While these policy interventions aim to lower emissions by increasing costs, green industrial parks would provide a more affordable path. These parks would complement measures designed to discourage emissions, such as cap and trade schemes, carbon pricing, and the European Union’s Carbon Border Adjustment Mechanism. This would offer a viable alternative for industries seeking to reduce their emissions through relocation. But the process could be accelerated if countries with abundant, cheap clean-energy sources develop green industrial parks. These costs will likely slow down the energy transition in the manufacturing sector. But where? It would take countries several decades to decarbonize their electrical grids, and even countries with abundant renewable resources would find it very costly to decommission their existing fossil-fuel capacity because that investment must be paid for, whether or not the facilities remain operational.įor a limited time, you can gain greater access to Project Syndicate – including every new PS commentary, our entire On Point suite of subscriber-exclusive content, the full PS archive, and more – starting at just $84.99 $59.49 for your first year. To facilitate efficient decarbonization, it is essential to relocate them. A recent paper, for example, finds that the steel industry’s future may lie in sunny tropical locations with strong onshore winds and near iron ore deposits.īut energy-intensive industries are currently located far from these ideal spots. Installing solar panels in sunny areas, and windmills in places with strong and consistent winds, could significantly reduce global demand for land and materials. Given these high transportation costs, an effective global decarbonization process would position energy-intensive industries near cheap sources of green energy. Consequently, it is more efficient to use it where it is produced. In other words, storing solar energy in transportable molecules is very expensive. At present, sunny regions can generate electricity for under $20 per megawatt hour, which is equivalent to oil priced at $34 per barrel – less than half the current market price of crude.īy contrast, the (misnamed) Inflation Reduction Act, US President Joe Biden’s signature climate-change bill, provides subsidies for companies converting renewable energy into green hydrogen at $3 per kilogram of hydrogen, which is equivalent to $142.2 per barrel of oil – double the current oil price. So, how will the clean-energy transition affect the location and design of future manufacturing? A key feature of most renewable sources is that the energy they produce is very costly to transport beyond the local electricity grid. With the development of electricity, power could be easily distributed across vast areas and used wherever there was an electrical outlet, transforming the structure and layout of manufacturing plants. Oil, which was even cheaper to transport, further loosened the ties between a firm’s location and its energy source.
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