Terry Waghorn, Contributor
I cover the intersection of innovation and sustainability.
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We’ve hit peak globalization in how far we can actually globalize the economy based on elite fossil fuels. Every time we try to re-grow the economy at the same growth rate we were experiencing before July 2008, oil prices will rise and the prices of all other goods and services will climb as well because all the economic activity of our global economy depends on fossil fuels. We grow our food in petrochemical fertilizers and pesticides. Most of our construction materials and the vast majority of our pharmaceutical products are made of fossil fuels as well as our packaging materials and clothes. Our power, heat, light and transport are also reliant on fossil fuels. The price of virtually every good and service in today’s global economy is dependent on the price of oil. That is why we are likely looking at four-year cycles of growth and collapse. Each time we try to restart the engine by replenishing inventories, oil prices will climb back up, all the other prices for goods and services will spike along with the price of oil, and at around $150 a barrel, purchasing power will plunge and the economy will shut down. That’s exactly what is happening now as we head to a second collapse of the global economy.
The second big event was the Copenhagen climate change summit. One hundred ninety-two countries came together to address the issue of global warming. Even though our scientists tell us we are in the early stages of a dramatic shift in the climate of the planet due to the emissions of industrial-induced carbon dioxide, methane and nitrous oxide, our world leaders couldn’t cut a deal on climate change. The rise in temperature on the planet is playing havoc with the Earth’s hydrological cycle and imperiling ecosystems, threatening a mass extinction of plant and animal life in the 21st century. Yet most of the governments of the world appear unwilling to take the necessary steps to combat climate change, putting in doubt the future viability of our species on Earth.
With all of this in mind, after oil peaked at $147 a barrel in July 2008 I put together a meeting of CEOs and senior executives from global companies and trade associations, and we said we need to create a sustainable new economic vision and a game plan to re-grow the economy based on bringing the Internet together with renewable energy. All of our companies wanted to move quickly to turn the crisis to an opportunity. But they were going at it alone—and we realized it’s only if we move together that we can help create the essential infrastructure for the next Industrial Revolution. That’s how we put this Third Industrial Revolution global business network together.
Endgame? A lot of big players are not going to like the message you’re delivering.
The power and utility companies like to have control over the power supply and control over the transmission lines. They want to sell lots of electrons. What we’re saying to power and utility companies is, your model is not working for you. Fossil fuels are getting more expensive, and you’re going to be increasingly taxed because of the mounting bill for climate change—not to mention the fact that your old centralized electricity grids are inefficient and increasingly dysfunctional.
We already have hundreds of thousands of people making their own green energy, and pretty soon it’s going to be tens of millions and then hundreds of millions of people generating their own energy. And the cost curve of the collection technology—solar panels, small and large wind turbines, geothermal heat pumps, small hydro, tidal and wave technology, biomass converters—is following the same cost curve dynamics as when we went from centralized mainframe computers to desktop computers and from centralized telephone communication to distributed cell phone networks. As feed-in tariffs expand to countries around the world, allowing early adopters a premium price for the green electricity they generate and sell back to the grid, the collection technologies will become ever more efficient and cheaper. Twenty years from now the technology for collecting and distributing energy is going to be virtually free, just like information.
Millions of people are going to generate their own green electricity in the 21st century while we will leave it to the power and utility companies to run the energy Internet. The power and utility companies are going to make money by doing the exact opposite of what they did in the 20th century. That is, they are going to profit by selling as few electrons as they can. We’re going to use the IBM model as a case study of what needs to be done to transform the power and utility industry. When IBM’s cash cow, its retail computer, began to become less profitable because of the global competition among computer manufacturers, IBM needed to rethink its mission. IBM asked a simple question: What do we do as a company that is unique and that the world needs? It’s not making computers, it’s managing information—so now every company in the world has a chief information officer and IBM, Cisco, HP, and other companies manage their client’s information flows.
In an analogous sense, when millions of people are generating their own green electricity and sending some of it back to an energy Internet, the question facing power and utility companies is: What is the expertise they have that will allow them to stay in business? In the future, power and utility companies will set up partnerships with thousands of businesses to help manage their energy flows in their production processes, supply chains, and logistics networks. Whether any company flourishes or fails in the volatile period of transition between an aging Second Industrial Revolution and the emerging Third Industrial Revolution will depend, to a great extent, on their energy costs. The new mission for the power and utility companies is to help clients manage their energy flow so they save on their energy use, increase their productivity and improve their margins. The corporate clients in turn will share back some of their energy savings and the income generated from increased productivity with the power and utility companies. We call these “shared savings” agreements. There’s far more money to be made by the power and utility company managing energy, reducing the amount of energy their clients use, and then sharing the savings.
What are the implications of the Third Industrial Revolution for developing countries?
My sense is that developing nations can move quicker into the new economic era by leapfrogging directly into the five-pillar infrastructure, because in many instances they lack any kind of infrastructure.
What we learned with cell phones surprised all of us. We didn’t anticipate millions of people getting cell phones virtually overnight in sub-Saharan Africa where there wasn’t even a developed electricity grid. They just jumped in and then the cell towers came. So we think the developing countries are ideally suited to transition into the new economic paradigm. They have ample green renewable energy and they can scale locally and then, like Wi-Fi, connect their micro grids across regions. And that’s what’s beginning to happen.