Green economy – who are the winners and losers?

The Economist had a piece in their Finance and Economics section on the new energy superpowers. As the world attempts to switch to cleaner energy sources – the International Energy Agency (IEA) forecasts that wind and solar could account for 70% of power generation by 2050. This means a huge increase in demand for copper, lithium, nickel, cobalt etc. Who are the winners and losers from the move to green energy?

Invariably with any economy being able to exploit a natural resource there is the danger that investment is channelled into a commodity to the detriment of diversifying their economy. Economists refer to this as the Dutch Disease which makes reference to Holland and the discovery of vast quantities of natural gas during the 1960s in that country’s portion of the North Sea. The subsequent years saw the Dutch manufacturing sector decline as the gas industry developed. The major problem with the reliance on oil is that if the natural resource begins to run out or if there is a downturn in prices, once competitive manufacturing industries find it extremely difficult to return to an environment of profitability. See flow chart below.

According to the UN a country is dependent on commodities if they are more than 60% of its physical exports – in Africa that makes up 83% of countries. One of the major concerns for resource rich countries is the wild fluctuations in commodity prices which can lead to over investment – Sierra Leone created two new iron-ore mines in 2012 only for them to close in 2015 as prices collapsed. However the amount of jobs created in the mineral extraction industry is limited – across Sierra-Leone of 8m people, about 8,000 work in commercial mines. A major problem in these countries is that when there is money made from resources it tends to go on government salaries rather than investing in education. infrastructure and healthcare etc. The flow chart below outlines the problems of resource dependence.

Source: The Economist – The New Superpowers – March 26th 2022

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