Hello, and welcome to The Sound of Economics, the podcast from Bruegel, the Brussels-based economic think tank.I'm your host, Rebecca Christy, and I am here today with Bruegel's Ben McWilliams and Marie Tamba, who is joining us from Sofia in Spain.
She's a senior analyst at Rhodium.We are going to be talking to you about solar energy.
This is a really interesting way to look at solar power because it combines a couple of different technology trackers that we've been building over the years to figure out how the rhetoric around the green transition is shifting into actually getting energy from renewable sources.
Bruegel has a clean technology tracker for different types of clean tech energy things that are happening in Europe and Rhodium has one for investment in clean tech in the US.
Together, Bruegel and Rhodium have joined forces on making some of this information easier to compare and easier to understand, helping figure out the level of financial investment in the European tech and helping also to look at just the quantity of stuff that's going on in the US.
Ben and Marie, can you tell us what you're finding as you put your data sets together and what this is teaching us about how the green transition is going?
Sure, I can jump in first and take a little and leave some for Marie.So yeah, as you say, we've been very fortunate in Bruegel to work with Rhodium and particularly to learn from them in terms of their investment methodology, which
maybe sounds simple, but becomes quite complex how you think about tracking investments into the economy and what that means.Is it the date when an investment is announced?Is it spread out over the period of construction, et cetera, et cetera.
But we compare solar across multiple different metrics.Having given the introduction to manufacturing, maybe we'll leave this for Marie.I myself can give a bit of an overview on solar deployment, which is an area where we both have looked at.
Before we dig too much deeper into the specifics, can you help listeners get into what this is telling us and what types of narratives we can draw out of this?
Because for me anyway, before I start looking at the numbers, it helps me to have a sense of what they're going to try to tell me.
I think there's a couple of angles.
The first relates to climate ambition and climate policy, and that's where looking at the deployment of solar is so important because the European Union has set itself some very ambitious goals for decarbonizing electricity grids, and it has obligations internationally to the UNFCCC, the Paris Agreement process for reducing carbon emissions.
So I think first and foremost, just looking at the deployment of solar is really key.
And a second area then is a little bit this narrative which has emerged in the last two or three years, which is the idea, perhaps China is making everything, or at least in Europe, idea, perhaps we're not making anything.
And that's really now captured in Brussels, I would say, policy attention for the last couple of years, and this refocus on manufacturing.And that's why I think it's so important that we've also looked at manufacturing investments here.
It's so interesting.Marie?Yeah, to complement what Ben just said, I think it's true that historically, the narrative around climate policy has been very, very much focused on how fast can we deploy these technologies to address the green transition.
And increasingly, the narrative is not just about decarbonization, but it's increasingly about the economics of it. And this is where the US Clean Investment Monitor was born as a collaboration.It's actually a collaboration between Rhodium and MIT.
We saw a real need for a new kind of data that was telling us what is actually being built, where is it being built, what kind of economic impact could that have.So I think what this new
kind of initiatives can do, these clean investment trackers, clean investment monitors, they can really help policymakers look at the entire picture of solar manufacturing and deployment, but also across all other clean technologies.Thanks for that.
So now we look at the money, because this really does show us how much of the economy is focused on this.
What are we finding?Well, I can take a stab at the US side.So the Clean Investment Monitor kind of tracks how much money is invested across all clean technologies in the US.And we go back to 2018 and the latest thing that we
put together shows that there's been a significant acceleration in cleantech investment in the US.
So we're talking about about $500 billion invested in cleantech in the past two years since the passage of the Inflation Reduction Act in the US, which is a 70% increase roughly on the two years preceding.
And why is it significant is that if you put that in relation to total investment in the US, Last quarter, we were at about 5%.
So this is a sector that used to be relatively small and nascent, and that's actually now making a big difference into the entire
How much of this is solar?
Solar manufacturing is one of the fastest growing sectors in terms of investment within manufacturing.We have about $10 billion invested in the US in the past two years since the IRA, and that's about a tenfold growth.It's pretty significant.
Yeah, so it's 10 times more than it was before the IRA, and it's $10 billion out of this total $500 billion in all clean technology, which can be everything from solar power to energy efficiency to development of new technologies, I'm guessing, all kinds of things.
Yeah, exactly.You have electrolyzers, batteries, electric vehicles, and we're talking really wide set of technologies.Solar is not a huge part of the total, but it's growing very significantly amongst the manufacturing sectors.
And on the deployment side, it's also surging as well in the US. with a smaller increase, about 50%, but it's still quite an increase since the passage of the IRA.
This fast growth is such an interesting trend.Ben, you and other Brugel colleagues like Simone Tagliapietra, you have written a lot about how the EU needs to step up with deployment and not worry so much about making these things.
Does that hold up as you dig into these numbers?And how does that fit with the EU's transition?
Indeed, I would slightly nuance the statement by saying not worry about manufacturing everything, which was last year this Net Zero Industry Act, which the EU passed and set an aspirational target to make 40% of everything clean tech.
And in the last few days before that was passed, some of the interests around, make sure that every other tech was added onto this list.So we get a long list of technologies, and we should make 40% of everything, which
an economist, but I think even just as a generalist, doesn't make very much sense.It's natural that the EU is going to have some advantages for producing certain goods and not some advantages for producing other goods.
I think through those kind of lens is a bit more how the EU should think about this.There are some considerations on security of supply, diversifying value chains so that you protect your deployment.You don't want to be overly exposed
on one country perhaps, or for one technology, and put a threat to your deployment target.So there's some valid criteria for intervening.But I think overall, it doesn't make sense for the EU to pursue it in every sector.
And the solar sector is likely to be a case where it's difficult for the EU to produce manufacturing capacity.The solar manufacturing market is massively oversupplied. I think the International Energy Agency put last year's numbers at about 50%.
So the global facilities existing are operating at about 50% capacity and often with losses even on an annual basis.So that's a very difficult sector to push your way in and a difficult sector to think about subsidizing and pushing your way in.
And that is what we've seen in the EU.We are not seeing this pickup in investments like in the US.There's a very clear
divergent trajectory on two lines where you see the US picking up post-inflation reduction act and the EU not picking up, which certainly is something to monitor and think about.But as far as I'm concerned, it's not a huge concern for the EU.
Ben is referring to an analysis of this data, which you will find on the Bruegel website, bruegel.org.
And it really does show, since the Inflation Reduction Act was passed in the U.S., just this very steep, sort of 45-degree angle of growth for the U.S.And in the EU, it goes up a little bit and then comes back down again.What do we make of that?
There's a small bump in the line.I wouldn't read too much into it.It does coincide around the time of the Net Zero Industry Act, but there was not really much in there to push this.
It might be interesting for readers, might be a bit complex, but the way that we split these investments out is that we try to understand the dates on which an investment decision is made, on which construction of a facility begins.
And we spread this out according to a uniform distribution to the date on which the facility becomes operational.So that's a little bit some of the dynamics behind this chart.
And as one becomes operational or begins construction, it causes bumps and moves around.So I wouldn't read too much into small bumps.
As readers can see, if they see the figure, this huge growth in the US is definitely something we can read into and is very obvious.
Right?Would you like to talk to us about the trends that go deeper than just this massive government funding?
Like, what does it say for the energy transition that the US, which is a place that has not prioritized sustainability in the same way that the EU has, now seems to be moving ahead in investment?Is this just playing catch-up?
Or is the EU not following through on its goals, from the data at least that you can see?
Well, I think it's true that the US policy in recent years has shifted towards this more of an industrial policy approach to climate ambition.
We've seen since the passage of the big bills that were in 2022 that this has also helped shift the narrative in other places and broaden a bit the discussion on what climate policy can look like.
I think it reinforces the importance of having some kind of independent and objective data source for this, because all those governments have to make these trade-offs.
All these policymakers have to look at all these things and decide, just like what Ben was discussing, balanced security of supply, with decarbonization objectives, with prosperity.
So these three things need to be addressed through a set of instruments.And we will not be able to decide, you know, as a policymaker, what is a good instrument, unless we know what is happening as a result of a policy.
in our country or in a different country, because now all of these things are so interlinked.Those markets are completely global for some of those clean technologies.
So it's very important to have this data nationally, but also to be able to compare it with other regions.This is where this collaboration has proven extremely helpful.
For the first time, we can really compare within all this narrative that we hear that There's competition or collaboration between the US and EU.We can actually put some numbers into this.
We can go deeply sector by sector and look what's happened as a result of what policy within which timeframe and be very, very clear about that.
So this first note is our attempt at Solr, but further we'll come on other technologies that can help us answer any questions as well.
When we come back, we'll look more at how you put together a dataset like this. So I'm here on today's podcast with Ben McWilliams and Marie Tombaugh, and we are talking about this data tracker effort.
Since this is an economics podcast, we can let ourselves go a little nerdy here and tell us how you put this together.
You had two very different sets of information, and you worked to help them go together and tell us a coherent story and really show people where we are.Because before you can decide which way you want to go, you have to know where you are.
Walk us through how that happened.
So a big part of the challenge has been aligning the investment methodologies and how we think about investments reaching the economy.
There's a couple of phases here, and I would first shout out to Ugne Kereuskait, whose name I struggle to pronounce even though she's my colleague for a year and a bit, who has done a lot of help here, particularly on Solar, and might listen and criticise my methodological
But the first step really is collecting a database of projects.So you want to understand, if we take the solar sector, every solar manufacturing project that exists in Europe.
Whether it's only an announcement, whether a company has released a statement, as companies really like to do, to excite their shareholders, to excite the markets, we're going to build this massive solar manufacturing plant here and it's going to be perfect.
you look into the details and you see this article or press release was published two years ago and nothing's happened and it's just been announced but they haven't really done anything.
So you begin here and then you try to understand how these projects move from that phase of announcement to a phase with Rhodium which we have been calling actual or under construction, which is when a final investment decision is taken.
A large company, when they've gone back to their shareholders and got approval, when they've gone to markets and raised money, or if it's maybe they've got, for example, the EU has this innovation fund, which gives a lot of small players subsidies and grants, and maybe they've received this grant and started building.
So we try to understand when projects move from the announced phase to the under construction phase.And then finally, we continue tracking these projects and try to understand they become operational, when they start making solar panels.
So these are kind of three different phases that we try to track through the projects, largely based on desk research and tracking articles.
And then the additional layer on top of that comes with thinking about how you kind of filter these investments or think about these investments going into the economy.
basic things like adjusting currencies to compare, adjusting for inflation, and picking which year's money you talk in.And then towards when you want to visually represent this data, what do you want to show?
Do you want to show a bar chart, which has a big jump in May 2019 when the company announced a one billion investment?
is interesting, but what's also interesting is thinking about how you do your best attempt to disperse this investment over time and think about when it's really hitting the economy where, I think I mentioned it a bit before, but
with Rhodium's help, how we have been thinking about this, is a uniform distribution, which is a little bit simplistic, but the best we can come, where we distribute this one billion.
If it was over a 10-month period, for example, we would allocate 100 million for every month, and that's why we're able to come with quite smooth lines to our minds.
I don't speak for Rhodium, but I understand to Rhodium's minds is perhaps the most accurate representation of reality.
Super helpful.And we notice it's the academic community also interested in this.
The fact that the Massachusetts Institute of Technology is looking for your help at coming up with the best data seems like a pretty good sense that this is in the public interest.
Mahi, what can you add to what Ben said and help us think more about the importance of a data set like this?
Yeah, I mean, from the standpoint of the US Clean Investment Monitor, it's a very similar process.So we really want to be as granular as we can.These are sectors that are not necessarily huge to start with in the US and EU.
And we want to make sure that we capture every facility that is, you know, announced, or being built, or starting operation, ramping up its operation, or expanding.
So it's a very, very detailed research work where we really look at each facility, where they're located, what they make, because we're not just interested in, are they in a solar manufacturing value chain, but also what part of the value chain are they in.
In some of those articles, you can track who are they working with, so you can actually link some of these facilities in some cases.
But this really gives you a very good understanding of the shifts that are happening in the clean energy transition, which is a completely different way to look at the transition if you're only looking at where those solar panels are installed.
So the China story and the US-EU story only really becomes very interesting if you're looking at the supply of these things and not just at the demand.So I think this is where having this new kind of data
that is based on a very transparent methodology.This is exactly how Ben described it.We make some assumptions and we say what those assumptions are, and they are in a public domain.
Therefore, a policymaker that wants to use them knows exactly where those investments are coming from and how they can use it into their decision making.I think that's one of the main novelties of what we're doing here.
That's really interesting. How are you finding that solar stands out from other things that the cleantech trackers are tracking?We've mentioned the extreme growth, but what else makes solar unique?
There's reasonable investments worldwide in the EU that aren't reasonable investments.I don't speak for the EU, but solar is a sector where we are seeing quite significant investments in manufacturing.There's some other cleantech sectors
hydrogen, for example, other areas where we're working to expand, but you don't quite see as much this pickup and manufacturing investments.
Whereas solar is a sector that now for more than 15 years has been seeing quite significant manufacturing investments compared to batteries and electric vehicles.If we look into rhodium's data, we can see Solar is tiny.
Batteries and electric vehicle investments really drive these numbers.And again, if you see Rhodium's numbers, they're kind of stacked bars.You see much of the cleantech investment comes from batteries and electric vehicles.
But I think after that, without knowing off the top of my head, solar might be second or third in terms of size of investments.And if you look into China, there's been huge investments.
So it stands out for being a very significant sector and somewhere where there's a lot of money flowing in.
When we come back, we'll talk about where we can go with this data going forward. So we've learned about looking into solar panel data and trying to see the manufacturing and not just the installation of these solar panels.
What kinds of policy uses would you like to see for this data set going forward?Who would you like to notice it and what would you like them to do with it? I'll start.
I think to go back to what we were saying earlier also, if the narrative in climate policy has shifted, and now we are talking in a context of new industrial policy wave that is including and very focused on clean technologies.
Then we're talking also about a whole new set of policymakers that are becoming interested in clean tech, where historically decarbonization was very much contained into the energy system and climate change expert circles.
Now we're talking about clean technologies across people who are specialists in trade policy, specialists in industrial policy, regional policy.
So all these people who didn't necessarily have the cleantech background now need to get up to speed in knowing what these technologies are, where they're deployed, what share of electricity generation or what share of transportation do they make up at the moment.
And they also need to understand actually what are the economic implications of this.
And on the other side, climate policy experts who were probably not as well versed in manufacturing processes, supply chains, trade flows, also have to get up to speed to this.
What we're hoping is that having this sort of international perspective into cleantech investment will allow all these policymakers to speak the same language and actually start looking at these trade-offs in a very holistic way and not in silos.
And hopefully that can lead to some innovative and good policy decision-making.
I would add a couple of points. The first is just on public access.So this data or these data already do exist if you go to somewhere like Bloomberg New Energy Finance, which is a great tool I've heard.I wouldn't know.
I've never been inside, but you need to be able to part with, I think about 50,000 euros a year.So Google, we can't afford it and many other places can't afford it.And certainly the average person isn't paying this.I think that's
The first big thing is just democratic access to data, which at the moment, big companies and institutions have access to, but everybody doesn't.
I think that's, I mean, we're just talking one small part of the data where we try to make a contribution.
And a second specific one, which I think we did the episode on hydrogen and I talked about this then, so I'm a little bit of a broken record, but is geography. and the geography of investments, which I think is fascinating, particularly for Europe.
We have a long history of geographic policy, meaning regional policy, and now with the transition, there's a lot of thoughts about a just transition and how do you help areas which are suffering and are losing jobs from this transition.
So questions like, are new clean tech manufacturing investments a chance appearing in places where all jobs are being lost?
Are there some agglomeration benefits where new manufacturing investments are going to regions that already have large manufacturing bases, or are they going to completely new areas?
Are they maybe going to sunny places like Spain where the cost of producing electricity is very cheap?So this geographic dimension for me personally is something that
because of the way in which we collect this data on a project-by-project basis, we know almost exactly to the town or the city where that investment's being made.And so you can have these nice maps plotting investment values across space.
That is really interesting.And listeners, you can find that Hydrogen podcast, broogle.org, and on all the podcast things.It really was a good one.I learned so much from that conversation.So glad to have a chance to remember that there.
So now we're looking at solar, not hydrogen this time, and looking at exactly where these investments are coming from and where they're showing up.
This idea of democratic access to data really resonates as we get into these new legislative cycles in the EU and also in the US.
Is there any one area where you would like to see the incoming Congress and or the incoming commission really focus going forward?
Well, I would have quite a clear ask for the European Commission and I don't wish to keep plugging our own work, but we are working on a paper on this on European energy.
This is your vehicle for plugging your own work.
Lash have published, but probably still working when this podcast releases, on a paper on European energy information or European energy data, and essentially sounding the alarm or raising attention to the fact that, in our view, energy data in Europe is still fragmented.
We have some good data, but it's very hard to get clear messages on energy data in a public forum.
a non-solar, but I think timeless example is the energy crisis, where we just in Europe really didn't know how much natural gas was being imported, how dependent we were on Russia, which seems like something policymakers really should know.
We really should have data for this.And I must say the data haven't really improved even in the last two years in this space, which I find quite alarming.So we're calling for
potentially a European energy agency, or at least an expansion of responsibilities at existing institutions to address this gap.And in fact, it's appropriate to again be transatlantic because one example that we point to, and many do,
Here's an institution in America called the Energy Information Administration, which America set up in the 1970s after the oil crises.
So after a bit like Europe today feeling exposed with Russian gas, America feeling exposed with the 1970s oil crises and the huge rise in oil prices, which really hurt consumers in America, America's response was to set up this
single place, the Energy Information Administration.They give it about $100 million a year, and they basically ask it to go out and find all the information America needs on energy.They do a great job, really, in the energy space.
People are very impressed with the EIA, and we pose that as a benchmark or a model that we might look to in Europe.But I think it's definitely a space that Europe can improve.
So a European energy agency would really focus on data collection as opposed to other types of agencies that have more of a regulatory focus.
That is a really interesting idea for me to have a separate place for energy data than Eurostat or just some of these public databases that we know about.Marie, what do you see going forward for these new politicians coming in?
Yeah, I think this data that we have, this monitor, will be a very helpful point of reference, regardless of what happens in November.The reality is that these investments are happening.This is what we see so far.
They're happening on the ground, and this is exactly what Ben was mentioning.We can see where they're happening, which districts you know, which color are these districts in the US.
So I think this will really help shape the narrative and anchor it in the reality of people living in America, rather than on rhetoric and politics and and discussions on which technology is better than another.
I think having this available at this time will be really crucial to ensure that policymakers can base their debates and their discussions on what happens next for American climate and industrial policy on actual rigorous data.It's open.
It's on the website.We do quarterly updates and this can really help you track these almost in real time.Better policymaking through better data.
I love it.Any closing thoughts from either of you?
My take away is better policymaking through better data and more data availability.I'm very happy with this as a closing remark.
I think that's the main message.
Thank you both so much for coming on.It is great to have a chance to cheer for data and to really celebrate the incredible amount of work that goes into putting together a data set like this.
We started with two data sets that already had required an incredible amount of work to put together.
And now you've done still more work to make them build on each other and tell us even more about what's going on with the green transition, transatlantic manufacturing, transatlantic solar energy deployment specifically.
And I really thank you for coming on the show and I look forward to hearing what you do in further installments of your collaboration.Listeners, you can find links to this data, to the reporting on it, the essays about it on our website, broogle.org.
Org.You can find this podcast and all of our other podcasts, including the one on the EU Hydrogen Bank, on your favorite podcast channels.And we hope you'll join us again next time.I'm Rebecca Christy.
You're here with Bruegel and the Sound of Economics.Thanks for listening.
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