When Greener Means More Profitable

Ally Winning, European Editor, PSD



The US election is a major event that will have consequences throughout the world and I feel there is more that can be discussed, especially on the subject of power. Both candidates and parties may agree on cutting reliance on China, but on power generation and the environment, they are almost as far apart as possible. This will likely have a large knock on effect for the industry globally. On the one hand, Republicans tend to let free market forces dictate the direction of industry and have a hands-off approach to legislation. In contrast, the Democrats prefer to use legislation to restrict business and pushes it in a more environmentally friendly direction. Either way, I think the effect will be a short term one, and we will probably end up in the same place eventually whatever direction is taken now. It is just the route we take to get there that will differ.

Renewable energy is just becoming too cheap to ignore. The International Energy Agency’s (IEA) World Energy Outlook 2020 report has stated that solar electricity now offers the cheapest energy in history. The organisation had overestimated the cost of solar power and has found that energy from the sun is between 20-50% cheaper today than the organisation had estimated in last year’s report. IEA also found that there were similarly large reductions in the estimated costs of onshore and offshore wind. Of course, that renewable energy will be supplemented for a time by using non-renewable sources, but the timescale to payback for a coal or oil powered fuel plant means that building a new one now is very much a risky proposition.

At the same time, many countries have mandated that the sale of internal combustion engine (ICE) vehicles will stop completely at some point in the future. That point is currently 2035 in the UK, and Denmark has put forward a proposal to the EU that ICE vehicles should be phased out by 2030. Given the time lag between the design and launch of vehicles, it is questionable how long ICE vehicles will continue to be designed.

Export is a big incentive for industry and with environmental legislation becoming more strict globally, it is more cost-efficient for manufacturers to have a single product that is based on the strictest interpretation of the law, than to try design individual products for a lot of different markets. This is as true for vehicles as it is for consumer goods. The economies of scale that can be gained from a single design and manufacturing process mean that it will become harder for companies to remain competitive in different markets with different models. That is unless the changes can be made easily in software or using programmable hardware.

The innovation that we see in our industry today will make the move to more efficient and greener products much easier to make in the shorter term and ensure we reach the place where environmentally friendly meets profitability much more quickly.