 5-30% of greenhouse gas emissions of countries. Currently, transport's share of GHG emissions is signficantly lower in developing countries than it is in OECD countries, notably the U.S. However, emission growth is heading north. Sustainable transport policies are not incredibly challenging to understand. They include pedestrian facilities, a network of well maintained bicycle lanes, parking facilities for bicycles, a bus or tram network for medium sized city, and an additional subway/metro network for larger cities and metropolitan regions. Crucially, non-motorized transport and public transit must have priority before car transport wherever these modes struggle for space. The spatial dimension is indeed the most interesting and challenging: what is the optimal land-use policy related to sustainable transport? When facilities, jobs and residential areas are well connected to public transit, sustainable modes of transport can guarantee accessibility. Now, sustainable transport is less expensive than building highways but it still must be financed. Let's look at the financial flows of the development banks as of 2007 (Figure below).

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Source: ADB, 2009

·            The World Bank and the Asian Development Bank commit about three fourth of their transport lending towards roads and highways (ADB, 2009). There is basically no funding for pedestrian and cycling infrastructure.

·           More generally, multilateral development banks still fund dirty projects (fossile fuel related) with 4 times more money than green projects. Bilateral agencies are only little better (Hicks et al., 2008; for some further discussion and data see Creutzig and Kammen, 2009)

·            According to a former Bank member, the World Bank never funded a pedestrian project. One proposed project was rejected, as the financing volume was too small.

When financing of sustainable transport projects increases sustantially, a huge number of projects could be funded as bycicle lanes, but also bus rapid transit systems are not incredibly expensive. Of same importance is the reduction of conventional projects, such as highway construction. In transport, infrastructure supply induces demand, and additional road network will increase automobile dependency, can even lock-in developing countries into car dependency as it happened before to other countries. Hence, a goal from the top-down perspective is to inverse the factor 4 in financing: 4 times more money into sustainable road projects than into road construction (certain projects probably still make sense). As banks and donors work mostly with large chunks of money, but also as sustainable transport projects work best in a system's approach, it is in many cases best to bundle projects into city-wide packages.

As a side note: The factor 4 also finds itself in the paper of the TRB conference last week. A simple word search in TRB papers found approximately 4 times more hits for highway (1822) than sustainable (337), and cars (1822) versus pedestrians and bicycles combined (495). Science needs to switch, too.

ADB, 2009. Rethinking Transport and Climate Change. Working paper series.

Hicks, R., Parks, B. C., Roberts, J. T., & Tierney, M. J. (2008). Greening Aid? Understanding the Environmental Impact of Development Assistance. Oxford, UK: Oxford University Press.

F. Creutzig, D. M. Kammen (2009) The Post-Copenhagen Roadmap Towards Sustainability: Differentiated Geographic Approaches, Integrated Over Goals
INNOVATION, Vol 4 (4): 301-321