## Green Growth Opportunities

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**Canonical URL:** [Green Growth Opportunities](https://www.imf.org/en/publications/fandd/issues/2022/12/green-growth-opportunities-ricardo-hausmann)

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## Bibliographic details
- Authors: Ricardo Hausmann
- Published: December 1, 2022

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### Overview: development opportunity vs. emissions reduction
- 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.

### Theme 1 — Embrace global electrification
- 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.

### Theme 2 — Capitalize on proximity to renewable energy
- 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.

### Theme 3 — Keep the cost of capital low
- 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.

### Theme 4 — Manage technological risks
- 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.

### Theme 5 — Explore carbon sinks
- 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.

### Theme 6 — Plan to learn
- 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.

### Strategic recommendations (summary)
- 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.*

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_Source: https://www.imf.org/en/publications/fandd/issues/2022/12/green-growth-opportunities-ricardo-hausmann_