[Lee Jong-woo's Economic Reading] The 'Green New Deal' as an Economic Turning Point

Solving Environmental Issues and Growth Simultaneously
73.4 Trillion KRW Invested by 2025
Expect Changes in Energy Production and Transportation
Job Creation Effects by Transforming Buildings
Impact on Investments Including Battery Stocks Rise

Since the Great Depression in the 1930s, the United States' economic policy has undergone two major shifts. One was the New Deal policy initiated in 1932. This marked the abandonment of laissez-faire economics in favor of active government intervention in the economy. During the dominance of the New Deal, the U.S. enjoyed its greatest prosperity after World War II, but also faced hardships in the 1970s when manufacturing was overtaken by Japan and Germany. The other shift was Reaganomics implemented in 1980, which aimed to strengthen free competition and allow the market to determine policies. Large-scale tax cuts and deregulation were carried out, enabling the U.S. to regain global economic dominance from the mid-1980s onward, though excessive financial easing led to the financial crisis in 2008.

Our economy has also passed through two turning points to reach its current state. The first turning point was the promotion of heavy and chemical industries in the mid-1970s, which marked a step up from light industries and helped our economy advance. The second was the IT promotion policy around the year 2000. Thanks to this, we secured global IT competitiveness and established a foundation for internet-based business.

The Green New Deal is recognized domestically and internationally as the next economic turning point. Its goal is to solve environmental problems while using them as a growth engine, and major countries worldwide are actively pursuing it. In the U.S., the Green New Deal is seen as a response to the climate crisis and a solution to widespread inequality in American society. According to this plan, $1.7 trillion (approximately 2,023 trillion KRW) will be invested over the next decade to build a 100% clean energy economy by 2050. Specific measures include building distributed smart grids, improving energy efficiency in buildings, and reducing carbon emissions through transportation system development. Europe is ahead of the U.S. in this regard. Under the plan to achieve zero carbon emissions by 2050, Europe aims to expand the use of eco-friendly energy through economic growth and resource use diversification. To this end, it is preparing 1 trillion euros (about 1,400 trillion KRW) over the next ten years.

Our government plans to invest 73.4 trillion KRW by 2025 to promote the Green New Deal. To achieve a green transition in urban, spatial, and living infrastructure, it will complete zero-energy conversion for 230,000 aging buildings and create 25 smart green cities. To spread low-carbon and distributed energy, it will expand the supply of electric and hydrogen vehicles as well as renewable energy sources such as solar, wind, and hydrogen. In terms of building a green industrial innovation ecosystem, 10 smart green industrial complexes will be established, along with plans for smart eco-factories and clean factories.

There are three major sectors that will change significantly due to the Green New Deal. First is energy production. In the future, electricity will be generated from various sources such as solar, wind, and tidal power, then connected through networks and stored in energy storage facilities. This shift in energy production has become possible because the cost of generating electricity using solar and wind has dropped to levels comparable to oil and natural gas. For example, the fixed cost per watt of silicon photovoltaic cells used in solar panels was $76 in 1977 but has now fallen below 50 cents. Wind power costs have seen similar reductions. According to the International Renewable Energy Agency, the production cost per kilowatt-hour (kWh) of onshore wind energy was about 3 to 4 cents in 2019.

The second is the transformation of transportation, including electric vehicles (EVs). Demand for EVs is expected to increase, making them the mainstay of global car sales by 2025. The rise of EVs is due to falling battery prices and increased capacity. The price of EV battery packs dropped from $1,183 per kWh in 2010 to $156 last year, an 87% decrease. This represents an average annual price decline of 19%, and if this trend continues, EVs and internal combustion engine vehicles could reach price parity by 2024. Meanwhile, battery energy density has increased by an average of 5 to 7% annually.

Currently, EVs account for only 2% of global car sales. Charging takes a long time, and there are many improvements needed in infrastructure, including electric charging stations. Even considering these factors, the time for 'creative destruction' in the automobile industry is not far off. Bloomberg estimates that the global number of EVs, which was only a few thousand in 2010, grew to 2 million in 2018, and will reach 10 million by 2025, 28 million by 2030, and surpass 56 million by 2040. This means that by 2040, 57% of passenger cars sold and over 30% of all passenger cars worldwide will be electric. Currently, 96 million barrels of oil are consumed daily worldwide, with the transportation sector accounting for 62.5% of this. Given its size, the impact of changes in this sector will be significant.

The third sector affected by the Green New Deal is buildings. In advanced countries, laws are being enacted to mandate that existing residential, commercial, and industrial buildings obtain electricity from renewable energy sources such as solar, wind, and geothermal through retrofitting.

The Green New Deal is not just about environmental improvement. It will create many jobs; in the U.S., the solar, wind, and EV sectors already employ 1 million people. Including those employed in building retrofits, it is expected that 3 million people will be newly employed or able to maintain existing jobs. Globally, 320 new occupations will be created in clean energy production and environmental management sectors, and since these jobs require high skill levels, hourly wages are expected to be 8 to 19% higher than current levels.

The Green New Deal is already having a significant impact on investment. The sharp rise in battery company stock prices before the announcement of the Korean New Deal and the increase in automobile stocks due to expectations for next-generation vehicles after the announcement are all effects of the Green New Deal on stock prices. The market regards batteries, EVs, power grids, and renewable energy as Green New Deal-related sectors. Among these, attention should be paid to power infrastructure and renewable energy. Although these sectors attract market interest, they are unlikely to have the same impact as batteries. This is because our companies possess world-class technology in batteries, whereas power infrastructure and renewable energy lag behind. Nevertheless, since stock prices have not risen much and there has been little movement since the topic was first raised long ago, the freshness of the material makes it worth having expectations.

This content was produced with the assistance of AI translation services.