The new economics of space

Paul Diggle

Hello and welcome to Macro Bytes, Economics and Politics podcast from Aberdeen Investments. My name is Paul Diggle.

Luke Bartholomew

And I'm Luke Bartholomew.

Paul Diggle

And today on the pod, we are going to talk about the economics and a little bit about the geopolitics or 'exopolitics', if I may, of space. Because space is now increasingly an economic resource, a site of economic activity. increasing amounts of critical infrastructure are or may in the future be located there. And it's a place of political competition as it becomes a strategic domain. So we're going to talk about all that today. I'm delighted to say that we are joined by Hannah Lee, who works in Thematic. investment research at JP Morgan and has published extensively on the economics of space. Hannah's going to join to represent her views, not necessarily those of JP Morgan itself. Hannah, welcome to the podcast.

Hannah Lee

Yeah, thank you for having me.

Paul Diggle

So Hannah, people talk about, I've seen talk about defined eras in human space exploration and exploitation. People talk about space 1.0, the 1950s onwards, it was all about the Cold War space race, it was about prestige, really important role for government, NASA and the Soviet space. programme. And it ended in 2011 with the retirement of the Shuttle programme. And Space 2.0 then, which is sort of the era that we've been in from that point onwards, has been defined by falling launch costs, increasing commercial opportunities in space, very much involving the private sector in the economics of space. So tell us about that. Quantify the way in which the fall in launch costs in particular has been a key enabler that's opened up commercial space opportunities.

Hannah Lee

Yeah, I think this is a really good place to start because we definitely have seen launch costs fall, you know, by a very large magnitude, probably more than 90% over the last two decades. And that's really one of the steepest cost declines that we've seen in the infrastructure sector. So it's really quite remarkable. And there are a few reasons why launch costs have come down so much. First of all is, of course, higher launch cadence. So if you look just what's happened this year, we're in May of 2026, we've already seen over 100 launches this year, and they've been distributed across several nations, China, India, the US, Europe, and Japan. And that compares to around 320 launches that we saw last year, which was already double the number of launches that we saw in 2021. And all of this means as you get more frequent flights, fixed costs like manufacturing, facilities costs, launch pads, et cetera, can be amortized across more missions. So that definitely helps. And then secondly, which I think you alluded to, in your introduction is we've also seen a lot of private sector competition come into the space economy, and that helps with innovation as well. So we've seen over time a pivot from governments, from being kind of the sole operators of space to acting more like anchor customers. And this has also helped to unleash private capital. So if we look at some numbers there, there's been around 65 billion invested in space startups over the last 10 years since 2015. And around 40% of that has gone towards spacecraft launch and manufacturing. So a lot of these new companies and new entrants are potentially bringing with them novel practices, and that can help with vertical integration or introduce manufacturing advances, all of which is helpful for an industry that previously was probably quite largely bespoke and cost plus in nature. And I think one interesting example here, given I'm joining you from Hong Kong, so I have quite an Asia lens on a lot of my research, is in space. So that's the Indian National Space Program and Authorization Centre. This was created in 2020, and it gave private firms access to the Indian Space Research Organization's launch and test facilities. So this has resulted in a number of registered space startups in India going from single digits to around 400 at the beginning of this year. So India is a space economy that's relatively small in the global context. India represents just 2% of the spacecraft mass that was produced since 2015. You know, and compare that to the US, for example, which was responsible for probably 60% of the launches last year. I do think it is worth highlighting, though. It's an interesting example because it shows the direction of travel towards space becoming more commercial. And then I think the final point on launch costs, which we can talk about this without mentioning it, is reusable rocket launch. Traditional rockets were used once and destroyed. So obviously that's not very economically attractive. Whereas reusable rockets aim to recover and re-fly some of the most expensive components. Some of those could be boosters, for example. And the aim here is to slash the marginal cost of each subsequent mission by reusing these components. And a raft of players are looking to move forward on reusable rockets. For example, China recently achieved a pretty significant milestone this year with the successful recovery of a prototype booster, for example. And so this is definitely an area to keep an eye on as achieving reusability or improving reusability could definitely mark a second inflection point for space and launch costs coming down.

Luke Bartholomew

One of the big manifestations of that fall in launch cost that you described there, one of the things that's allowed in the first instance, has been a huge increase in satellite numbers. So can you help us understand, Hannah, sort of the scale and the speed of that proliferation in satellites recently?

Hannah Lee

I think this is a really interesting topic as well, and it would be Probably better if we could show a graph because the graph is quite exceptional. But to give you an idea without that visual, 2025, so last year set a new record. We had the highest annual total of satellites launched, around 4 1/2 thousand. And to put that into context today, there are probably around 15 and a half thousand satellites currently orbiting. So I think that gives you a bit of a sense of how large the recent acceleration in satellite launches has been. And it's really an exponential curve. If you want to be forward-looking about that, you can look to various sources. For example, the European Space Agency expect 100,000 satellites to be in orbit by 2030. But given the continued pace of acceleration we have been seeing, I think that could even easily prove conservative. So what is behind this huge increase in satellite numbers is also the way in which satellites are being deployed. We're seeing multiple operators building fleets of hundreds and even up to thousands of satellites or ambitions to build such. kind of constellations. And these groups of satellites can work together and provide continuous coverage in monitoring or communication. So that's quite an interesting idea. And that's helped grow the number of satellites. And then it's also not just the launch costs that have helped the proliferation of satellites lower launch costs, but also a miniaturization of satellites themselves. So smaller and cheaper satellites such as small sats, which can be about the size of a fridge, for example, but also the emergence of mini satellites or CubeSats. And these can be pretty small. They're measured in increments of 10 centimetre cubes. And that's also helped to reduce costs. And when you reduce costs in such a way, it allows for higher risk missions, for example, research or testing of new application ideas. And then I think that's an important point to note that it's not just the fall in launch costs that make it cheaper to put up a satellite in orbit. It also then fundamentally changes what the rationale to build and in space is. So cheaper to launch means you have potential more use cases. And I think that's really exciting for the future opportunities of the space economy.

Luke Bartholomew

Yeah, as you say there, we've had this big fall in launch cost and this proliferation in satellite numbers. And then that's opened up a whole series of other downstream commercial use cases. That changes the incentives as to why we might go to space. So maybe you can talk through some of those main current commercial uses that have opened up, you know, in observation and real-time imaging, in communications, in navigation, some of the opportunities there.

Hannah Lee

Yes, definitely. And there's already several use cases for space that are commercial and already in operation. I think if you think about it as a pie, the biggest use case of space and the biggest part of commerciality for use case by market size is definitely communications. That's far and away the main use case. Communication satellites can provide global connectivity by essentially relaying data. And in that way, they really are already acting as a backbone for our modern economy. Lots of use cases there, broadcasting, internet connectivity, of course, data relay for telecommunications, as well as maritime, aviation communication, even extended to things like in-flight entertainment or Wi-Fi within that sector, for example. And these are all sound and well-established use cases of space. But I would say that even within this sector, which is the largest commercial sector for space, there probably is still room to grow demand as these services will continue to evolve. For example, there's likely growing demand for direct-to-device communications, so that would allow satellites to eliminate dead zones and cell connectivity and essentially allow fully global coverage and never being off. And it's not just coverage that matters. At the same time, there's probably increasing demand for lower latency connections for consumers, but also that could have industrial applications. Near real-time data transmission is increasingly in demand because the more real-time or up-to-date data is, the more valuable it is. So it vastly increases the potential number of use cases. Then outside of communication, you have PNT, that's positioning, navigation, and timing. This is also, of course, a major commercial use case for space. So positioning is pinpointing your locations, navigating, guiding from one point to the other, and timing is synchronizing across networks. And you can really think of this as GPS, but there are other alternatives already in use today, for example, Beidou in China or Galileo in Europe. And high precision PNT applications definitely have commercial uses. So the obvious is navigation, but you could also apply that to surveying, agriculture, climate, defence, or some of the other use cases that you could think of. And the forward trajectory there, again, I think could be quite exciting if you think about how that demand profile might evolve for these kind of services, especially with the development of self-driving cars or other applications that might be interested in autonomous navigation. And then also there are downstream applications of the space economy. And again, I think this is an area where a lot of value could be added. So at the moment, if you think back to that pie of how space is used by the commercial sector and how it might be split between these different use cases, then Earth observation is probably one of the smaller parts at the moment. It has much more natural affinity with government use. You can think of that around disaster relief, environmental monitoring, obvious military uses. And indeed, government spending on earth observation is around four times that than the commercial sector. But I think this is a really interesting area to focus on, because it's definitely an application where I feel AI could really create a step change, because AI has the potential to transform these kind of massive and unmanageable data sets that you get from Earth observation, which could be imagery or RF type data into actionable insights. And GPS provides a really good playbook here because it was first created by the US Navy for military use, but now it's used from everything from dating to ordering takeout, grabbing a taxi. I think it's hard to project what AI can unlock for Earth observation, but that playbook gives you a bit of a flavour of how space applications really can change how we live. And therefore, I feel like it's quite exciting to think about where that could go.

Paul Diggle

Okay, in a sense, space or... getting technology into space could become a sort of general purpose technology. People talk about AI being a general purpose technology in past industrial revolutions, the internal combustion engine, the steam engine, spawning these huge number of use cases, which you don't necessarily realize at first, but as the costs fall, as the use cases proliferate, it becomes, you know, a backbone critical infrastructure of the economy. And there are many more use cases ahead, right, as you were talking about, Hannah. So to return to this typology I started to talk about at the beginning of Space 1.0, which was sort of space as a prestige race, and then Space 2.0, which is sort of space as a data set or a place to gather and broadcast data from, observation and communications as you've been talking about. Then people sort of speculate about Space 3.0, which may lie ahead in the near future, which is space as conditions that can't be replicated on Earth. So it's use cases like in experiments and in drug development and data centres in space, which people think are very excited about, maybe semiconductor manufacturing in space. Tell us a bit about those potential future use cases. How realistic or not are they? How far away might they be?

Hannah Lee

Yes, definitely a topic that has had a lot of attention and a lot of ideas that really capture the imagination. I think probably chief among those, and it's one of the more recent ideas, is space data centres. And we've seen a lot of interest in data centres, and we've really seen a lot of bottlenecks emerge for data centres on Earth. And that's where the space domain comes in and could potentially alleviate or offer a solution to some of the issues that we're facing for build out of terrestrial data centre. So there are some obvious attractions. First would be power. We know AI in particular and data centres can be very power hungry. If you're in the right orbit in space, you have infinite energy potentially, because you can be never in the dark on a Terminator orbit and you have the ultimate energy source, which is the sun. And radiation is actually, solar, radiation is stronger in space because you don't have the disturbances of the atmosphere. You don't have seasons or day, night if you're in the right orbit, et cetera. So that can make the efficiency of solar potentially much higher because if you have a solar farm on Earth, for example, you will have to deal with all of that. will be weather. night time seasons, et cetera. So it eliminates a lot of those issues. Then also there's more real estate potentially in space. You're not having to apply for land permits. There's space in space. Space in space, although it is a finite resource. No planning applications, no, not in my backyard. So that could definitely help, especially when you're considering around some of the palatability of the rollout of data centres. And those social elements are worth considering, especially when there can be shortages of power or there has to be, it can be seen that data centres are in competition for power with residential users, for example. So those are quite attractive. That's one main reason why you might want to have a data centre in space. But there are other reasons as well, because perhaps you want to have a very remote location that could come with some resilience as well as challenges. It probably presents maintenance challenges, but equally it might be harder to target sensitive information that might be kept in a data centre in space. And then I think some of the other things that have been touted around why a data centre in space might make sense is because space is cold and chips are hot. I think their physics don't necessarily work out that easily. You still do need to offload heat from a chip. AI chips in particular tend to run quite hot. There would need to be a way to dissipate that heat. And then space environment does present some of its own challenges, radiation being chief among them. And also reliability, timeliness might be different considerations when you're in space. But those are some of the initial ideas around why space-based data centres might be attractive. I think beyond just the actual location of compute, some of the other reasons why AI data centres or AI capabilities or compute in space or on orbit could be interesting is because you're closer to where information is being collected. So going back to that idea of Earth observation, if you're collecting this data on a satellite, there could be some advantage to pre-processing it in situ before it gets downlinked to Earth. So that could help reduce latency. If you're in low Earth orbit, you're not always over where you would want to be downlinking information. You may only have a certain window while you're in the right aperture of Earth. So if you're able to pre-process some of that information, that can help with latency and make it more live. And also there could be other reasons why you would want to do some sort of compute in space that could be interesting. So I think that's a secondary reason why data centres in space could make sense. Then I think some of the other commercial ideas for use cases of space like drug development, these are more orientated around taking advantage of the space environment that's inherent there. So for example, gravity influences crystal growth on Earth, and it can limit the way that protein crystals form in terms of their structure. And it might be possible that in microgravity conditions, that you find in space, these types of crystals could grow more uniformly and therefore potentially enable better drug formulations or better improved bioavailability. It'd be easier to administer the drug or soaked up, for want of a better word, more easily. And there has been research like this carried out, for example, on the International Space Station, and there are several commercial venture programs that are currently exploring this kind of in-space biopharma. But I think the key here is that will these high-cost space missions be able to create drugs that offset the costs of doing it? So I think some of the outcomes that might make sense there is if you're creating new or higher value drugs that could not be produced on Earth. So I think it does come back to the economics. Then semi-fabs in space is also an interesting one. I think the idea here is that space is a near perfect vacuum, so it provides a contamination-free environment for free, because this can be quite a hefty cost of producing semiconductors here on Earth. The cost of clean rooms and ultra-high vacuum chambers can be quite high. And there's also that argument around the crystal formation. Potentially, you can grow better crystals with near perfect lattices in space. And that could be quite essential or interesting for high performance semiconductors in particular. Or potentially, you could create better compound materials in space, which that environment allows it, makes it easier to do so than it would be on Earth. But again, I think while there are some benefits around these kind of vacuum conditions, I think it's probably unlikely that we see fabs for everyday type of chips up in the sky anytime soon, not least because there would be other logistical challenges around that, how to deal with radiation, for example, or how to even return those chips back to Earth. But again, that said, for ultra-high value, maybe low volume materials, it could make sense. And I think if you really want to project out and think big, fabrication of semis in space could be interesting if you're looking for spare parts, for long duration missions, for lunar bases, for exploration projects on different planets, et cetera. So that could be quite interesting. And then probably another one which is worth mentioning is space mining. So this would essentially mean targeting near-Earth asteroids or the moon or Mars, other planets to extract resources. Actually, I think surprisingly, it feels very science fiction, but probably chief among these in the near term is water. And we actually are already seeing in the next few years, lunar programs that are planned to explore the South Pole of the moon for water ice. And that could be really interesting as well. but space mining could also target other metals like nickel, cobalt, platinum, gold, for example. And again, the idea behind this is potentially not to return those resources to Earth, although perhaps that might make sense for some high value resources, but it would also be for in situ resource utilization. So using these resources mined in space to build structures or even fuel aircrafts in space. And then actually on that, one more that I think is a new, it's not actually a new idea, it's quite an old idea, is this idea of harvesting energy in space. So space-based solar power. And the idea here, and it's a little bit linked to what we've discussed and also the data centre discussion, because really any infrastructure you want to build out in space will need power and solar is the obvious choice. And one way if we can really reduce launch costs and if technology moves ahead and solar panels can become more efficient and radiation hardened, then perhaps you could see a larger scale build out of space-based solar power. So there are different concepts here. Some of them involve a swarm or these kind of planar arrays. Essentially, you can think about it, these sort of umbrella like solar farms in the sky, which may use mirrors or others to concentrate that energy, send it back to a centralized satellite or infrastructure, which would then turn it into a frequency, which would enable you to beam that power back down to earth. So a microwave frequency or some other RF type frequency. And again, this has been an idea for a long time, but I think we will see more happening on this area. And we're already seeing certain countries like Japan and China both have planned launches to try to test some of this technology. And again, I think this is really interesting. The original idea was to return the power to Earth, but we may see it used for in-orbit infrastructure or lunar exploration. I think there's lots of different applications that could come from that.

Luke Bartholomew

So a lot of what we've been talking about so far, Hannah, is sort of private initiative as the driving force of this expansion into space and the space economics. And I guess perhaps that's one of the distinguishing features of Space 2.0 and 3.0 to use your typology pool as opposed to Space 1.0. But the government is getting back into space as well. Of course, we had the Artemis mission recently, so in exploration, but also increasingly because space is being recognized as a strategic domain, a place of military competition. Trump in his first term set up US Space Force. NATO in 2019 formally recognized space as a fifth military military domain. So that's after land, air, sea, and cyber. And it said Article 5 could actually be triggered in response to attacks to, from, or within space. So clearly it is being thought of in those terms. So maybe, Hannah, you could talk us a little bit about how space could be a strategic military domain. What are the military use cases, if I can put it that way?

Hannah Lee

Yeah, I definitely think we have seen this as a trend. And you can see it as well, even if you look at global space budgets. So in aggregate, if you look at where spending has been diverted, if you go back to 2020, for example, 55% of global space budgets sat in the civil sphere and the rest was in defence. And that actually switched in 2022. And as of the latest data I have, it's basically the opposite. You now have 54% share of budgets for space in the defence sphere. And I think why this is exactly because space is becoming more strategic than ever. Space is essentially crucial for most military missions, although I suppose you could argue as we head down a road potentially towards autonomous Drones, for example, maybe they don't need to be as connected. I think that's probably a separate conversation. But most military missions would use space in some way, either for intelligence gathering, positioning, timing, command and control, navigation, et cetera. So I think the use case is quite clear and in some space applications is probably clearer for military use than others. as we already discussed around Earth observation, et cetera. So you have seen that emphasis shift. And I think that presents opportunities, not just for defence related companies, but also because we are in this so-called third space age, where a lot of space economy doesn't necessarily sit within the government sphere. at the moment. I mean, of course, space has become quite crucial for most military operations. And when I think when you, how modern warfare is evolving as well, space could potentially play an even greater role in the future. And when you look at some of the larger projects that are happening at the moment, for example, like dome initiatives that we're seeing several countries pursue, a lot of that is space heavy as well in terms of how you might intercept any kind of threat. Often you would want to track those kind of things from space. So that provides a clear runway for space applications, even as warfare evolves. And then of course, as space becomes more strategic and satellites become increasingly vital towards modern warfare, then you potentially see a rise of a new kind of category of counter space capabilities. And that could be quite interesting too. And they don't always have to be, they don't have to necessarily counter space capabilities look and feel like weapons because this is a technological capability, cybersecurity, electronic jamming, signalling jamming, or kind of communications between satellites and ground stations, et cetera, all of those things. could be potentially threatened or could be a risk. So I think counter-space weapons could be an evolving category.

Paul Diggle

I am struck by Trump setting up the US Space Force in 2019 and that at the time being sort of thought of as politically performative in a way and now being potentially prosthetic he anticipated in a way that it would, that space would become a strategic domain. I'm also struck by sort of potential comparisons with the Arctic, a previously neutral region of scientific interest, where technological advancements, and in the Arctic's case, things like climate change as well, have made it an arena of political competition. And we did a previous podcast on sort of the Arctic strategic importance. But you're talking about sort of anti-satellite weaponry or the potential for military capabilities to develop in that direction, Hannah. And people often point to this event in 2021 where Russia sort of demonstrated or blasted a different satellite, caused a large debris field as well as a result of that. And that underlines one of the risks to the space economy, which is debris. And to put it slightly in science fiction terms, it's the notion of Kessler syndrome, right? That you get this self-reinforcing cascade of space debris collisions that can make parts of orbit unusable. And of course, many science fiction terms come in here and become quite realistic. It's harvesting solar energy in different ways that you said was a long-bean idea. It's the idea of the Dyson sphere, right, that which comes out of science fiction, that you can sort of harvest the sun's energies in a very large scale way. And Kessler syndrome, I think, is a sort of maybe it has a similar provenance. I mean, can you tell us more about that? Is that sort of one of the big picture risks to the space economy that actually it becomes unusable in some way because of this debris field.

Hannah Lee

Space debris is definitely an area of concern. You do see it talked about quite a lot in international forums on space. So there is this idea that space is infinite. Of course, but actually if we're talking about orbits and specific orbits, and when we go back to looking at that proliferation of satellites, if you actually look at the orbits in which they have mostly proliferated, and it hasn't necessarily been equal, there are different types of orbits. You can be in a. geostationary orbit, you can be further out from the Earth, closer to the Earth. Actually, most of the satellites we've seen deployed over recent years have been in low Earth orbit. So these are much closer to the Earth. And when there's competition like that for certain orbits, and so far these low Earth orbits tend to have higher use cases because you have that lower latency and you can have global coverage because they move faster. Then you can think of space as a finite resource. There are only so many of those orbits available. Now, there might be a lot of those orbits, but there still will only be a certain number and space can get crowded, which is why I feel like you can think about or give kind of the nominator of what we're in this idea of a newer space race, because even if it's not a military race, or a geopolitical race, although I think there probably are elements of that. It's also a race for real estate in some respects. And I think this will evolve a little as use cases of space evolve. So first of all, space debris definitely can be a problem. And the issue there is it's actually a problem for everybody, not just yourself. So there is There is a reason to work together on issues like space debris because the number of objects in space that are orbiting the Earth has also exponentially increased as we have had more launches and more satellites being put into orbit. And how you control that probably will evolve somewhat. But when you really think about governance of space as it is at the moment, I think let's take a step back. It is still primarily covered by international treaties. A lot of those were developed through the United Nations Office of Outer Space Affairs. And the big one is the Outer Space Treaty. And now there are some guardrails around banning of weapons of mass destruction and preventing any one country from claiming any sort of celestial body. But I think as we see some of the use of space expand, and we're also seeing space become more commercial, then I think some of the ways in which space is governed will end up having to cross over with terrestrial kind of considerations. So one of the considerations in the future might be, or even be evolving around spectrum rights, for example. So if we're increasingly using space for data and that data needs to come back to Earth and we're using certain frequencies to do that, then that's quite an interesting evolving area where we're seeing space and Earth not necessarily being two separate domains. So I think that's also worth considering. And then this idea of space debris also has seen newer ideas or I suppose, soft regulations, commitments from individual countries, for example, around how they operate in space as a dimension. So ideas of 0 debris approaches and this idea of responsible use of space. So if you're in orbit, then there should be a plan to de-orbit at the end of the useful life of a satellite so that the satellite doesn't remain even though it's no longer functionary. So those are quite interesting things, and I think these are some of the evolutions that we see, but I feel space governance will probably become an area that evolves. And from a commercial standpoint, yes, these are also, these are problems, but they could also then become opportunities. Because At the moment, Earth observation is a very well-established use case for space, as we've already discussed. But observation could also be outward. So space observation. And potentially if we're having a lot more infrastructure in space, in crowded orbits, then data around space situational awareness, for example, could become more valuable in the future. Perhaps we will also see commercial incentives for space debris clean up. So I think every problem also comes with an opportunity in some respects. So it'll be interesting to see what happens there. But I would say probably some of these governance challenges, particularly around the debris, but also there are bigger questions around how we're collectively using space. They could be relatively urgent because the physics as well of space is pretty unforgiving. orbital debris won't degrade, certainly not on a kind of human time scale. So it could take hundreds of years, for example. And so there is a window that we have to implement some kind of effective governance. And avoiding collisions is important, not least because putting infrastructure in space is still relatively expensive, even if costs are falling. So you don't want your mission to be compromised. as it's just begun because of, external factors. So I think these things will become important.

Luke Bartholomew

Yeah, so for all of your sci-fi framing of the issue, Paul, I mean, it sounds to me that this could be set up as a rather prosaic kind of economic problem of a finite resource at risk of over-exploitation, negative externalities, tragedy of the common, and we have pretty standard ways of thinking about this. in economics, some combination of regulation and the allocation of property rights typically thought of as the way of dealing with that kind of problem, but in turn that tends to require some sort of sovereign authority to legitimate, administer, enforce the system. So as you say, Hannah, ultimately these questions of governance become very pressing and given the strategic competition that we talked about, perhaps the question of how sovereignty can be allocated in space becomes a really quite difficult thing to solve and We'll have to see how that evolves, but much like space, our time is finite as well. So that is all that we have time for this week. So all that remains is first for me to thank Hannah for joining us, Hannah Lee from JP Morgan's, thank you so much for your insights, and then to thank you all for listening. So thanks very much, and speak again soon.

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