How Simple Economics and Technology Can Help Fight Climate Change
Despite a lack of acceptance of some policymakers, climate change is a very real wicked problem. In the past decades, the impact of climate change on the world has been well-researched and documented. According to many scientists, climate change will have an impact on the world’s food supply [1], on human health [2], on the world’s marine ecosystems [3], on our biodiversity [4], and on our economic systems [5].
There is overwhelming evidence provided by thousands of scientists from around the globe that climate change is real and that we need to act now. The Paris agreement, which was signed in 2015 within the United Nations Framework Convention on Climate Change (UNFCCC), underlines and confirms the problem. The agreement was negotiated by representatives of 195 countries and has the objective to “holding the increase in the global average temperature to well below 2 °C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 °C above pre-industrial levels”.
The challenge is that climate change is not caused by one activity but through a combination of, among others, burning fossil fuels, deforestation, and farming. Climate change is a problem that is not easy to solve. Thousands of scientists with different disciplines all argue for their version of the story, albeit with most of them agreeing that climate change is real. As such, we are dealing with a wicked problem, as it involves many different stakeholders, sometimes with conflicting views, where the information provided can be confusing [6], and where the actual problem consists of many inter-related “smaller” problems.
Climate Change and Simple Economics
Climate change has an impact on all of us and everything that is alive on our planet. As such, we have a moral obligation to our children to try to protect the earth as good as possible and hand it over to the next generation in good order. Fortunately, protecting earth and combatting climate change actually makes sense economically as climate change adheres to some simple economics.
It works as follows. Whenever a new technology is introduced, be it the printing press in the 15th century, the steam engine in 18th century, or the mainframe computer in the 20th century, the first version is always extremely expensive, and most of the time quite big as well. As technological progress is made, the technology becomes cheaper, easier to use and gets more applications (whether for the good or for the bad); the printing press significantly improved the access to knowledge and made education cheaper. The steam engine created energy and made a wide variety of activities easier, cheaper and more accessible, while the mainframe computer significantly reduced the cost of communication and finding of information. As such, technological revolutions tend to implicate that certain important activities become cheap and better accessible [7].
Climate change, and as such the resulting green energy revolution is, in its essence, a production technology. The economic shift will revolve around a drop in the cost of clean energy production. The impact of a reduction in the price of clean energy production is that goods and services that rely on (clean) energy will become cheaper, while the value of products and services that complement clean energy will rise, such as the EnergyTech space.
As long as the price of clean energy production drops and the value of related activities increases, the value of substitutions, such as fossil fuels, will, eventually, fall. So, economically it makes sense to start investing in clean energy or EnergyTech and reduce the dependency of fossil fuels in your business models. Already, we see that, in some countries, the price of the production of renewable energy is at par with the price of the production of fossil fuel energy.
In 2016, solar and wind energy even became cheaper to produce than new fossil fuel energy in 30 countries [8] and it is expected that this ‘grid parity’ will be achieved by dozens of more countries in the years to come. According to Michael Drexler, Head of Investors Industries and Member of the Executive Committee at the World Economic Forum, “Renewable energy has reached a tipping point — it now constitutes the best chance to reverse global warming. It is not only a commercially viable option but an outright compelling investment opportunity with long-term, stable, inflation-protected returns” [9].
So, apart from the bare necessity to protect the earth from existential threats due to climate change, for the first time, it makes sense economically to invest in renewable energy. As a result, we will likely see vast amounts of funding being invested in clean energy and energy-related technologies, EnergyTech companies or startups. Apart from the ‘traditional’ clean energy solutions, emerging technologies such as big data analytics, blockchain and artificial intelligence also open some whole new possibilities for organisations and governments to contribute to combating climate change, one example being the smart grid.
The Rise of Smart Grids
A smart grid is a power network that is equipped with all kinds of sensors at different points in the supply chain of electricity. Sensors monitor the production of electricity, the transportation of electricity and the demand for electricity. Using big data analytics, energy companies can predict supply and demand for different areas as well as predict any upcoming maintenance and reduce the likelihood of a power outage due to failed equipment.
A smart grid will automatically match supply and demand. In the, not-too-distant, future it is likely that the smart grid will determine when you can charge your electric car. After all, if everyone who drives an electric car and comes home from work would plug in their car and start charging it, it would result in a peak demand, which could cause the network to default.
Smart grids offer a lot of advantages for both governments, organisations and consumers in terms of reliability and costs of electricity. However, they are also very difficult to develop, due to the existing complexity within our existing energy networks. Therefore, a great way to start is with developing a micro-grid. A micro-grid is a small, independent, energy grid, that most of the time uses renewable energy.
A micro-grid can be disconnected from the main energy grid so that in the event of a wide-area power outage, a micro-grid remains operational. Developing a smart micro-grid is a lot easier than a regional or national smart grid because often only a few houses or buildings are involved within the smart micro-grid. Within a micro-grid, individuals will harness solar or wind energy and as such become energy neutral, or even energy positive, meaning they generate more energy than they use. In such events, energy can be sold back to the main grid, or to different participants in the micro-grid. Since selling or buying energy is basically a transaction, it is perfectly suitable for blockchain technology.
Smart (micro) grids do make a lot of sense economically. It offers homeowners an incentive to install solar panels and the network will be more robust in times of a climate disaster. A distributed and decentralised solution based on the blockchain (which should not use an energy-intensive consensus mechanism such as Proof of Work, but more likely a Proof of Stake consensus mechanism), Internet of Things, AI and big data analytics offers a chance at winning this game. But it will require significant investments to move to 100% renewable energy and create intelligent (micro) grids.
Climate Change is Good for Business
Climate change is a real wicked problem that will significantly impact our lives, anywhere on earth. We have a moral obligation to solve climate change, regardless of some of the disbelievers that have risen to power in the past years.
Thanks to the uncontrolled usage of fossil fuel in the past decade and the initial reluctance of many governments to tackle this problem, we are now left with a mess that urgently needs to be cleaned up. We are obligated to our children to do so and hand over the planet in good order. We have one earth and it is our obligation to protect it, no matter how different we are, how different viewpoints we have or whether we personally are affected by climate change or not. We can, and should, all do our own part in solving climate change.
Fortunately, thanks to technological advancements, clean energy technology adheres to standard economic principles. As a result, it is now more interesting to invest in clean energy than in traditional, polluting, energy. Once the potential to make a lot of money becomes visible, the first step towards success has been made.
Therefore, how can you help? What can you do? Join the smart grid movement, become energy neutral or even energy positive, so that you can give back. Exchange your petrol-guzzling car for an electric car, use smart, secure, devices to create a smart home that is more energy-efficient and trade your surplus renewable energy on the blockchain to make an extra buck.
We can all and should all, do our own part. Even for those disbelievers in climate change, let us give you one reason why you should take part in this: it will make you money! Climate change is good for business.
Blockchain: Transforming Your Business and Our World
If you are interested in learning more on how technology in general and blockchain specifically can help reduce the effects of climate change, please read my book Blockchain: Transforming Your Business and Our World.
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Dr Mark van Rijmenam is the founder of Datafloq and Mavin, he is a globally recognised speaker on big data, blockchain, AI and the Future of Work. He is a strategist and author of 3 management books: Think Bigger, Blockchain and The Organisation of Tomorrow.
Dr Mark van Rijmenam is The Digital Speaker and he offers inspirational (virtual) keynotes on the future of work, either in-person, as an avatar or as a hologram, bringing your event to the next level:
References:
1. Rosenzweig, C. and M.L. Parry, Potential impact of climate change on world food supply. Nature, 1994. 367(6459): p. 133–138.
2. Patz, J.A., et al., Impact of regional climate change on human health. Nature, 2005. 438(7066): p. 310–317.
3. Hoegh-Guldberg, O. and J.F. Bruno, The impact of climate change on the world’s marine ecosystems. Science, 2010. 328(5985): p. 1523–1528.
4. Thomas, C.D., et al., Extinction risk from climate change. Nature, 2004. 427(6970): p. 145–148.
5. Mendelsohn, R. and J.E. Neumann, The impact of climate change on the United States economy. 2004: Cambridge University Press.
6. Churchman, C.W., Wicked Problems. Management Science, 1967. 14(4): p. B-141-B-146.
7. Agrawal, A., J. Gans, and A. Goldfarb. The Simple Economics of Machine Intelligence. 2016 2016–11–17 [cited 2017 February 7]; Available from: https://hbr.org/2016/11/the-simple-economics-of-machine-intelligence.
8. Bleich, K.G., Rafael Dantas. Renewable Infrastructure Investment Handbook: A Guide for Institutional
Investors. 2016 [cited 2017 February 17]; Available from: http://www3.weforum.org/docs/WEF_Renewable_Infrastructure_Investment_Handbook.pdf.
9. Vanham, P. A Convenient Truth — Fighting Climate Change Turned Into a Profitable Business. 2016 [cited 2017 February 17]; Available from: https://www.weforum.org/press/2016/12/a-convenient-truth-fighting-climate-change-turned-into-a-profitable-business/.
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