Innovation in the burgeoning clean energy sector is being bogged down by policy and economic uncertainty. The vast majority of the globe has pledged to transition from the fossil fuels that are exacerbating climate change to renewables like wind, solar, hydroelectricity, and geothermal over the next several decades. While extremely massive in scope, the energy transition can be achieved with policy support coupled with massive public and private sector cooperation.
However, this transition is being threatened by growing global uncertainty. In an industry where new projects require significant startup costs, investors will only invest if they are sure to make a decent return on investment (ROI). Economic and political uncertainty makes the ROI of green energy projects wildly unpredictable and keeps investors away.
The result is a decline in green energy innovation as investors direct their funds toward investments with more certainty. According to the recently released Draghi report, uncertainty can cut green energy innovation by up to 1.5%, with recessions and other periods of economic stress bolstering the anti-clean energy innovation effect.
Achieving global green energy targets will require significant innovation in the green energy sector. Some green energy targets were set based on technologies that are currently in the prototype or demonstration stages and expected to finish development at some point in the future. Innovations will be critical to maximizing green energy output and efficiency, lowering energy prices, and ensuring the transition is fair and equitable.
Unfortunately, such innovations come with a hefty price tag. Green energy projects require significant capital and can take a long time to reach profitability, if they do, testing the patience of even the most risk-on investors. The Draghi report found that uncertainty can have a dampening effect on new clean energy patents, with uncertain shocks cutting innovation by nearly 1.5% over two years.
Interestingly, the report noted the effect of uncertain shocks was one percentage point less on non-green patents, indicating that green innovation suffers more from uncertainty compared to non-green innovation. This may be due to the fact that the green energy sector is heavily reliant on policy to sustain its momentum.
Left-leaning governments have been behind most of the world’s green energy progress over the past few decades, but this progress can be curtailed by administrations that are more partial to the fossil fuel industry. Conservative governments can eliminate green energy policies and rescind funds earmarked for climate action if they wish, making it difficult for green energy investors to devise long-term investment plans.
Donald Trump’s recent election, for instance, has left the global clean energy industry uncertain of its future. President-elect Trump has repeatedly disparaged the Biden administration’s investments in green energy and vowed to rescind any unspent funds the outgoing administration budgeted toward climate action.
As efforts are directed towards addressing the factors weighing down on innovation within the clean energy space, enterprises like Reflex Advanced Materials Corp. (CSE: RFLX) (OTCQB; RFLXF) in the extractives industry will continue to conduct their operations geared at ensuring that all the minerals needed in the renewable energy push are readily available.
NOTE TO INVESTORS: The latest news and updates relating to Reflex Advanced Materials Corp. (CSE: RFLX) (OTCQB: RFLXF) are available in the company’s newsroom at https://ibn.fm/RFLXF
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