The Global Clean Energy Manufacturing Gap
To reach global net zero carbon emissions targets by 2050, the International Energy Agency (IEA) projects that by 2030, the renewable share of power generation must increase from 30 to 60 percent and the share of electric vehicles among global car sales must increase from 6 to 60 percent.
To meet these targets, global clean energy technology manufacturing must increase significantly. To date, countries have announced projects to expand manufacturing capacity that would meet 2030 targets for solar photovoltaics (PV) and approach that for electric vehicle (EV) batteries. However, substantial gaps remain: 66 percent for wind turbines, 58 percent for heat pumps, 40 percent for hydrogen electrolyzers, and 39 percent for fuel cell trucks (Figure 1).
Global investment in clean energy technology manufacturing is needed on an immense—though feasible—scale. The IEA estimates that expanding the global manufacturing capacity of the six clean energy technologies in Figure 1 will require cumulative global investment of around $640 billion between 2022 and 2030, or about $80 billion per year (in real 2021 U.S. dollars). For context, gross private domestic investment was $4.8 trillion in 2022.
Two pieces of legislation signed into law by President Biden, the Bipartisan Infrastructure Law and the Inflation Reduction Act, will reduce the global clean energy manufacturing gap by (1) accelerating domestic production, (2) reducing global production costs, and (3) subsidizing research and development (R&D).
Accelerating Domestic Production
The Inflation Reduction Act contains tax credits, loans, and grants for producers and consumers to increase domestic clean energy manufacturing capacity. The funding is targeted at major clean energy technologies, including solar photovoltaics, wind turbines, batteries, electric vehicles, and heat pumps. These public investments will continue to de-risk clean energy technology markets and encourage private sector investments in manufacturing capacity. Since the beginning of the Administration, private companies have announced $71 billion in commitments clean energy manufacturing.
Reducing Costs
As new clean energy technologies develop and disseminate, costs are expected to decline as a result of economies of scale and learning-by-doing. Economies of scale move clean technologies down the average cost curve; learning-by-doing shifts the average cost curve itself as productivity increases. Together, these forces lead to lower costs at higher levels of output (Figure 2).
For example, between 2004 and 2012, Germany’s renewable energy law propelled the adoption of over 30 gigawatts of PV in Germany. This new German demand provided a strong incentive for clean energy suppliers to innovate and disseminate clean technology, which in turn helped to transform the global PV market. One study estimates that economies of scale and learning-by-doing reduced solar PV costs by more than 50 percent between 2001 and 2012.
Much like German incentives for solar, Inflation Reduction Act incentives are intended to reduce the cost of emerging technologies to the point where they can scale and become cost-competitive. According to analysis from the Boston Consulting Group, learning-by-doing in both manufacturing and deployment could result in cost reductions of up to 25 percent by 2030, depending on the technology.
Subsidizing Research and Development (R&D)
The Bipartisan Infrastructure Law will reduce the clean energy manufacturing gap by funding domestic research and development of clean technologies, which will likely have meaningful global knowledge spillovers. The Bipartisan Infrastructure Law, combined with the 2020 Energy Act, more than triples the Department of Energy’s annual funding of energy programs and includes a significant expansion of funds for research and development.
The Bipartisan Infrastructure Law and the Inflation Reduction Act represent the largest investments in clean energy manufacturing on record. These investments will drive down the costs of clean energy technologies and encourage innovation across the globe. But even with these investments in the United States, the world is likely to fall short of the clean energy production levels needed to meet net zero by 2050. There exists both an economic opportunity and a pressing requirement for governments around the world to join the United States in stepping up their commitments to a clean energy future.
