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The Three Key Factors Driving the Green Economy

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Growing threats to sustainability is leading both governments and businesses to explore different elements of the green economy including renewable energy and green technology. As the green economy gains traction, it is important for all stakeholders to understand the key factors driving it as they are relevant for policy making and determining the future business models. The following section discusses the three key factors including the new era of sustainability, the low carbon economy and the global energy transformation driving the green economy and is part of our upcoming strategy briefing ‘the Green Economy: Opportunities and Challenges’.

The new era of sustainability

The momentum to make resource management a key priority is growing and ushering in a new normal:

  • The era of sustainability is driven by both demand and supply sides. From the demand side, growing eco-awareness is leading consumers to pressurise companies for more green credentials. According to Euromonitor Global Consumer Trends Survey in 2011, 53.6% of the respondents have claimed that green/environmentally friendly features are very important in their purchase decisions with fair trade and sustainably produced listed as the top two priorities within the overall greencredentials. On the supply side, fast depletion of resources triggered by population and economic growth, and fears over security of supplies, mean that key inputs are under pressure and can potentially disrupt the supply chain in the future if not managed in time;

Importance of the Green Influence in Purchase Decision-making: 2011

Source: Euromonitor International Global Consumer Trends Survey 2011

  • The circular economy is gaining traction as a viable alternative business model. It is the antithesis of the current ‘build, buy, bury’ model, consisting of a system in which everything is reused and nothing is wasted. The fact that it can help lower the cost of production makes the prospects of the model even more lucrative. IKEA is one of the pioneers of the circular economy business model and its policies include using recycled, recyclable and renewable materials, offering a repair service, buying back used IKEA products and selling them at no profit and finally, investing in renewable energy;
  • Circular economy closely resonates with The New Consumerism, which sees consumers reassessing their priorities as indicated by the survey results above with half the respondents citing green credentials as very important. This is leading to a change in the consumption pattern with conscious consumption gradually overtaking conspicuous consumption.

The low carbon economy

Low carbon emission is a major topic and being widely discussed by both businesses and governments alike. The Paris Agreement, the UN climate accord signed in December 2015, has made it more binding on governments and businesses across the world to take actions against climate change:

  • The governments are starting to notice the importance of lower carbon footprint. The EU launched the RES Directive 2009/28/EC that determined the binding targets of 20% share of renewable energy sources in final consumption by 2020. 48 poorer countries including the Philippines and Bangladesh signed to commit to 100% renewables by 2050 at COP22, the UN conference on climate change held at Marrakesh in November 2016;
  • The two major contributors to the gobal CO2 emissions are China and India. Indian Government’s goal is to reduce carbon emission intensity by 33-35% by 2030 compared to 2005 level by generating 40% of its cumulative electricity from non-fossil fuel sources in addition to increasing forest coverage during the corresponding period. China aims to peak emissions by 2030 and then cut carbon emission intensity by 60-65% from the 2005 levels;
  • At the same time, businesses are also adopting ways to lower their carbon footprint driven by consumer pressure and government regulation. L’Oréal has announced plans to become a “carbon balanced” company by 2020, aiming to generate carbon gains equivalent to the amount of greenhouse gas emissions it produces.

World CO2 Emissions per Unit of Output: 2010-2016

Source: Euromonitor International from Energy Information Administration of the US Government, International Energy Agency

Global energy transformation

The drive for low carbon economy has been associated with a transformation in the global energy sector with impressive strides in renewable energy including wind and solar power technology:

  • In line with government policies to reduce carbon emissions, an increasing number of governments are investing in renewable energy including wind energy and solar power. One of themost interesting examples involves a reporting in September 2016 that Costa Rica had run on renewable energy for 2 months in a row. More recently, Scotland was said to have a surplus from wind energy. Similarly key economies both developed and the fastest growing countries have seen a growth in the final consumption of solar, wind and other renewable energy with China reflecting a stellar growth between 2010-2016;

Growth in Final Consumption of Solar, Wind and Other Renewables: 2010-2016

Source: Euromonitor International from International Energy Association (IEA)

  • Alongside governments, companies are increasingly using solar and wind power as part of their total energy mix. In 2005, Walmart, the largest retailer in the USA, controlling 13.2% of the retailing industry in 2015, pledged to generate all its power from renewable sources and is reported to generate 26% of its power from solar, hydro, wind and fuel cell power so far. Google’s aim is to derive all its power from renewable sources, thus investing in wind power, solar power and bio fuel. Up until 2016, the company has committed to purchase 2.5 gigawatt of renewable sources and invested US$2.5 billion in renewable energy sources.
  • Greater investments in renewable energy from both governments and businesses have been possible due to improving capacity of both wind turbines and solar panels, which also makes it cheaper to operate as the scale helps to bring the unit cost down. Solar panels are now more accessible and IKEA sells them at some of their outlets.
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