Green Growth: The Opportunity of Supplying the Global Energy Transition

DISCLAIMER: This webinar transcript was loosely edited and there may be inaccuracies.

Tim Cheston Well, welcome, everyone. This is the Growth Lab’s seminar on green growth. I’m Tim Cheston, a senior manager of Applied Research at the Growth Lab, and I’m pleased to have our speaker here today, a familiar face around these parts, this is Professor Ricardo Hausmann, Rafik Hariri, professor of the practice of political economy at HKS, and the founder and director of the Growth Lab. This seminar is actually a part of the Worldwide Week at Harvard, during which schools, research centers, departments, and student organizations showcase the breadth of Harvard’s global engagements. I’d like to also welcome our audience on Zoom. We have seen that we have attendees from Brazil, India, Italy, Japan, Mexico, Morocco, Pakistan, South Africa and Switzerland, well-represented along with other countries around the world. So great to have you with us today. Please note that this stream is being recorded and the edited version will be published on our website and social media channels as well. So, without further ado, Ricardo will begin his presentation, and we hope to have a lively Q&A to follow.

Ricardo Hausmann Well, thank you. Thank you very much, and thank you to those who are here in person and those who are joining us electronically. And it’s great to share with you some ideas on how to think about the opportunities for creating prosperity in the context of a world that wants to decarbonize. And there are many reasons to think that there might be a tension between the desire to decarbonize and the desire to grow into prosperity. I’m going to analyze these issues and find a way forward or propose a way forward. So we know that energy is fundamental for human activity, and energy is actually scientifically defined as the capacity to exercise work. And work was what humans were about then for a long but important part of our history. We used damn human energy, and then we domesticated animals to try to use animal energy. And we also used water energy by putting water wheels on on rivers and stuff. But then we suddenly found that we could generate energy with a mass during heat. And then we got the steam engine. And with the steam engine, we mechanized manufacturing, we mechanized transportation, and so on and so forth. And that dramatically changed the energy composition of of our uses for the bulk of our of our history. The energy we used was biomass in the form of wood or charcoal. But then suddenly we found coal, and then we found hydrocarbons, Right? And as a consequence. And our use of energy has exploded. In the last 200 and some years. The bulk of that explosion was in coal, oil, and natural gas.

Okay. Now, it is the case that richer countries use more energy per capita than poorer countries. Okay. A nod. Not that the relationship is not perfect, but it’s close enough so that if you tell me your income per capita, I’m going to guess your energy consumption per capita, and I’m going to make an error, but not that big an error. And if you tell me your energy consumption per capita, I’m going to guess your income per capita and I’ll make an error, but not that big of an error. Right? And so. So it’s very hard, given current technologies, to think that you can grow into prosperity and not use more energy. And then. It is also the case that the intensity of energy use per unit of output has been falling. So now we use for every dollar that we create, we use less energy. But the speed at which this has been happening has been less than the speed at which we have been growing. So we are still consuming more energy every year. So it went from 160 to 120. Wwhatever the index is went down by a fourth. Over a period of over 20 some years. So it’s going down like one and a bit percent per year. Okay. So since we’ve been growing by more than one and a bit percent per year, our energy consumption has been going up. And this is what’s been happening to global emissions. So, yes, you know, we’ve been, you know, life looks like it has been fairly similar for a very long time, but the growth of emissions has been really dramatically concentrated in the post-1950, 1960 period. Now, if you look at cumulative CO2 emissions in the atmosphere. And by the way, what matters for climate change is not how much you emit now but how much you have emitted in the course of history. So it’s a cumulative stock of CO2 up there that is causing the problem. If you look at cumulative emissions in the US, it is about 25% of emissions. So, in the US plus Canada plus the EU, it is probably about 50% of emissions. And Canada in China is only 15% of emissions or less. But if you look at current emissions. And the US is only 13% of emissions, not 25. And China is 30% of emissions. So the reason is that there’s been a very dramatic change in who’s been growing. So here you see, China has been growing by leaps and bounds. The US has been pretty stagnant or, if anything, falling in terms of emissions. So the composition has changed a lot. And this has important implications because if you want to stop global warming, you have to stop emissions. We say, Well, let’s start with the guys who created the problem. But the problem is that the guys who created the problem are now 25% of the problem with 75% of the problem is not where the guys who are the culprits are so weak. So it’s hard to stop the problem without involving more people. Now, this is another measure of the unfairness of the whole process. I liked very much this table because this graph because it shows two things. On the x axis, it’s it’s the population of the country. And on the y-axis is the consumption per capita. And the size of the rectangle is proportional to your emissions. Right. So. The US is emitting less than China. Okay. But why? Because the U.S. has a fourth of the population of China but emits almost double per capita as China does so. So, you know, it’s very, you know, the US cannot go to China and say you should stop your emissions because you’re the biggest emitter.

But I’m not the biggest emitter per capita. Right. So in. But it would be if you look at this graph, it would be criminal or absurd to sit at the World Bank and think that the fundamental problem or its fundamental item on the agenda of Africa should be the reduction of its emissions. Because you see that Africa is the last thing in emissions per capita are minuscule. They have as much population as China and they are not you. If you stop their emissions to zero, the climate will not notice. Okay. So. So this generates this field to be a field that is enormously difficult from a fairness point of view. Right. The guys who created the problem can no longer solve the problem on their own. Etc. And the guys who you want to stop are not the ones who were responsible for it. So the way the approach is currently being addressed is by saying, look, the atmosphere is this shared. Common good. And because it’s shared, we don’t internalize the things we do to it. So we have what they call a common pool problem or the tragedy of the commons, right? Yeah. The climate doesn’t care who emitted the CO2. If you lower your emissions, it’s not going to lower your hurricanes. Right. So because of that, there’s a free rider problem. Nobody internalizes things, and everybody emits too much. So the approach has been we need to have the Kyoto Protocol, the Paris Agreement, where we all are going to agree that we should reduce our emissions. So how are we going to reduce the world’s emissions by you reducing our emissions? You reducing your emissions. Me reducing my emissions. Everybody should focus on reducing their emissions. And if we all do that, the world would have lower its emissions. Okay, That’s that’s the paradigm, right? And because that’s the paradigm, the world has organized itself into four chapters. And the four chapters are every country should focus on reducing their emissions. That’s what they call mitigation. But since the check is already in the mail and the climate change is coming, even if we stop emissions today, there’s still a lot of. Heat in the system that needs to express itself in climate change. So we need to adapt to climate change. But in the process of doing that, some people will get hurt.

Other people might benefit. But we worry about the ones will get hurt. So that’s why the transition has to be just and because we need to make, you know, mobilize resources. And maybe we want poorer countries that have not immediate enough, had not emitted much not to hold all the burden for it. We need to help them with finance. And there’s a chapter called Climate Finance. And it should be really subsidize subsidies for climate finance. But finance numbers look much bigger than the subsidy component. So that’s why everybody on board on climate finance. But it’s really the only thing that matters is the subsidy component on climate finance. But these are the chapters. And that’s what the World Bank, for example, in the country in the country, what we call it, Country Climate and Development Report. They write these reports with these four chapters, and they allocate resources to these four chapters. Okay. So. That’s the story. Now, I’ve wasted this first half of my talk to saying that that’s nothing that I say to this point has anything to do with green growth. And this was a talk of green growth. What I want. What I want to say is that if you think that this is a complete description of the problem. I think this is only half of the description of the problem. Okay. Because for the world to lower its emissions. You say, well, every country has to lower its emissions, but for the world to lower its emissions, the world is going to need a lot of stuff. Somebody has to make the stuff. That the world needs to be able to lower its emissions. Who’s going to make that stuff? Why not my country? Why not me? Right. Because suddenly. If I can. Help the world lower its emissions. The more they try to decarbonize, the more I sell and the more I grow. Right. So. Figuring out. What the world is going to need is important them to figure out what things. If I were to become good at would make me. A benefit from the fact that a decarbonizing world will need me. Okay. So I say ask not what you can do to decarbonize your country. Ask what your country can do to decarbonize the world. Okay. Because if you’re in Africa, if you’re in Latin America, say we are a minuscule part of global emissions, what can we do with our sacrifice in terms of reducing our emissions? Well, we don’t have a big role to play. But if our goal is to lower global emissions, well, then maybe we can be big contributors. And maybe this. Okay, so. So green growth is about helping the world decarbonize, not about your own emissions reduction. Okay. So what does the world need to decarbonize? Well, we need to do a lot of things very differently. This is the industry, the composition of global emissions. This is subject to all kinds of calculation problems because. Who’s using that electricity? Is it used in manufacturing? You attribute it to electricity or to manufacturing, etc.. But it tells you that this, you know, a lot of things need to change.

But part of the strategy of how to decarbonize is to electrify everything that can be electrified and then make that electricity in clean ways. And that means in addition, you have to develop alternative fuels and fuels that are not CO2 emitting or that where the CO2 is something you captured earlier. So hydrogen, ammonia, methanol, green hydrocarbons, biofuels, etc.. We need to eliminate emissions from manufacturing processes and there are different manufacturing processes that generate the emissions we might need to capture or sequester carbon. And we don’t really know how to do too many things of that. But we have some certainty over some parts of the equation and there’s going to be massive technological change as we go forward. There are some things that are still not for prime time. They’re still being developed. They’re still too expensive. So it’s a field that’s going to see a lot of change and a lot of technological risks as we proceed. So how can you grow by helping the world decarbonize? We’ve developed, we call it five strategies. You might think of them really as four strategies. Call it five. So the first strategy is you make the things, the equipment, the stuff that a decarbonizing world will want to buy. Okay. That’s what we call strategy one. Strategy to aim something that we now like to call power sharing. It’s a term that was invented, I think, in Brazil, but it’s that you will make with your green energy stuff that the world makes today with great energy. And I’ll explain why this creates new opportunities. And number three, you can somehow capture carbon. And I’m going to say my pessimism about the things I don’t think are likely to work anytime soon. And I would mention some of the where I think that they’re still not there, but closer. Number four is that, you know, a lot of the value in decarbonization or a lot of the cost in decarbonization is not just in the equipment, but in the services and the ideas and the knowledge. So you can monetize the knowledge you have in these things. And number five, once you’ve developed all of these areas, because it was this market opportunity of a world that wants to decarbonize. These things are not of specific use. You can combine them with your overall development strategy to get into new fields and into new unrelated forms of growth and diversification that you would not have gotten there, gotten there had you not used this as a stepping stone. So those are five strategies.

Okay. So a strategy, one a make the enablers. So what are those enablers? Well, enablers that produce green electricity and enablers that produce clean transportation are at least two are the ones that are are for primetime. And all of this starts with a lot of critical minerals. So, you know, if you look at IEA projections, there has to be if we are going to be anywhere near the targets that have been set, you know, we’re going to need a whole lot of, you know, solar panels and stuff. We’re going to need grid-scale batteries for the electricity system. We’re going to need EVs, etc. If all of these growth rates are so enormous that you might say it’s an incredible market opportunity or those targets look unlikely. Right. So but if the world is going to be anywhere near those growth rates have to be very large. So that’s why we think if you can somehow steer your country into these rapidly growing markets, it might be a good thing. So many of these things start with critical minerals. This is some list of critical minerals. There are many, and supposedly, according to many people, there have to be super fast growth rates. And as you know, mining does not happen very quickly. Developing a mine takes ten years or so, if not more so now, you might say. But for me to have critical mineral production, I need to have critical mineral resources. But I want to say that critical mineral resources are much more abundant, abundant than mining. Good mining frameworks or good mining policies. And the proof of that is this graph in blue. You have known lithium reserves in the world and in red you have lithium production in the world. And where is lithium production taking place? Well, in Australia. In China. In Chile. Why? Not because they have these huge reserves, not because they have the right policy framework. So many countries have much more critical mineral wealth. Than mere mining or less equality. And that’s a human. Fixable aspect. So, we think that mining policies have to be put on the table and under discussion in developing countries. But then after you get to two mining you. After mining comes mineral processing and manufacturing value chains. What are those things? Well, we took. A doctor from a bunch of reports and converted it into into a data set about these 11 value chains. Okay. And. And now that we have these these value chains, we can figure out what what are the things that are involved in these value chains.

And we can figure out where are these value chains? Who’s currently good at these value chains. So these are the countries that now are good at these things that go into these value chains. Germany appears as very good, and Japan is pretty good. The US is also somewhat there, and it depends on the value chain. We’ve developed, you know, the products-based methodology so of related products. So this is the product space. We can figure out where in the product space are these things we can figure out where is your country in the product space, where are these things in the product space so we can figure out which things are relatively close to what you’re good at. So which things you are more or less kind of ready, but maybe not yet, but ready to kind of get into them and in. That’s why we we are developing tools to make this stuff easy for people to do it. Fortunately, we got support from the government of Azerbaijan, who is organizing the next COP  meeting in Baku at the end of October or November. And so we are going to produce a tool for countries to figure out how to get into the game. Okay. And this tool, you put your country and it will tell you. What are these value chains? Where in these value chains do you have capacity? Which ones are near you? Which ones would be more attractive for you to get to because they might be more of a stepping stone for other possible things that come later because they are closer to you, so they’re less risky for you to get involved in. Our Atlas of Economic Complexity will tell you who buys the stuff and who your competitors are. And so it clarifies how to play this game. So that’s strategy one. Okay. And right now, with the Growth Lab, we’ve worked with the government of South Africa, the government of Namibia, the government of the UAE, the government of Wyoming, now with the government of the state of Sonora, the city of Hermosillo, to figure out how to play this game. We plan to do it with the government of Andalucia in Spain. So how to incorporate this idea that there’s going to be fast-growing markets to see how you can steer in that direction? So, a second idea. The world is energetically flat. You say, “what the hell does that mean?” Well, it means that oil is incredibly dense both from a volume point of view and from a weight point of view, that is a kilo of oil or a liter of oil packs an enormous amount of energy. Now, you might say, that’s kind of like a cool physical chemical factoid. Who the hell cares about that? Well, if you think of an economist, that means that oil is incredibly cheap to transport. Take one of these big ships. And we put a huge amount of energy into it. If a barrel of oil, cost $80 in Saudi Arabia. It’ll cost $82 in Japan, it will cost $82 in Rotterdam. You can move it around at almost no cost. As a consequence, if you wanted to make energy intensive products. You could locate anywhere in the world and you just bring in the energy. So your local availability of energy was not an important determinant of your comparative advantage in energy intensive products. And as a consequence. Steel exporters like China, Korea, Germany, Belgium are major oil importers. They import the energy. They export the steel. Green energy is nothing like it. Okay. There’s a bunch of stuff besides steel that is very energy-intensive. Green energy is more akin to natural gas, but worse.

So let me just give you a taste of natural gas. Now a kilo of natural gas packs an enormous amount of energy, but a liter of natural gas at room temperature and pressure has no energy whatsoever. Right. So if you want to move natural gas, you have to compress it and make me maybe liquefy it and you lose 40% of the energy in natural gas. Just in the process of liquefying it. And once you’re there, you have to put it in one of these little ships at -170 degrees and so on to move it around. So it’s super costly and complicated to move along. As a consequence, the price of natural gas depends very much on where you are. Well, I was telling you that, and by the way, because this stuff is hard to move. You got an energy crisis in Europe, but not an energy crisis in the US because of the Ukraine crisis. Right. So that I don’t buy stuff from Russia, I buy it from somewhere else. It doesn’t work that way. When we are talking natural gas. It does work that way when you’re talking oil. I’m saying green energy is going to be much worse. Right. If you see a kilo of hydrogen takes an enormous amount of energy. But a liter of hydrogen at room temperature and pressure has no energy whatsoever. So if you want to move it, you’d have to compress it and try to waste even more energy trying to compress, etc.. So and then I don’t know what ships are going to do that because that’s going to be at -200 or whatever and to keep it cold. So so it’s going to be very hard to move. But even if you don’t go there, you can generate today in a good place a megawatt hour of solar energy at 20 bucks. 20 bucks. A megawatt hour. Okay. Less than 20 bucks, in some places. That’s $32 a barrel of oil equivalent. The barrel of oil today is at 70 something. So it’s less than half a barrel of oil. The US government is willing to give you $3 a kilo of hydrogen in subsidy because they think that you should be able to sell hydrogen at $1 a kilo. Plus, your $3 subsidy would cover a cost of something like $4. $4 a kilo of hydrogen is $220 a barrel of oil equivalent. If you think you’re going to generate solar energy and transform it into hydrogen, well, get the solar energy up $32 a barrel and it cost you $180 a barrel to make it into something that you can move. So you ask if you’re a company, you say, I can buy it at $32 here or it will be 300 and whatever dollars if they ship it to me. So that means that now you will want to move your energy-intensive industries close to the places that have the green energy.

Now your availability, your availability of cheap, reliable, renewable energy becomes a determinant of comparative advantage for industries that are energy intensive. And that will mean that the world is going to decarbonize, not because German industry is going to buy green energy. They won’t be able to afford it, but because German industries will have to move to where the green energy is. And we know where the green energy is. Because this is where hydropower is. We know where hydropower potential is. We know where solar energy is. We know where wind energy is. So we can figure out know who has resources of renewable energy that they can put to play, not because they want to reduce their energy footprint and stuff, but because they want to reduce the world’s energy footprint by attracting businesses that can do things in a green way in your country that they can only do in a great where way some somewhere else. And that’s what we call a strategy to. Now for strategy two. One thing that is really important is not how much sun you have, how much wind you have, how much water we have. Right. It’s also. How much is your cost of capital? Because the wind is for free. The sun is for free. You know, it rains for free. But the equipment is not for free. And how much you have to pay in capital costs is going to be important. And unfortunately, developing countries tend to face much higher cost of capital than than a rich country. So we need to figure out how to make your country competitive as a destination for investment. So this means that working on your macro stability, on the security of your of your energy regime and so on. But one of the things that we have been pushing for is the case for green industrial parks, that we ask countries to develop their green resources and develop green industrial parks. So companies that want to lower their footprint can go and install themselves there. Right. And knowing that, you know, they would lower their carbon footprint because that’s clean energy, and they can do that in parallel to whatever they want to do in their international commitments through the COP process and so on, so that, you know, they can decarbonize at whatever rate they commit to decarbonize. But they are going to help the world decarbonize by developing these green industrial parks. Okay. Grey. Fossil fuel-based. I can say brown if you want.

Ricardo Hausmann Yeah. No. Yeah. Geothermal. It’s much more concentrated and not as competitive, but. Yes. But yeah. And so, you know, in carbon sinks, there are, you know, capturing carbon. There are three kinds of chapters. And one is nature based solutions A and am a I’m going to say bad things about it. In there is carbon capture use and CC US carbon capture and sequestration. I’m going to say not very positive things about it. And then I’m going to say something about biofuels where I’m going to be a little bit more. Or biomass or I’m going to be a little bit more optimistic. Okay. So we’re very far from having an efficient carbon market. This if you had an efficient market in the world there would be one price of carbon the way there is one price of oil. Because the CO2, the atmosphere doesn’t care which method the CO2. If it captured a tonne of CO2, it should be worth the same everywhere. But in some places, it’s worth nothing. In other places, or $5 in other places worth $190. So it’s obvious that there is no integrated market for for carbon capture. And the problem is that it’s very hard to know what the hell it means to capture carbon. One reason is because it’s not obvious that any carbon capture is additional. So you can say, you know, I have the Amazon jungle, it’s capturing carbon. Pay me for it. Yeah, but there’s not an additional capturing of carbon that compensates my additional emissions. So it’s not additional science. And you might say, I’m going to reforest and the rainforest is going to capture CO2. But yeah. But when will the trees die or when will they burn down and so forth. So there’s this problem of permanence for how for how long are you capturing the CO2? Because we don’t really care about capturing CO2 for a decade or so because the CO2 lasts in the year 140 years or whatever it is, the cycle. So it has to be long term. And then it’s very hard to measure these things. And because we have not agreed on any of these things, the market doesn’t trust anything. And there’s been a lot of greenwashing and it’s been very, very hard to in beyond, you know, a photo ops. To have really businesses that scale doing this. So this is not yet to an end. So in carbon capture and use and sequestration we’ve seen projects are in water. Wyoming project A we started a little bit the case of a carbon capture facility that they have developed with very good geology and stuff. But it’s been very hard to convince anybody of their generators of electricity using carbon, using coal. It’s a to make economic sense for them to capture and store the CO2 in. So that that project is not is not showing that the market is there for us. But with biofuels, it might be different. We have biofuels production these days in the US, using corn in Brazil, using an a sugar to make ethanol, both making ethanol. A But there are probably a lot of technologies that don’t use. A. Don’t go through ethanol. First of all, ethanol tends to use the part of the. Of the corn and the part of the sugar that we eat. And so it somehow competes with food. But the part we don’t eat. Which has more lignite and more woody stuff. We can’t digest. Has a lot of energy, but we have not figured out how to make it into ethanol because does it’s not easy to ferment. But there’s now this other process called, eh, paralysis, where you put the biomass in high temperature without oxygen. And it transforms the biomass into bio crude bio char. So it’s like a coal or like a crude and that crude. You can tweak it around and there’s probably going to be technological developments to make it lighter and lighter. And then you can stick it in the standard refinery and process it if you want. And maybe there may be other things there. And what makes you competitive in making biomass in this field is whether you can grow biomass 12 months of the year. And that’s typically in the tropics. So suddenly, you know, there might be a market there that might be interesting for countries in the tropics. Yes. This could be a source of this is a value chain that could end in jet fuel. Okay. And then providing greening knowhow. You know, there’s a lot of stuff that is needed. So, for example, Narmada is a really small province in Spain, but they were the first ones to develop their wind resources and they became good to their wind resources. So they captured off all wind turbine manufacturers called Garmin Siemens. Gamesa these days, which is the second largest manufacturer of wind turbines. And, you know, Spanish companies are big in engineering, procurement and construction services and solar plants and wind facilities and so on. And if there’s going to be a boom in the construction of these solar plants and windmill wind farms and so on, somebody has to do the engineering, the procurement, the construction, etc., why not your country? And why not? Why not participate there? So. And finally, you will have if you’ve gone through exploiting these opportunities and you will have developed those capacities, those capabilities, well, you will be in a different place and in a different place now. Further diversification might be different, new opportunities might arise. And so. So I think that, we’re trying to figure out how to incorporate that into a vision for how to move forward. So with that, let me remind you of our five strategies. Let me stop there and see and see what questions arise.

Tim Cheston Excellent. And we’ve had very nice questions from the Zoom chat that we will I will announce as well as well as anybody in the room. Have a microphone here, please.

Attendee This is, I guess, a micro question. So I was in Thailand for the first time in February, and I was there during a time where Myanmar and Thailand, the farmers are burning the refuse from the agricultural, the crops, and then you have the diesel fuels and you can barely see the sky. It’s incredible. And I was just wondering if you’re thinking around how do we change it for the world? But you don’t have great relations with your neighboring country that is burning these fuels. And there isn’t really a way necessarily to help them incentivize. What? What do you do around when you can’t control what your neighbors are doing? If you want to make a change but their their behavior is affecting you as a part of it.

Ricardo Hausmann So I’m going to give you and MIT answer more than a Harvard answer. There’s this joke that says that when cars were invented, and traffic accidents started to happen, MIT invented seatbelts. And the Kennedy School invented speed limits. So the MIT solution would be if we had a technology that would allow these farmers to convert this biomass into value, they would not burn it. Right. So you don’t have to incentivize it. I mean, if there’s if there’s going to be value in just processing it somehow, they will not burn it. Right. Because they would be destroying their own value. So we need to figure out, a, what are the feasible technologies that can do that. Then, you know, the running I mentioned pyrolysis as as a possible thing. And by the way, there are some people trying to. Develop carbon credits with pyrolysis. And so anyway, so so there’s there might be a way forward. What you said. No, let’s prohibit them from doing it. But maybe compensate you, you know. So it’s a policy solution, but not a technological solution. But the first best, I think, is a technological solution because that’s biomass. If we make that biomass into gold, nobody’s going to be burning gold.

Tim Cheston We have a question here. I’ll take a question from the chat. So nice intersectional question from Nils Handler talking about energy. Will AI turbocharge green growth globally or increase emissions due to increasing energy demand? Let me take a second question while we have a short window here. You know, you’re you’re you’re reframing was away from emissions towards a real focus on the supply side of the dynamic. But I wonder in terms of stakeholders what does that agenda setting mean in a COP as the agenda of many ministers of the environment, are you saying that this new agenda also should rethink whose agenda this is within government?

Ricardo Hausmann Sure. Good question. Remember the first one?

Tim Cheston AI. Yeah.

Ricardo Hausmann So I think I think both. I think AI is going to be a huge source of increased demand for energy. And I think, you know, the world of the future is not a world that uses less energy. It’s a world that makes its energy in a cleaner way. Right. So I think that AI is going to be an important source of energy. AI companies might be less sensitive to the price of energy, more sensitive to the reputational cost of their CO2 emissions. So they might be the kinds of people who would want to establish their facilities in these green industrial parks and so on. So. So now AI can have enormous implications in terms of facilitating the diffusion of technology and in allowing for faster growth in the world. Because Im, you know, we’ve always argued that the hard part of technology is, is the part of it that has to be in brains. And you know, and it takes a two-year course to become a cab driver in London. And you know, and once you finish that two-year course, you cannot drive in Manchester. Right. Because you don’t know the name of the streets in Manchester. Right. So but it doesn’t take any training to become an Uber driver. Right. So that’s because the knowhow went from the brain of the worker, of the driver to the machine. Right. And when you can do that, you can facilitate entry. And so I might facilitate entry into industries that were inaccessible before because they were too reliant on the equivalent of the of the cab driver. Right. So it might open up avenues for growth in areas that we would not have expected. You can download the knowledge from the cloud. It might facilitate progress and it might facilitate progress in many areas, including energy conservation and stuff. So I think that the AI is here it’s going to stay. We’re not going to stop it. Let’s make the best of it. But it might put an even further accent on facilitating green growth. On your question about where does this agenda fit in COP, my father is a very wise man. He likes to say, Why make things difficult if you can make them impossible? And by that he means don’t overcomplicate things. But sometimes complicating things actually makes them easier. And one area where this happens is in negotiations. Because in negotiations, if you have to narrow the scope or the things on which you are negotiating, there might not be a deal. But if you amplify the things over which you are negotiating now, there are trade-offs that you can make that you could not make before. So the reason why I think that the process is at an impasse or it has difficulty is because supposedly everybody has announced their their emissions reduction. Right. But we know it’s unfair. And the way to make it fairer is for the rich countries to pay the poorer countries to do it right. But the rich countries have 20 years of history showing that they are nowhere near anywhere their previous commitments. Right. So it’s very hard to go to Congress or to a parliament in a rich country and raise tons of money to be spent by another country. Right. So because of that, if that’s the only thing, if that’s the only trade, you know, you’re limited. But my country might be a little bit more interested in maybe doing be a little bit more ambitious in reducing my emissions if I can see a role for my country in participating in as a supplier of global emissions. Right. And then I’d say, okay, now, it’s getting more interesting because I could really grow a lot by expanding my exports into a world that wants to decarbonize. And I’m a supplier, a maybe in exchange for that. You know, I can do something on the emissions reduction side. So I think that it should be central to the whole core of the negotiation.

Ricardo Hausmann Thank you very much. Let’s take two questions or three. That’s great.

Attendee Thank you so much. Just had a question related to strategy number two, which.

Ricardo Hausmann I’m not answering a phone call. I’m just taking notes. Okay.

Tim Cheston If you don’t mind introducing yourself as well.

Attendee My name is Matt. I’m an MPP MBA student here at the Kennedy School and the business school. I’m curious about strategy number two and the idea of power shoring. Really intrigued by this. I also worked researching hydrogen here at the Kennedy School. So two reactions to that strategy. One is if manufacturing is going to move to these places to be closer to the sources of cheap, renewable energy. But what about the cost of sort of this the sunk cost, the of the facilities that are being abandoned in other countries? Have we have you considered the, you know, the problem of stranded assets when you’re looking at this? And then the second one is related to hydrogen, which I’m excited about. One of the aspects of it being that you can produce and consume locally. The shipping, I totally agree with you is a huge challenge. So instead, you might envision production centers around the world based on whatever prevailing renewable source, whether it’s green, blue, you know, whatever type of hydrogen, and then being consumed locally when you presented those and the energy density and the costs and related to the price of oil at $220 does sound expensive. If you’re ignoring carbon. The cost of carbon, which, you know, presumably, hopefully in the future, we’re taking that more into into account. So where do you see the relative competitiveness of local hydrogen markets as opposed to to global trade, as we’ve seen with other hydrocarbons? And then also, how do you consider the risk of stranded assets?

Attendee It’s things lot. Hi, I’m Johanna, and I’m in a private capacity, but I work for the European Commission, specifically on Germany, so that’s been really interesting. On your first strategy, I wonder, has the train passed for clean tech for any country you might be advising in low or middle income countries? Potentially. Do they have a chance at getting still on the train for clean tech? We see in Europe that it’s not necessarily the energy potential that isn’t there, but really the permitting procedures which take a long time. And also the social exception, acceptance, it might just be easier to impose. Large. Yeah. Large wind turbines on people which have less less advocacy for themselves and other countries and so on, and more broadly on whether there’s an opportunity for low and middle income countries to grow through clean energy. I was wondering, are they really benefiting from it overall or maybe falling further behind? Because while I do see an opportunity for green hydrogen and electricity exports from North Africa, for example, to the union and also for nature based solutions, even though I agree that it’s difficult to measure, even things like mineral processing are already in the hands of high income countries, if I remember correctly. And then on manufacturing moving to maybe those lower income countries, I wonder how important are other factors? I mean, we’ve heard in the news Germany, the segment of Europe. Is that really true? Like, are we losing our manufacturing capacities or how important is the cost of energy really? Or is it rather that we also have the skills in the country and the strong institutions that would keep the industry? And not only that, but also the transition costs of moving your entire facility somewhere else. And we’re getting some subsidies locally at the moment at least still. So, yeah, that’s some some reflections.

Tim Cheston We have one final question here. Thank you so much.

Attendee Okay. My name is Holland. I already graduated from here. I work in the World Bank and Climate Investment Fund. And I am curious to know your views about the World Bank performance, let’s say, about climate change agenda. And what areas of development that they should focus on. Last question about green procurement efforts. Where do you see this going? Thank you.

Ricardo Hausmann Right. Well, excellent. Thank you for your questions. Matt’s question was on power shoring and hydrogen first. I think that the things that can be electrified if you would not use hydrogen still for a long time. So between EVs and fuel cells, probably EVs will. And, you know, today’s technology looks like. These are much closer than fuel cells may be for heavy trucking and so on, where EVs might not be as efficient. People are talking about that, but it will make trucking much more expensive. So and I think that for the foreseeable future, for the next couple of decades, maybe hydrogen is going to be used for very specialty things and maybe for green steel and things like that in. And so and I like your idea of co-locating the production of hydrogen with its use and to save on some of these costs in now either stranded assets are a problem for the countries that have them and not for the countries that want to displace them. So I’m not internalizing that problem when I’m thinking of the growth strategy of a country that wants to get in. But by the way, these are industries that have to be multiples of their current size. So you might say, no, they it’s already too late now because these industries have to grow by multiples and they can grow by multiples by expanding their current facilities, but they’ll have to be a lot of greenfield investment. And whenever you have greenfield investment, you have to choose sites. Well, you haven’t been looking around the world because you don’t need new sites. But if this is going to be growing a lot, maybe you’ll need new sites or I just want to help countries figure out how can they make themselves part of the conversation when people are looking for new sites and them and what they need to do to be attractive. And Johanna was mentioning the things about the legal framework, about the business ecosystem, etc., that will make your place more attractive. So obviously these things are going to be at a premium. And our method of calculating whether you have or not is do you have all the other capacities that are needed beyond your green energy. So that’s why the products based methodology and so on allows you to figure out even what you know, how to do, what things are sort of like in your adjacent possible in the things that for which you more or less have what it takes, what you might missing be missing a thing or two that might make it more likely that you’d be able to to move in that direction. And that’s and that’s something. So Johanna was also asking him about all the other obstacles to the development of clean tech. By the way, kinetic is a broad term. If you go from critical minerals, everybody is desperate with critical minerals. Elon Musk is trying to convince everybody to set up a lithium facility because obviously he wants to buy and he wants to supply elasticity to be high so that the lithium prices don’t go up too much so he can have a competitive car. So everybody would like to see more supply. And so NIMBYism and not in my backyard. And social permitting is a major issue in mining activities and it’s a major issue in aluminum, in mineral smelting. My understanding is that there’s an unusual concentration of mineral processing in China. And we don’t really know why. Let me be more precise. I don’t really know why. I’ve tried to figure it out, but I can’t. I don’t know if it is a because of proximity to customers that generate some agglomeration economies. I don’t know if it’s because of cost of energy. I don’t think that’s a major determinant. It could be that, you know, a Chile is exporting, Chile is producing 3% copper, refining it to 30% copper. And shipping it to China. That means that every time they ship, they are sending 30% copper, 70% garbage. Somebody has to store that garbage. And maybe people are more relaxed about environmental standards in China, etc.. So I don’t know. But everybody wants to de-risk China. They’re talking about a chokehold on mineral processing in China and they want to diversify their sources of supply. Is this an opportunity? There’s going to be much more mineral processing. There has to be a mining boom for us to decarbonize. So we have to convince our environmentalist friends that we cannot save the atmosphere without scratching the earth. They don’t they don’t like to scratch the earth, but there’s a trade off, right? So and so we need to have a mining boom. So there’s going to be a lot more opportunity for mining development and there has to be a lot more mineral processing and it’s open. Where what is the geography of of mineral processing? Can your country play a role in that? Yes.

Attendee [Inaudible]

Ricardo Hausmann Well,  you know, in some sense, fossil fuels are cleaner, right? Because it comes out all on its own etc.. But while you know any minerals you are, it’s 2%, 3%, 4%, and the rest, you know, there’s a lot of stuff you have to move around. So in some sense, yeah, we haven’t focused on the fact that oil is relatively clean relative to mining. But there will have to be more mineral processing. I’m hoping that some of that can be done relatively cleanly in might have some synergies with other things and that may be that’s also growth opportunity. And then the whole value chain that starts from there. And finally, Hulu had the question, what should the World Bank do different? I think the World Bank is making a lot of progress. And, they’ve hired very good people. One of our former colleagues, Penny Mealy has developed some tools for them. What they need to do is to incorporate into their country climate development reports. They have to include a chapter on green growth. We have to start lending for green growth and they have to start pushing that agenda into the conversation so that the and so that they, you know, they help countries grow by becoming suppliers of global decarbonization instead. I mean, I it’s not because of the World Bank staff, but the donors don’t want to fund a coal fired power plant in Botswana because they don’t do that. They don’t do coal anymore, right? But Botswana is landlocked and has coal. And if they’re going to have any energy, there’s, you know, gazillion tons of coal that the U.S. is using and burning and Europe is using and burning and and China is using and burning. The world is not going to notice if Botswana had one, Right. But we are going to stop global warming in Botswana. And that, in my mind, is morally unacceptable. So I think that in a the World Bank has to be the world’s bank. It cannot be the bank of the, what should I say, of the post-industrial elites of the North. And their agenda. Yes.

Tim Cheston Provocative, as always. We’ve exceeded our time. And I want to thank our audience. We can hang in for a couple of minutes for any lingering questions. I want to apologize to Marcio in the chat. Had a great question about nuclear and how it fits in. But I also you know, Ricardo highlighted this. Watch this. Watch this space. We have a tool that now will have its beta version launched in November. And we are, as you said, engaging with countries around the world in this effort from South Africa to Morocco to Colombia to Azerbaijan. So please be in touch with us as we continue to develop these tools to make sure that they are applying to your place so that we can achieve decarbonization and new paths to prosperity together.

Ricardo Hausmann And let me just say, because Marcio asked the question, he did not ask, but I know what he would have asked. Let me say about nuclear, just to say about nuclear, that the day nuclear becomes cheap and competitive, which they’re working on and he’s working on, that day, power shoring will disappear as an option. So move now because we don’t know how long that window will be.

Tim Cheston Thanks so much.