Global Space Economy

INTRODUCTION

By Kai-Uwe Schrogl

The global space economy is today approaching $400 billion. By 2040 it is expected to reach the $1 trillion mark. Being aware of the budgets, the areas as well as the most significant trends, constituting the global space economy is fundamental. Governments, traditional space manufacturers and services companies together with NewSpace companies and start-ups plus billionaires thus constitute an ever-growing sector taking advantage from the free use of outer space for economic purposes.

As the space economy continues to expand at record speeds, with more assets being put in orbits and on celestial bodies than ever before, one challenge which the industry is facing, and which policymakers need to address, relates to the availability of affordable lines of finance and credit. Presently, most newcomers in the space sector are supported by venture capital, angel investors, billionaire founders, and/or government-backed grants, with only a handful accessing more sustainable and longer-term forms of finance which are not tied to equity, such as project financing, bank financing, or various forms of secured lending. Credit, at an affordable rate, is key for healthy and sustainable businesses to exist, especially for small and medium sized enterprises (SMEs) from developing and emerging space economies. In order for the commercial space sector to grow and be fuelled by private capital, governments need to take enabling actions to create a legal and regulatory environment that facilitates access to credit and finance for space companies. This can be done by developing and implementing legal instruments that are designed with the needs and intricacies of the space sector in mind. In fact, the Council of the European Union, in its recent ‘Key principles for the global space economy’ released in November 2020, specifically stressed focussing on promoting access to finance and funding opportunities for SMEs in the space sector, also with a focus on already existing international financial instruments. In order to resolve the financing gap in the space sector, financing solutions such as export credits, asset-based financing, factoring, supply chain finance, and solutions other than equity need to be explored. This will allow more SMEs to secure pre-funding of launch costs and costs related to the development of their space technologies. The European Investment Bank, in a recent report, identified access to finance as a critical challenge for the space sector to tackle, and that the finance gap must be resolved to allow the industry to thrive. In order to do this, lawmakers, policymakers, as well as legislators must play their part in actively working towards ensuring that the space economy fits in well with the more holistic economic activities of the world, and that there is a smooth inflow of capital in order to allow the space sector to continue to grow.

While space law has established half a century ago the still working framework for the status of outer space and its actors and while the next step in space law developments is currently underway to regulate the behaviour in our space through Space Traffic Management, there is so far no clear understanding about what would constitute the law of the global space economy. This entry in the IISL Space Law Knowledge Constellation is intended to launch a discussion on how to scope the laws and regulations for the global space economy. The German EU Council Presidency of 2021 brought forward a concept entitled “Establishing key principles for the global space economy”. It was a comprehensive attempt to identify the elements constituting the governance and regulation of the global space economy. They ranged from market-related issues (trade and export legislation, goods and services, public procurement) to financing issues (public and private sector investments, co-funding models, business incubation, assets-based financing) to regulatory and economic issues related to space safety and sustainability (STM), cyber-security and resiliency as well as intellectual property rights. In practically none of these fields, globally accepted principles, rules or regimes exist, even less for the overall issue area of the global space economy. Questions arise on what the regulation of the global space economy shall encompass, what approaches to take and where to elaborate dedicated frameworks or a single framework. While the multilateral, inclusive approach for such elaboration is proposed – also in view of the status of outer space as a global common to be used for the benefit of all – there are trends of extraterritorial application of national regulations and also the open disregard of binding international law. Therefore, it is timely to discuss on how to develop the global space economy further under the principles of the rule of law and a level-playing field in order to share the benefits on an equitable basis.

A full understanding of space law requires a comprehensive and deep understanding of the economic and political forces behind the law. Complicating this relationship is the fact that there is no accepted, standard, accurate or adequate definition of the commonly used term, space economy. It has been used to describe the entire spectrum of anything space-related and it has also been used to address very specific impacts of space on economic actors, problems, or issues. The economic foundations and legal implementation of the obligations required by the Outer Space Treaty begin with the basic principle in Article I: the use and exploration of space is for the benefit of all humankind. Over the long history of space exploration, defining and measuring those benefits still remains a disputed and unsettled quantitative economic problem. Another example can be found in Article II where the concept of non-appropriation of celestial bodies may clash with varying economic concepts of ownership and property. The current debate over how space resources can be used illustrates one aspect of this issue. Article VI requires States to authorize and supervise both government and non-government space activities, raising both national and international economic questions of regulation, incentives, and equity. Article VII mandates State liability for activities in space. This necessarily involves economic measures of risk and damages. Article IX addresses environmental issues in space that include evaluating economic externalities. And, of course, private companies are now much more active in outer space and face national and global economic issues of investment, production, market development, and ultimately, profitability. A space economy implies that there is a stand-alone and independent supply, demand and distribution network that can be separated statistically and operationally from other economic systems. In today’s world, that is not the case. Space economic activities are terrestrial, from manufacturing to launching to impacts, benefits, and profits. And, all space economic activities are inherently tied to nations. These ties are insured by laws that make nations internationally responsible and liable for all of their space assets, both publicly owned and privately owned. Often ignored is this intricately intertwined relationship between space economics and space law. Today’s rapidly changing ways of accessing, using, and benefiting from space are very different from those of the 1960s and 1970s. The drafters of the treaties clearly recognized that they dealt primarily with the issues facing them over 60 years ago and they were clear in their writings that the treaties would need to adapt over time to changing conditions. This has not happened—yet. The perspective of the legal aspects of space in relationship to economic realities needs to be carefully evaluated. The solutions to these challenges will likely forge a promising future for all political, economic, and scientific, and other aspects of human exploration and use of outer space, subject to the important constraints of safety, sustainability and equity.

The evolution of the space sector, toward a mature industrial and business domain, has led to the emergence of a sizeable global space economy and high expectations for future growth are motivating private actors to invest massively in new business ventures. Estimated today in the order of a few hundred billion dollars, new prospects for innovation and business development have led some analysts to foresee the rise of a trillion-dollar space economy in the coming decades. Such a hopeful forecast is certainly welcome but probably downplays the serious challenges that the space sector will face to develop new mass markets or to transition to new business growth engines, for example from satellite broadcast to broadband. Yet, it would be short-sighted to totally reject this scenario. Although it is somewhat of a catch-all concept that may not be as “new” as one would think, New Space does embody a tangible evolution of the space sector toward a more service and business-oriented sector, also more deeply rooted in global technological and economic trends. Among these trends, the growing symbiosis between the space sector and the digital economy is probably the one that offers the most promising opportunity for growth in the near future. Admittedly still at an early stage, the growing involvement of digital giants in the space sector is certainly the most striking illustration of this evolution. Investment after investment, project after project, they highlight the growing role of space in their digital business strategy across two complementary facets: connectivity and data. In this respect, digital actors are shaping a new ecosystem for space services, one where satellites become an integral component of the digital infrastructure and where space-based data are mingled in the wider data value chain. The World Bank estimates that the digital economy accounts for 15% of the global GDP and that it grows more than two times faster. The World Economic Forum foresees that 70% of the new value created in the economy over the next decade will be based on digitally enabled business models. From this perspective, the prospect of a trillion-dollar space economy will probably depend, first, on the capacity of the space sector to become an enabler of future digital architectures and solutions, before space mining and space tourism become a profitable business.

The space economy is constantly growing and evolving. What used to be a predominantly government-driven sector now sees increasing interest from commercial actors. Nevertheless, the governments keep playing a vital role not only due to the budgets they allocate but also thanks to their policy-making prerogative. Most space-faring countries coordinate their space activities through dedicated agencies: NASA in the US, CNSA in China, JAXA in Japan, Roscosmos in Russia, ISRO in India, and ESA in Europe. It is worth noting that with its 22 member states and 3 associate members, ESA is the only example of a transnational space agency. Such a unique setup allows ESA to develop synergies between its members, thanks to coordinating their resources, knowledge, and technical capacities. A collaborative model represented by ESA supports initiatives that deepen the bonds and understanding between the European states. For instance, the now well-known European Centre for Space Law was created in 1989 to facilitate constructive and interdisciplinary dialogue on space law across all the member states and has been very successful ever since. Drawing on this good experience, ESA Director General Josef Aschbacher has established this year the European Centre for Space Economy and Commerce, in short ECSECO, which provides a European platform for interdisciplinary discussions and research on space economy and commerce. The activities of ECSECO will support further development of the space economy and commerce in Europe and go in line with one of the five priorities of ESA Agenda 2025: boosting commercialisation. On 4th July, we organised the launch event of ECSECO, which gathered a selection of high-level actors and analysts of the European space economy, including ESA DG Josef Aschbacher. Interdisciplinarity lies at the heart of ECSECO, which was visible during the event as our guests represented various professional backgrounds and came from the private and public sectors and academia. The event officially opened the applications for membership in ECSECO, and since then, we have welcomed nearly 200 members to our community. We look forward to the first General Meeting of members, which will be an opportunity to meet with the members for the first time. The Secretariat of ECSECO is located in Vienna and supported by ESPI. We eagerly anticipate the exchanges and discussions between the members of ECSECO and their impact on the further development of the space economy and commerce in Europe.