Divergent rates of recovery from the pandemic could cause issues with green transitions for major industrialised countries.
A new study from Lombard Odier and Smith School of Enterprise and the Environment at the University of Oxford revealed that some countries are well ahead of others in terms of their capabilities for a green transition and recovery from the pandemic.
The report, ‘Predictors of Success in a Greening World’, finds many countries will thrive over the next 25 years, profiting from investment in new green industries, whereas others are expected to experience more of a struggle. It also covered the extent to which each country has adequately directed their Covid-19 recovery spending to ‘build back greener’.
“Countries such as Germany, Italy, Spain, the USA, and China, with strong manufacturing and technological capabilities, are currently well placed to benefit,” said the report. “Many countries also have competitive strengths and endowments that could allow them to capitalise on the burgeoning demand for green products, technologies, and energy over the coming years.”
But there were laggards too. In Europe, Germany was seen as both a leader and also a potential straggler due to the chronic underinvestment in transitioning reported by industry partially due to a slow bureaucratic process. The evidence pointed to other countries potentially overtaking it as the incumbent European renewables hub. Italy, Spain, and Turkey are developing domestic wind and solar companies, which the report describes as “trailblazing”.
A factor in future success, identified in the report, is countries’ ability to build their own renewable power structures. This depends in part on the format and focus of their renewables industries.
Many Asian wind and solar companies – Chinese, Japanese, Indian and Thai – generate most of their revenues domestically, the report says. North American and European companies, though, generate a higher proportion of their revenues through exports, which could affect long-term strategies. However, China has the highest exports of renewables by volume.
Examples of countries where more could be done included Switzerland, which has strengths in essential areas such as railway parts and biogas equipment. But the report suggested it should scale up renewables spending to match that of regional competitors, including Germany.
Countries were evaluated by their green complexity potential (GCP), which measures each country’s average relatedness to complex green products it does not yet export competitively. The second methodology was a green complexity index (GCI), which measures the number and complexity – a proxy for technological sophistication – of green products that a country has exported competitively, thereby developing a composite measure of green competitiveness over time.
Difficulties in assessing countries’ net zero transition paths have been a point of frustration for asset owners for some time, due to the lack of a coherent assessment framework to evaluate sovereign issuers’ overall environmental risks and performance, especially in relation to mitigating and adapting to climate change.
A new initiative for this was launched in June, called the Assessing Sovereign Climate-related Opportunities and Risk (ASCOR) framework, which aimed to help investors measure, monitor and compare sovereign issuers’ current and future climate change governance and performance.
The effects of the pandemic will have a severe effect on certain countries’ ability to speed their green transition, the report also said.
It showed that Covid-19 recovery spending differences could drive changes in green capacities in the future. For example, highly ranked countries in terms of green complexity such as Italy, the Czech Republic, and Romania are, so far, spending relatively little on sustainable projects in their post-pandemic recovery plans.
This was in comparison to the UK, which is a leading green spender, with a high green competitiveness score and above average green share of Covid-19 recovery spending, the report added.
Trade tensions and weak political ambition could also pose risks to the future green leadership profiles of major economies such as the USA, Australia, and Brazil.
“China is playing an increasingly central role in the wind and solar landscape, potentially offering the highest growth wind and solar market for investors,” the report said.
“This should serve as a wakeup call to the ‘laggards’; they are not just holding back efforts to combat climate change, but missing valuable opportunities to benefit from the transition,” said Cameron Hepburn, Professor of Environmental Economics at the University of Oxford and Director of the Smith School of Enterprise and the Environment.