Introduction
Renewable energy sources are hailed as essential tools in the transition towards a net-zero future. However, there is a common misconception that solar and wind power for example, are carbon-free. Their environmental cost is less visible behind the clean energy front they have, yet comes from production, installation and disposal processes. In fact, recent analysis has shown it takes 1-7 years for large solar installations to break even on their greenhouse gas emissions compared to coal plants,
meaning the installation has offset the emissions generated during production, transportation and installation. The large range can be attributed to the location (solar panels in higher solar exposure break even faster), panel technology (higher-efficiency panels generate more electricity in less time), and the system scale (larger systems benefit from economies of scale). This PSF Insight will explore the hidden costs of these renewable energies, focus on why they matter and should be factored into sustainable and ESG-focused investment decisions.
Lifecycle Emissions: A Cradle-to-Grave Approach
In order to understand the lifecycle emissions of renewable energy we can break it down into three phases using a ‘cradle-to-grave’ evaluation: upstream, operation, downstream. The upstream stage involves the extraction of resources and product manufacturing, operation involves the product’s usage, and downstream regards the disposal or recycling process at the end of the product’s life. Since renewable energy technologies don’t produce emissions during the operation phase, their costs lay hidden before and after. We can take the lifecycle of a wind turbine as an example, which lasts between 20-25 years. The manufacturing of wind-turbines involves materials such as concrete, steel and copper, which are highly energy intensive and have a high associated carbon footprint due to mining, refining and transportation. Steel production alone is estimated to currently account for 7% of global carbon emissions. Currently, only 30% of the composite materials that are used in wind turbine blades can be repurposed. The majority end up in landfills or the cement industry as filler material. Additionally, the mean estimate of carbon emissions of wind power is between 12 and 15 gCO2eq/kWh, of which 90% is accounted for by the upstream phase. We can see that whilst renewable energy options offer carbon-free solutions in their operational phase, the costs of the upstream and downstream phases shouldn’t be discounted from ESG and sustainability assessments.
Supply Chain and Resource Extraction Challenges
The carbon-intensive components of the supply chain for renewable energy include resource extraction, manufacturing and transportation. Common raw materials used in renewable energy alternatives include lithium and cobalt, which are used in solar panels, wind turbines and batteries for example. The International Energy Agency predicts the demand for these minerals used in clean energy technologies will increase from around 7 million tonnes to 28 million tonnes by 2040. Whilst these materials are considerably better for the environmental than the use of fossil fuels, they still require energy-intensive actions to mine and extract. For example, the extraction and refinement of lithium emits approximately 15 tonnes of CO2 for every tonne obtained, and cobalt production has resulted in the deforestation of millions of trees in the Democratic Republic of Congo. Once extracted, the transportation of these raw materials adds another layer of emissions. The global transport industry is a key example of a hard-to-abate sector, with heavy-duty vehicles and cargo ships being primarily fuelled by fossil fuels, with electric alternatives still rather undeveloped. The manufacture of these renewable energy alternatives dips into many HTA sectors (steel, shipping, cement, shipping, HDVS) accumulating a significant carbon footprint. Understanding the journey of clean energy is essential for ESG investors to see and scrutinise the true supply chain impact as demand for these alternatives increases.
The recycling and waste management of renewable energy resources poses some complexities. E-waste from solar panels and batteries contains toxic substances like heavy metals, composite materials and hydrocarbons, known for their toxicity and carcinogenic properties. These materials are likely to end up in landfills such as Yuma County in Arizona, who in 2020 reported a significant increase in the number of discarded solar panels, containing hazardous materials like cadmium and lead. The landfill didn’t have viable means of recycling these materials, leading to safety concerns about potential leaching into the soil and groundwater. In addition, there is a large gap between the E-waste recycling process in developed vs developing countries. Developing countries tend to rely on more informal processes with the hazardous byproducts often ending up in open dump sites where the surrounding habitants are unaware of its dangers. Whilst there is the opportunity for future improvements in disposal processes, they would require the support of ESG-focused investors, highlighting the need for green innovation.
Sustainable Investment and the Path Forward
These hidden costs of renewable energy are key for ESG-focused investors when making environmentally responsible choices. Whilst these alternatives are central to combatting climate change and achieving a net-zero future, ignoring lifecycle emissions leads to an incomplete judgement of their carbon cost. When considering the lifecycle of a wind turbine for example, an ESG investor like Prosper should incorporate value-chain analysis and supply chain sustainability metrics. This could include evaluating the labour conditions in the extraction of raw materials like cobalt and lead or calculating greenhouse gas emissions per tonne of extracted material. These tools quantify the social and governance aspects of the supply chain and permit comparison of companies’ practices.
Taking all these factors into account is more likely to encourage investment with the renewable energy sector. If companies are made more aware of the costs that renewable energy alternatives incur, they can target companies prioritising green innovations and recyclability at the end of the product’s life. The most effective way of promoting support for practices with lower hidden carbon costs is encouraging supply chain transparency, detailed reporting of emissions from manufacturing and resource extraction, and transportation figures. Green technology investment is also essential. Investors can look to support companies funding clean energy-powered production and scalable recycling methods, for example a firm like Vestas, who aims to develop a more recyclable wind turbine blade to reach an 100% recyclability rate by 2030. By supporting these sustainable practices, investors are aligning with their ESG principles through decisions that target long-term gains of a greener and more ethical industry.
Understanding renewable energy’s hidden costs is crucial for the progression to a net-zero future. Identifying emissions from upstream and downstream phases of a product’s lifecycle are fundamental for locating and targeting these costs through investment and responsible sourcing. Informed investment decisions would help drive this meaningful change and contribute to renewables fulfilling their role in the transition to a more sustainable future.
References
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Available at: https://www.sciencedirect.com/science/article/pii/S1364032122004385
S. Evans, “Solar, wind and nuclear have ‘amazingly low’ carbon footprints, study finds”, August 2017.
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Available at: https://www.sustainabilitybynumbers.com/p/mining-low-carbon-vs-fossil
M. Zheng, “The environmental impacts of lithium and cobalt mining”, March 2023.
Available at: https://earth.org/lithium-and-cobaltmining/#:~:text=Relative%20to%20fossil%20fuels%2C%20Cobalt,of%20CO2%20into%20the%20air.
E.A.Omondi et al., “Complexity of e-waste and its management challenges in developing countries – a review”, October 2022.
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Available at: https://www.climatexchange.org.uk/wp-content/uploads/2023/09/life_cycle_wind_-_executive_summary_.pdf