Higher energy security and economic complexity may hamper renewable energy development.

During recent decades there has been a major increase in environmental problems such as climate change and pollution, resulting from human use of energy for socio-economic activities.

This paper seeks to make policy recommendations based on a new model of the interaction between energy security and ‘economic complexity’ (i.e. a reflection of a country’s economic potential). Economic complexity reveals a country’s capacity to produce sophisticated or knowledge-intensive products, through its accumulated knowledge, says the researcher.

They argue that economic complexity has a convoluted impact on renewable energy and can influence it in two main ways – technology and scale. While greater complexity can help in the development and formation of renewables via the production input mix and improvements in technology, it can also discourage renewables in favour of fossil fuels, because of a higher energy demand and an energy-intensive economic framework.

As nations around the world transition towards increased use of renewable energy, various studies have sought to understand the key political and macro-economic factors influencing renewable energy adoption. These studies have considered a range of possible determinants, but have typically used various metrics and focused on different regions or country groupings; hence, results have often been equivocal or contradictory. This study analyses data from the G7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States) using consolidated metrics and a sophisticated analytic approach to assess the influence of two possible factors: energy security and economic complexity.

The researcher used 1980–2017 data on per capita renewable energy consumption, derived from the Statistical Review of World Energy, and population data from the World Bank’s World Development Indicators database. They used energy security data from the Global Energy Institute’s Energy Security Risk Index, which consolidates 29 individual metrics in areas such as import exposure, price volatility and CO2 emissions. They argue that this provides a broader and deeper representation of energy security than the single indicator metrics (such as import dependence) generally used in such studies.

The researcher represented economic complexity using data from the Atlas of Economic Complexity, which provides an index that captures both the diversity of a country’s exports and their ‘ubiquity’ (how many other countries produce them). They also considered per capita GDP based on World Bank figures. They evaluated the influence of these factors on renewable energy production using a statistical method (quantile regression) which allows more detailed analysis than the methods typically used in such studies, and in particular reveals the influence of each factor at different levels of renewable energy adoption.

The researcher reports that the most significant factor affecting renewables adoption was per capita GDP, with higher GDP enhancing growth in renewables. This confirms results from previous studies, but significantly, the analysis also detected that this effect becomes less powerful at higher levels of renewables adoption.

Higher energy security had a significant negative effect on renewables adoption, according to the researcher, with energy insecurity driving growth in renewables. This effect varied according to adoption level but without a clear trend, they say. Higher economic complexity – for example when a country produces complex goods that cannot be reproduced by other nations – had a negative effect on the adoption of renewables, they report, as that country may rely more on fossil fuels due to great energy demands. However, the degree of impact reduced steadily as the level of renewable energy production increased.

Noting the clear relationship between energy security and renewables adoption, the researcher argues that national policies and strategies in these areas should be developed in close collaboration to take advantage of this relationship. Given the decreasing negative effect of economic complexity at higher levels of renewables adoption, they highlight the importance of promoting diversification into renewable energy production within strategies to advance economic complexity, in order to mitigate the negative impacts on adoption as complexity increases.

The researcher makes three key policy recommendations. First, the preparation and implementation of energy security strategies should be coherent with renewable energy development strategies and vice versa. While impending market uncertainties increase challenges for policymakers, the new focus on energy security caused by geopolitical conflict creates opportunities for accelerating cleaner and more efficient energy, and energy independence.

Second, the role of energy security should be evaluated in a framework which considers factors such as economics, politics, institutions and the environment. The energy transition requires creating a new clean energy infrastructure and reducing dependence on existing carbon-emitting structures, shifts in consumer preference and behaviour.

Third, the negative impact of economic complexity on energy security decreases as renewables expand to a certain level: hence, the researcher suggests that G7 governments promote policies that support renewable energy research, development, and deployment. The researcher posits that more financial incentives such as subsidised loans, tax deductions, or tax exemption schemes could be used to support the exploration and utilisation of cleaner, more reliable, affordable renewable energy sources.

Further Information:

The EU’s energy sector generates around 75% of the union’s annual greenhouse gas emissions. Saving energy through energy efficiency measures and the huge increase of renewable energy are vital to decarbonising the economy – whether in buildings, industry, transport or other sectors.

The recent COP 26 commitments of achieving net-zero carbon emissions by 2050 and phasing out coal power generation by 2040 constitute an irreversible transformation towards renewable energy, where all renewable energy sources will be needed to meet the EU’s 2030 emission reduction target and reach climate neutrality by 2050.

Source:

Chu, L.K. (2023) The role of energy security and economic complexity in renewable energy development: evidence from G7 countries. Environmental Science and Pollution Research 30: 56073–56093. Available from: https://doi.org/10.1007/s11356-023-26208-w 

To cite this article/service:

“Science for Environment Policy”: European Commission DG Environment News Alert Service, edited by the Science Communication Unit, The University of the West of England, Bristol.

Notes on content:

The contents and views included in Science for Environment Policy are based on independent, peer reviewed research and do not necessarily reflect the position of the European Commission. Please note that this article is a summary of only one study. Other studies may come to other conclusions.