For green technology, look to the market

The only feasible solution to climate change is technology. We just won’t change our lifestyles based on the abstract threat of climate change. But the technology isn’t there yet. We don’t have all the pieces we need to live the green version of our current lifestyle.

Our lives are driven by energy. It makes our cars move and our planes fly, it creates our fertiliser and harvests our crops. It keeps us warm in winter and cool in summer. Capturing energy and applying it to our problems is the defining story of the industrial revolution, and the reason so many people live in relative comfort today.

Energy is also the reason we’re in such a pickle. We’re extracting it from the ground and releasing CO2 in the process. The CO2 in the atmosphere is rising and it’s causing all sorts of problems.

The big issue though? We’re addicted. Nobody (including me and you) will change our lifestyles significantly in the face of the abstract threat of climate change. It happens too slowly, too far away. The cause and effect isn’t obvious. It’s not the kind of threat we’re wired to react to.

So the answer basically has to be technology. The best way to drive technological development is widespread adoption and the money it brings. To advance, technology needs a business model.

If we’re to fix this problem, we should be using our best tool to drive technology development. The market.

Two Kinds of Technology

It comes down to 2 things.

We need to do both until we’re completely rid of fossil fuels.

Reducing energy use means more efficient technologies and more careful usage. We’ve got all the ingredients to make more efficient cars and houses. Cars with low rolling resistance and more aerodynamic shapes. Airtight houses with insulated walls and ceilings. We’ve also got everything we need to use energy more carefully. Smart thermostats only heating occupied rooms. Turning off lights in offices overnight. We just need to find the right incentives to get people to use them.

Changing where energy comes from means building renewables and storage. These have to be built together, as to avoid blackouts we need to be able to control exactly how much electricity is generated at all hours of the day. That’s not possible with just renewables (which can only generate electricity when conditions are right).

Renewables under favourable conditions are very cost effective, but renewables combined with energy storage still has some way to go before it is cost competitive with fossil fuels - which are inherently a type of energy storage.

Look to the Market

We captured energy to enable the industrial revolution, but it was the market that decided what technologies would succeed. Capitalism is our most powerful tool for getting independent groups of people solving problems. When something is successful on the market, money flows its way, driving innovation and efficiency. The market rewards things which improve peoples lives. Just take computers - probably the most complex machines humans have ever developed. The rapid pace of development can be attributed almost entirely to the huge cash rewards of sucess in the market.

Technology development follows a cycle. Low cost research and development finds a promising technology. A small initial use case which can bear the high cost drives the development of the first few generations. As the price falls, the appeal spreads. A bigger market means more money - other companies become interested and competition grows. The area of innovation switches from the technology itself to manufacturing improvement and prices fall rapidly. Eventually the technology is widespread, ubiquitous and dirt cheap. It becomes a commodity.

This happened with LED lighting. It went from a dim lab novelty to low power indicator lights to ubiquitous lighting in a few decades. It’s everywhere now - completely replacing its incadescent predecessors and radically reducing the energy used by lighting.

But the reason LEDs are in everyones houses today, and the reason there was a huge amount of investment in developing the technology, has nothing to do with climate change. It’s all down to money. LEDs are cost effective. The total cost of ownership is less than the things they replaced. The market drove innovation.

We’ve seen the effect a sustained high energy cost has before. As oil prices rose in 2007 and 2008 Americans drove fewer miles and started to buy more efficient cars. A phenomenon only seen previously during the 1970s oil shock. Unfortunately those high prices also enabled the rapid development of shale oil and fracking, and the high prices didn’t last. In the 2010s, a period of consistently low energy prices, SUV sales boomed and mileages once again started creeping up.

A lot of energy reduction and storage technology is stuck in the research phase. And its there because the business model isn’t clear. Saving energy is just not profitable enough to be worth the investment.

We’ve been trying to get round this with state funding and grants. But this is top down technology development. If history is anything to go by, it’s ineffectual. The state often backs the wrong horse and rarely demands the same effiency that the market does. State funded innovation optimises to receive more state funding rather than to sell better products. We can’t afford for the energy technology industry to be like the defence or civil infrastructure industries.

Total investments in green technology (mostly spent building renewables and developing electric cars) were $279.8 billion in 2018. Global GDP was $135.7 trillion. That’s 0.2%.

That year $322 billion was invested in startups by venture capital (most went on software and pharma), the R&D spending of a few tech companies was $98.9 billion, and investments in finding more oil and gas were a whopping $505 billion. That’s 3x the investment in green technologies, on a small sample of worldwide spending.

0.2% of GDP on something so critical to everyone. Especially the 634 million people who live at sea level.

If we want a technological solution to climate change, we need to move technologies from the lab to the market. We need to move beyond state funded research and into market driven optimisation. And crucially, we need to create the right market conditions for energy reduction technologies to thrive.

Finding the Business Models

All this boils down to one thing. Energy is too cheap. The true cost of fossil fuels are not reflected in their price. To develop a technological solution to climate change quickly, we need to use our most powerful technology development tool - the market. And to do that, we need to create the right market.

If the rewards are high enough, money will flow and technologies will develop. If the cost of energy is high enough individuals will be motivated to invest in saving energy.

We’ve seen this already with some aspects of renewable energy. Wind and solar is already competitive with fossil fuels - as long as there’s some base load generation to provide stability. Battery storage is already cost effective at helping with peak demand - just not long term storage.

Unfortunately progress is still too slow.

The Political Question

The best solution I’ve seen is a carbon tax and dividend. The tax is applied as early as possible - at the well head or place of import. The takings are redistributed across society - sweetening the deal.

To leverage the incredible power of market driven innovation, we need to tax fossil fuels. There’s no other way.

Image by Jankos from Pixabay

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