global perspectives

    Green winners in the global economy: research by Lombard Odier and Oxford University

    Predictors of success in a greening world

    The transition to a green economy is shifting the competitive landscape of the global economy as more countries, regions and corporates commit to net-zero targets. Who will be the winners as humanity targets a 1.5°C limit for global warming?

     

    Need to know

    • Research by Lombard Odier and The University of Oxford shows that countries leading in sophisticated green products are likely to become even more competitive
    • China is the largest exporter of renewable-energy products, and stands alongside Germany and the USA as being well positioned in the race to net zero
    • For maximum impact, green financing must ideally be paired with innovative and socially responsible financial engineering 

     

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    Green competitiveness: what sets nations apart?

    Lombard Odier’s exclusive report – “Predictors of Success in a Greening World”, produced with The University of Oxford under our exclusive research partnership – makes use of cutting-edge research to identify the emerging global trends in green competitiveness. It examines winners and losers in detail and identifies how governments might take advantage of green initiatives to generate prosperity.

    In the third of LOIM’s Zero-Hour Sessions at COP26, Professor Cameron Hepburn, Director of the Smith School of Enterprise and the Environment at the University of Oxford, presented findings into which countries are actively capitalising on the growing market for ‘green products’.

    One of the determining factors will be a country’s ability to produce complex green products, like renewable-energy generation equipment or electric-vehicle parts. The report explores two key fields of data:

    • The Green Complexity Index (GCI), which measures the composition of a country’s green exports that have resulted in competitive advantages
    • Green Complexity Potential (GCP), which measures each country’s average proximity to complex green products it does not yet export competitively. This a strong predictor of future GCI.

    The given starting point for determining which countries are green leaders is comparing their exports of renewable-energy products. In terms of global trade volume, China was the clear leader between 2015 and 2019 as it accounted for 22% of renewable-energy product exports, including solar panels, wind turbines, electrolysers and batteries. Germany was second with 12%, followed by the USA with 10% and Japan with 9%.

     

    Production of renewable-energy products must be scaled-up massively in order for net zero to be achieved. China has strongly grown exports in many categories of this market, with top three being: renewable energy; efficient consumption of energy technologies and carbon capture and storage; and wastewater management and potable water treatment.

    The data also suggest that green competitiveness creates momentum: countries which are already doing well on the GCI, seem to, on average, have a higher GCP too.

    “What this tells us is that you might want to go fairly early on your transition, as the countries that already have green complexity have greater scope to add and go further green,” said Hepburn.

     

    Case study: how can Switzerland reverse its declining green complexity?  

    One of the seven case studies in the report is Switzerland. The country ranks highly in overall economic complexity, with a global economic complexity index (ECI) ranking of 5, but its competitiveness in producing complex green products has declined notably. Between 1995-99 and 2015-19, the country’s GCI ranking fell from 6 to 23, while its GCP ranking fell from 18 to 47. 

    Switzerland is already a competitive exporter of railway parts and equipment used in biogas production, while the report finds that it has opportunities to excel as a manufacturer of wind-turbine parts – a sector that could grow tenfold by 2040 if current growth rates continue. Switzerland also has potential to generate renewable electricity beyond current demand, making it well positioned to serve the domestic market and export green energy to the EU.

    The report finds that Germany, the US and China are well positioned in the transition to net zero, as all nations demonstrate strong green manufacturing and technology capabilities.

     

    Driving the net-zero transition

    As part of the session, Patrick Odier, Senior Managing Partner at Lombard Odier, moderated a debate on how countries are approaching the net-zero transition. He asked Daniela Stoffel, State Secretary for International Finance at the Federal Department of Finance (FDF), about Switzerland’s contribution to the global effort.

    “Our financial market is punching way above the size of our population. There we have leverage and the capacity to be a part of the solution, not just regarding Switzerland itself but in terms of global investment,” Stoffel explained.

    Odier also asked the report’s findings about the importance of access to capital and international financing. Hepburn said that financing must ideally be paired with innovative and socially responsible financial engineering to have the greatest impact.

     “We know that that a lot of these technologies are capital intensive. The renewable energy system is more capital-intensive than the fossil fuel system, for example. Access to capital really matters.

    “When you get the financing sectors right, and the policy structures to induce the right sort of financing, that is when the magic happens. If you can have really good allocation of capital, coupled with socially good financial engineering to allocate risks accordingly, a lot of the real economy will hum,” he said.

    The UK has set out a number of ambitious net-zero targets. Odier asked how the City of London might be expected to contribute to the UK’s plans for decarbonisation.

    “It should be that London is one of the top centres for green finance. We need to up our game and we have the capabilities. The government has a big role to play, for example. We have a business rate system in this country that is crying out for reform. Our business rates are four times higher than Germany’s, and three times higher than the OECD average,” said Lord Bilimoria of Chelsea, Chancellor of the University of Birmingham. 

    “There should be an incentive to green your home and the government can change that. One third of greenhouse gas emissions is heat. Of the heat, half of this can be traced to buildings. Of the 29 million houses in this country, only 1 million are at the standard required to reach net zero by 2030. Houses need to be upgraded,” Lord Bilimoria said.

    The path to decarbonisation requires extensive input from both the private and public sector. Odier asked whether the findings of the report suggested the current balance between government intervention and private finance is right.

    “In the last few years, there has been growing recognition that, for a challenge as big and as urgent as this one, it can be helpful to have a coordinating force around that. It doesn’t have to be the heavy hand of the state, but guidance and coordination is essential. This does tend to mean there is a greater role for the state. Although not necessarily an interventionist role, it is an important role,” explained Hepburn.   

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