Green Growth Opportunities

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Developing-country policymakers often perceive cutting greenhouse gas emissions as a low priority given pressing economic problems and because "your country's emissions—even cumulative since the industrial revolution—are infinitesimally small."
The central proposition: rather than prioritizing reductions in a country's own emissions, governments should seek to "supercharge your country’s development by breaking into fast-growing industries that will help the world reduce its emissions and reach net zero."
Key strategic imperative: actively play a role in mastering capabilities that will underpin future comparative advantage amid decarbonization.

More than 70 percent of global emissions come from energy use.
Decarbonization requires electrifying activities now powered by fossil fuels and generating electricity from green sources such as wind and solar.
Growing demand for: solar panels; wind turbines; electrical cables; capacitors; energy storage (e.g., lithium-ion batteries); electrolyzers; fuel cells.
These products are "highly intensive in metals and rare earth elements." Production of these minerals "will have to expand by several multiples" to achieve net zero.
Implications for mining:
- Mining is energy-intensive; energy used in mining will likely need to be green.
- Mining has local environmental and water-intensity challenges; most countries fail to implement regimes open to investment while managing these risks.
- Minerals must be processed into capital goods via long manufacturing global value chains; current megafactories for lithium-ion batteries are mostly in China, Europe, and the US.
- Policy questions: Do you have what it takes to host megafactories? Can you acquire missing capabilities?
Competitive transition risk: identify export industries in your country that will face headwinds because they are high emitters or part of high-emitting value chains; anticipate financing constraints and potential asset stranding.

Geographic endowments (sun, wind) can be a comparative advantage for energy-intensive industries because renewable energy is often cheapest in situ.
Illustrative numbers:
- If a barrel of oil is worth about $100 at the well, shipping it halfway around the world costs less than $4.
- Solar energy can be produced for less than $20 a megawatt hour in sunny countries.
- Converting renewable electricity into an energy carrier such as ammonia can increase the cost of energy sixfold (not counting transport).
Strategic implication: energy-intensive industries may relocate toward places rich in green energy; countries should assess whether they can attract such relocations.

Most cost of renewable-energy production is fixed equipment cost, including the cost of capital.
Examples of country borrowing rates: Germany 2 percent; Dominican Republic 7 percent.
Even with superior solar resources, higher borrowing costs can negate the advantage of sunshine.
Policy emphasis: good institutions and macroeconomic management to keep country risk low and attract capital.
Resource governance warning: mismanagement can squander endowments (example: Venezuela’s oil production has fallen by 80 percent from a peak in 1998); similar outcomes could affect metals like lithium, cobalt, copper, aluminum, and nickel.

Technological uncertainty is pervasive; past surprises (e.g., the smartphone) demonstrate disruptive potential.
Many candidate low-carbon technologies exist and progress from scientific papers and patents to pilots and commercial plants.
Governments often underinvest in technological surveillance; examples of best practice: Israel and Singapore have chief scientists in economy ministries.
Case example: Chile (large lithium resources) investing in a lithium research center with a consortium of global universities to follow cost-reducing or displacement technologies.
Recommendation: establish technological surveillance and make targeted R&D bets to track and adopt promising technologies.

Net zero ≠ gross zero; carbon capture and sinks will be markets of the future.
Options:
- Reforestation and forest protection can generate carbon credits if carbon prices are "reasonable."
- Geological carbon storage: identify, certify, and define property rights for suitable formations.
Market and institutional issues:
- Carbon prices today are often too low or non-existent in many countries, trading at large discounts when credibility is weak.
- Credible, enforceable institutions are required so carbon credits are trusted (e.g., permanence safeguards to prevent re-release of stored carbon).
- Legislation must adapt because existing law often assumes extraction rather than injection of residues into the subsoil.
Potential payoff: preserve forests, monetize subsoil storage capacity, and help global decarbonization.

No country currently dominates all future green technologies; success depends on learning and capability accumulation.
Growth requires evolving comparative advantage, not just focusing on current strengths.
Policies to foster learning:
- Attract strategic foreign investment and global talent.
- Facilitate technological adoption via research programs at universities and beyond.
- Avoid closing off domestic markets; openness supports rapid capability accumulation.
Policy framing: prioritize creating value and livelihoods at home by helping the world decarbonize, rather than solely focusing on reducing the domestic carbon footprint.

Reframe climate strategy from domestic-emissions-only to capturing green economic opportunities that scale exports and create higher-wage jobs.
Identify and invest in capabilities across the six themes: electrification value chains; renewable-energy proximity; low cost of capital; technological surveillance and R&D; credible carbon sinks; and deliberate learning strategies.
Anticipate sectoral winners and losers domestically; redeploy capabilities from shrinking high-emission industries to growing green sectors.

Source: Green Growth Opportunities, Ricardo Hausmann, December 2022.