A Green Growth

Framework Prof: Ricardo Hausmann

October 2024
Announcements
• Today:
• Open Office Hours 5-6pm in R429 – No structured review just space for
your questions

• Tomorrow:
• Review Session on Economic Complexity
• Deadline for Assignment 1

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History of Energy Conversion– Human Muscle

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History of Energy Conversion– Animal Power

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History of Energy Conversion– Waterwheel

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History of Energy Conversion– Steam Turbine

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History of Energy Conversion– Hydrocarbons

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Growth in Energy comes from Hydrocarbons

Source: Our World in Data based on Energy Institute – Statistical Review of World Energy (2024) and Smil (2017)\ 8
High Income Requires High Energy Use

Source: Our World in Data based on US Energy Information Administration (2023) and other sources 9
 Energy use ( Kg of oil equivalent) per
$1,000 GDP (Constant USD 2017)
Energy Intensity of Economic Activity is Falling

10
Global Emissions Rising across Countries

Source: Our World in Data based on Global Carbon Budget 2023 11

No country can change emissions significantly by their own
decarbonization

Africa Latin America and the Caribbean

51.04 Bt 52.2 Bt
2.8% of total 2.9% of total
Oceania
Europe 21.7 Bt
553.8 Bt 1.2% of total

31.2% of total

North America
482.7 Bt
27.2% of total
Asia
566.9 Bt
31.9% of total

Source: Our World in Data based on Global Carbon Budget 2023 12

No country can change emissions significantly by their own
decarbonization

Africa Latin America and the Caribbean

1.4 Bt 0.4 Bt
3.8% of total 1.2% of total

Oceania
0.4 Bt
1.2% of total

Asia Europe
21.3 Bt 5.5 Bt
57.4% of total 14.8% of total

North America
6.1 Bt
16.4% of total

Source: Our World in Data based on Global Carbon Budget 2023 13

Emissions per capita are highly unequal
Worldwide 𝐂𝐎𝟐 Emissions
(2021; per capita)

Source: Thomas Schulz based on IEA (2023), “Greenhouse gas emissions from energy” 14
Current Approach: All countries should focus on
lowering their emissions

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The common approach to decarbonization

National Mitigation

National Adaptation

Just Transition

Climate Finance

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Mitigation is not cheap for developing countries

Source: Country Climate and Development Report, South Africa 2023 17

Is this all of it or half of it?
This is all about stimulating the demand for decarbonization.
What about the supply of decarbonization?

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www.pollev.com/24dev130

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Ask not what you can do to
decarbonize your country;

Ask what you can do to

decarbonize the world.
What does the world need to
decarbonize?
A supply side approach

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A lot needs to change for the world to decarbonize

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What does the world need to decarbonize?

• Electrify everything that can be electrified

• Make clean electricity
• Develop alternative fuels in transport industries and manufacturing
• Hydrogen, ammonia, methanol, green hydrocarbons, biofuels
• Eliminate emissions from manufacturing processes
• Process heat
• Chemical reaction in cement and steel manufacturing
• Capture, use and sequester carbon

Huge uncertainty over how to accomplish the above and which technologies will
be successful
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High temperature process heat is hard to electrify

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How can you grow by helping
the world decarbonize?

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5 strategies
• Strategy 1. Make the enablers of decarbonization

• Strategy 2. Make green versions of today’s grey products

• Strategy 3. Capture carbon

• Strategy 4. Provide greening knowhow

• Strategy 5. Leverage the newly acquired ”letters” or capabilities beyond

decarbonization

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1. Make the enablers of
decarbonization

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Strategy 1. Make the enablers of decarbonization

• Enablers to produce green electricity

• Solar panels, wind turbines, new transmission lines, grid-scale batteries,
inverters

• Enablers to produce green transportation

• Battery electric vehicles, fuel cell electric vehicles, charging stations,
hydrogen refueling stations

• All this requires critical minerals

• No decarbonization without a mining boom

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Demand for Green Economy Products will Explode
Projected growth in solar power generation in a net zero
scenario (IEA)

Source: IEA 33
Demand for Green Economy Products will Explode
Projected growth in grid-scale battery storage in a net zero
scenario (IEA)

Source: IEA 34
Critical Minerals

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Some of the critical minerals
• 1. *Lithium*: Essential for lithium-ion batteries used in electric vehicles (EVs) and energy
storage.
• 2. *Cobalt*: Used in lithium-ion batteries but has supply chain challenges due to ethical and
environmental concerns.
• 3. *Rare Earth Elements*: Necessary for the magnets in wind turbines and EV motors.
• 4. *Graphite*: Used in battery anodes, especially for EVs.
• 5. *Nickel*: Important for increasing the energy density and longevity of lithium-ion batteries.
• 6. *Copper*: Critical for electrical wiring and grid infrastructure to support renewable energy.
• 7. *Vanadium*: Used in redox flow batteries for large-scale energy storage.
• 8. *Tellurium*: Used in thin-film solar panels.
• 9. *Indium*: Used in thin-film solar panels and certain LED technologies.
• 10. *Gallium*: Critical for high-efficiency solar panels and semiconductor materials.

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Having minerals vs having mining policy

Global Lithium Production and Resources

Identified Lithium Resources (million tons) Production (2021) (thousand tons)
25,000,000 60,000

50,000
20,000,000

40,000
15,000,000

30,000

10,000,000
20,000

5,000,000
10,000

0 0
Bolivia Argentina Chile United Australia China Congo Canada Germany Mexico Czech Serbia
States Republic

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Each mineral has a different market structure

South Africa’s Global Market

Mineral How many countries have the resource?
Share (2021)

Chromium 43.5% Seven countries produce Chromium.

Fluorspar 5% 14 countries produce Fluorspar. Most Fluorspar mining is in China.

Manganese 38% 17 countries produce Manganese.

Palladium 40% Six countries produce Palladium.

Platinum 73% Six countries produce Platinum.

Tellurium < 1% Eight countries produce Tellurium.

Vanadium 8% Six countries produce Vanadium. Most Vanadium comes from China.

Zirconium <1% Eight countries produce Zirconium.

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How can countries maximize the wealth of their mineral
resources needed to decarbonize
𝑄(𝜏)(𝑝 − 𝑐)
𝑉𝑎𝑙𝑢𝑒 = 𝜏 ෍
(1 + 𝑟)𝑡
- Worry about Q
- Minimize c by accumulating capabilities and providing relevant public goods
- Minimize r by lowering risk and securing property rights
- Maximize 𝜏 by making investors compete for access to the resource

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Mapping green value chains
onto the Product Space
With Yang Li, Ketan Ahuja, Muhammed Yildirim and Ricardo Hausmann

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 Data: from unstructured reports to networks

1. Carbon capture materials

2. Electric grid
3. Energy storage
4. Fuel cells and electrolyzers Backbone of LCI
5. Hydropower Figures
6. Neodymium magnets
7. Nuclear energy
8. Platinum group metals & catalysts
9. Semiconductors
10. Solar photovoltaics (pv) Product & processes
11. Wind Tables

Reports from US Department of Energy etc.

Text Relations
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Some Green Value Chains

• Solar • Semiconductors
• Wind • Critical Minerals and rare earth
• Hydro • Carbon Capture
• Nuclear
• Fuel Cells and Green hydrogen
• Electric Grid
• Large Capacity Batteries
• EV
• Heat pumps

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Interdependency of Chains

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 Example: Important Products in the Hydrogen
Supply Chain

Production Transportation Distribution Utilization

• Rare earth metals • Trailers and semi- • Electrical resistors, • Silicon & rare gases
• Ketones trailers transformers, • Cyclic hydrocarbons
• Platinum • Tubes of iron or capacitors, • Hydraulic fluids
• Pumps steel apparatuses • Iron and steel alloys
• Compressors • Meters • Time switches and products (tubes,
• Measuring • Automatic regulating • Electromagnets pipes, bars, rods,
instruments instruments • Thermometers, sheets)
• Aluminum • Instruments for hydrometers
containers for measuring • Conveyor belts
compressed or properties of liquids
liquefied gases or gases

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Characteristics of countries’
presence in GSC

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Countries with comparative advantage in GSC

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Countries with comparative advantage in GSC

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Countries with comparative advantage in GSC

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How to get involved in GSC?
Where are the trees?
How far are the trees from your monkeys?
Which trees are more attractive?

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Are these products close to you in the product
space?

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Are these products close to you in the product
space?

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The Green Hydrogen Supply Chain in the Product Space
Solar
Wind
Hydropower
Electric Grid
Fuel Cells and Green Hydrogen
Carbon Capture
Large Capacity Batteries
Nuclear Power
Predicting Growth

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Predicting Diversification (Entry)

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Exploring your country’s readiness for different value chains
• A special tool can be found here

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 How strategic would be for your country
to get closer to these value chains

Source: Green Growth Tool

Spain vs Indonesia

How close is your country to these value chains

How strategic would be for your country

to get closer to these value chains
How close is your country to these value chains

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New tool coming on November

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2. Powershoring: Making
things in a green way

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Strategy 2. Make green versions of grey products

• Develop cheap and reliable sources of green energy

• Solar, wind, nuclear and hydro
• Solve the intermittency problem
• Attract energy-intensive industries that currently rely on fossil fuels
• Steel, aluminum
• Develop alternative fuels for transport industries and for manufacturing
• Hydrogen, ammonia, methanol, green hydrocarbons, biofuels
• Namibia, Chile, Oman, Australia, Morocco
The end of the energy flat
world

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Coal and Oil are Very Energy Dense

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Coal Oil
35
Energy Density by Volume (MJ/l)

30

25
Ethanol
LNG
20

15 Methanol

Liquid Ammonia H2 Liquid

10
Gas (Pressurized)
H2 Pressurized
5
Lithium battery H2 Unpressurized
Natural Gas
0
0 20 40 60 80 100 120 140 160

Energy Density by Weight (MJ/kg)

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Import oil, export steel

Exporters of steel

Importers of oil

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Which products are energy-intensive to make?
In Mjoules per dollar
Direct energy usage (MJ/$)
Other basic organic chemicals 21.4
Compressed Gases 19
Primary iron, steel, and ferroalloy products 17.2
Plastics 16.4
Carbon and graphite products 15.2
Synthetic rubber and artificial and synthetic fibers 14.2
Cardboard 13.4
Primary aluminum 12.4
Other basic inorganic chemicals 12.3
Wood pulp 11.5
Synthetic dyes and pigments 10.7
Glass and glass products 10.1
Paper 8.3
Ground or treated minerals and earth 7.7
Clay and ceramic products 7.4
Chemicals NEC 6.5
Ink and ink cartridges 6.4
Adhesives 5.3
Fertilizers 5.2
Secondary steel products 4.9
Other commercial and service industry machinery 4.9
Urethane and other foam products 4.5
Nonferrous metal casts 4.3
Sugar, candy, and chocolate 4
Sanitary paper (tissues, napkins, diapers, etc.) 4
Specialty transformers 3.7
Finished and coated fabric 3.6

0 5 10 15 20 25

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Which countries are energy importers?

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 x-axis =
Per capita direct fuel + electricity energy use Per GDP

Production

76% of all country-product pairs (with RCA > 1)

where the product has a direct energy usage > 10 MJ / $
are exported by countries running an energy deficit

Surplus

energy-intensive products
in countries running energy
deficits

energy-intensive products
in countries running energy deficits
 x-axis =
Per capita direct fuel energy use (no electricity) Per GDP

Production

Surplus

energy-intensive products
in countries running energy
deficits

energy-intensive products
in countries running energy deficits
Natural Gas is Much Less Energy Dense

40
Coal Oil
35
Energy Density by Volume (MJ/l)

30

25
Ethanol
LNG
20

15 Methanol

Liquid Ammonia H2 Liquid

10
Gas (Pressurized)
H2 Pressurized
5
Lithium battery H2 Unpressurized
Natural Gas
0
0 20 40 60 80 100 120 140 160

Energy Density by Weight (MJ/kg)

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Natural Gas is Harder to Transport

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Natural Gas Prices Vary Geographically

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... And are more volatile to shocks

Price ($/MMBtu)

Source: Reuters/Refinitiv Eikon 81

Hydrogen is even costlier to transport
40
Coal Oil
35
Energy Density by Volume (MJ/l)

30

25
Ethanol
LNG
20

15 Methanol

Liquid Ammonia H2 Liquid

10
Gas (Pressurized)
H2 Pressurized
5
Lithium battery H2 Unpressurized
Natural Gas
0
0 20 40 60 80 100 120 140 160

Energy Density by Weight (MJ/kg)

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Why were paper mills always by water?

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Windmills ground grain at the energy source

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Why is one of Europe's largest Aluminum smelters in
Norway?

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Where is the Green Energy
Potential Located?

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Hydropower

Source: Hoes et al. (2017) https://doi.org/10.1371/journal.pone.0171844.g001 88

Solar

Source: Global Solar Atlas. Energydata.info 89

Wind

Source: Global Wind Atlas. Energydata.info 90

Cost of Capital is critical for competitiveness

• Wind blows for free, sun shines for free

• Renewable power plants and transmission
require huge up-front costs, but low operating
costs

• High fixed cost and low variable cost means

competitiveness is super dependent on Cost of
Capital

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Yield on 10-year government bonds in the largest economies
worldwide as of February 2023, by country

Source: Own elaboration based on Statista and World Government Bonds & Capital IQ
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The case for green industrial parks
• Your country may have excellent renewable resources
• ...but your current energy system is grey
• You fear transitioning too quickly because it will imply an increase in energy
costs
• And you may already be forced to subsidize energy
• So, you slow down the development of renewable energy
• But there are others who might be more incentivized to buy green energy
• Because of C-BAM or other pressures
• One way to separate the two constituencies is to create green parks

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Conditions on green parks
• Large benefits from connecting the park to the national grid
• Although it is hard to fully green an electric grid
• Generation is cheaper than daily storage and daily storage is cheaper than
long-term storage
• Makes sense to oversupply the park and “export” to the rest of the grid
• With exports being substantially larger than imports both in KWH and in
dollars
• Should be open to countries that abide by their Nationally Determined
Contributions (NDCs)
• To overcome the fungibility argument

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3. Capture carbon

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3. Monetize Carbon Sinks

• Nature based solutions

• Carbon Capture Use &

Storage

• Biofuels

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An efficient global market would have a single price of
carbon

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The problem with nature-based solutions

• Additionality
• Permanence
• Measurement
• Does the Amazon capture carbon?

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Carbon Capture Use & Storage

• Capture
• Installing Carbon Capture in refineries that produce gray hydrogen to
make it blue
• Installing Carbon Capture in powerplants to decarbonize
• Use
• Capture CO2 and mix with green hydrogen in Fischer-Tropsch process to
make ”green” fuels
• Storage
• Develop appropriate locations for storage
• Wyoming

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Biofuels
• What can we make?
• Ethanol from fermented sugars and starch
• Competes with food
• Cellulosic ethanol from cellulose and stover
• Bio-crude from biomass using pyrolysis (thermo-chemical)
• Particularly effective in places where biomass grows continuously throughout
the year (i.e. the tropics)
• Intensive in land, in locations where land is valuable

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4. Provide greening knowhow

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4. Create and Export Knowhow

• Green Growth strategy for R&D hubs with higher production costs.

• Engineer, procurement and construction as key part of value chain

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Navarra Exporting Wind power Knowhow

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Navarra as a first mover in wind

• The first windmills in Navarra appeared in 1994

• Today the wind sector employs about 3,800 people in Navarra with
about 100 businesses operating, including multiple multinational
headquarters
• Siemens – Gamesa is the second largest manufacturer of wind
turbines
• Large market share in wind farm engineering, procurement and
construction
• ACCIONA
• Iberdrola

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 Providing Services for Green Growth

Countries could position themselves to provide Example of EPC Services

crucial services for decarbonization

EPC Services (Engineering, Procurement & Construction)

Architectural, Engineering
& Related Services

Management, Scientific &

Technical Consulting Services
Finance / Project Finance
Utility System Construction

Nonresidential Building
Construction
Wide Range of other Services
• Carbon Accounting
Revealed Comparative Advantage
• Supply Chain Management

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Source: Arthur D Little 2023
5. Leverage the newly
acquired capabilities beyond
decarbonization

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5. Leverage the newly acquired ”letters” or capabilities
beyond decarbonization

• Use your green growth strategy as a steppingstone into other

industries that can leverage the new capabilities

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Places Capabilities Products
Places Capabilities Products
Places Capabilities Products
5 strategies

• Strategy 1. Make the enablers of decarbonization

• Strategy 2. Powerhsoring: Make green versions of grey products

• Strategy 3. Capture carbon

• Strategy 4. Provide greening knowhow

• Strategy 5. Leverage the newly acquired capabilities (“letters”)

beyond decarbonization (to make other words)

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Thank you!

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