As the world struggles to shake off the doom and gloom of the recent financial turmoil, countries continue to search for solutions to ramp up economic performance and reduce unemployment rates. Global energy demand and prices have remained resilient and are likely to stay so as the global population expands and urbanisation continues. This has led policymakers in countries with the potential to produce energy to look at that sector as a potential engine for economic growth.
In most countries, the energy sector makes up a relatively small share of GDP, unless the economy is driven by oil and gas income. But energy is an input in nearly every product and service in the economy, underscoring the need for stable and sustainable energy prices. Among other things, the energy industry's well-paid, skilled workforce and considerable capital spending flow through the economy, creating jobs and encouraging further growth.
The potential contribution--direct and indirect--that the energy sector can make to the economy is clear from the example of the United States. Last year, the US oil and gas extraction sector grew at a rate of 4.5 percent, in contrast to overall GDP growth of 1.7 percent. Technological advances in oil and gas extraction have contributed to this growth, which has led to increases in employment.
Resource-rich countries have the opportunity to maximise the benefits of their endowments by supporting the growth of related industries but their record is mixed. Increasingly though, with the awareness that steady and reliable energy supplies are crucial to growth, developing and emerging economies have promoted innovation and entrepreneurship in non-traditional energy sectors. South Korea, China and India are among these countries.
Among other things, they are providing incentives for wind and solar production, encouraging technology transfer and funding research and development (R&D) to encourage these efforts. Separately, other developed economies are looking more closely at their renewable energy capacity to see how they can achieve crucial sustainability goals.
BY: The World Economic Forum, in partnership with IHS CERA