A revolution in green technologies?

La révolution des technologies vertes ?
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Towards a new industrial and energy revolution?
Clean energy will remain expensive
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While local and global environmental challenges are continuing to grow, many industrialized countries have been facing lower productivity gains since the end of the period of high growth in the 1950s and 1960s, along with a serious economic crisis in recent years. In this context, authors such as Jeremy Rifkin (2011) and Nicholas Stern (2012) predict a new industrial revolution with a strong ecological content, based on green technology, and which we refer to herein as the green industrial revolution (GIR) (Figure 1). Making reference to the history of the industrial revolution in the nineteenth and twentieth centuries, these authors, along with others with similar outlooks, raise hopes - voluntarily or not - for a burst of economic activity that will last for several decades and will generate a new wave of productivity gains and therefore growth, which will be 'comparable, or superior, to those generated by the introduction of the steam engine, railways, electricity or information technology' (Stern, 2012).

The concept of technological revolution is at the heart of the Schumpeterian tradition to explain the long economic cycles. Can we easily link, historically, the technological cycle and the economic cycle? As recognized by all authors, for a great invention to spread and to have a significant macroeconomic impact, many reorganizations are necessary. Thus, electricity had to wait a long time before leaving its luxury niche in department stores and entering into factories, and it is only when the organization of work in factories was modified and when workers were suitably trained, that companies were able to derive substantial economic benefits. But this primarily concerned a few pioneering companies, and it took decades before these practices became widespread. It is then empirically extremely difficult, if not impossible, to make a link between the invention of electricity and the macroeconomic development of a country. The exercise is even more difficult when one looks not at one invention but at a constellation of new technologies, and when one tries to link such technologies with a wave of growth. The empirical basis of the Schumpeterian school of thought is therefore fragile.

Under what conditions would this new wave of green growth be credible? Is the GIR anything other than a positive and inspiring story, which focuses on opportunities rather than on the dangers of environmental degradation? We have addressed this question through the adoption of a historical perspective. After having identified the characteristics of technologies that have marked the industrial revolutions of the past two centuries, we will see if the green technologies fit this profile.

As GIR advocates, we focus here on environmental issues at the interface of energy and climate. In referring to green technologies we therefore mean those related to the production and consumption of energy and those that offer alternatives to fossil fuels. We also delimit the scope of this analysis by restricting ourselves to technologies that are now at centre stage and that make up the heart of green investment, starting with renewable energy - solar and wind, primarily - carbon capture and storage (CCS), electric vehicles, etc.

For some authors, including Nicholas Stern, the new industrial revolution has already begun and has the same power as previous technology cycles to transform the economy.

Technologies that have left their mark on history

Firstly, although fairly evident, it is worth remembering that the great innovations of the past have led to increased productivity, i.e. to the provision of goods or services at a much lower cost than previously possible through other techniques. At its beginnings, a new technology may rely on non-cost benefits to create a niche market, such as electric lighting, which was readily taken up by high-end department stores due to the luxurious image it conveyed. But a technology must gradually generate significant productivity gains if it is to extend beyond its niche and have a lasting impact on its areas of application.

How do technologies that influence economic history generate their productivity gains? This can be in a fairly simple and direct way, such as for example the mechanization of the textile industry that increased worker productivity within a few decades and brought down the price of yarn and fabrics. Synthetic chemistry provides another example of this type of influence: it has developed by providing the textile industry with substitutes for natural dyes that are often scarce and subject to speculation, such as indigo from India.

In addition, the 'major technologies' have, more indirectly, opened the door to profound economic reorganization. The steam engine for example, through the substitution of hydropower derived from water courses, not only provided a cheaper energy source, it also made possible the geographical concentration of factories - previously it would not have been possible to group together several mills onto the same site - and allowed them to be located nearer to primary resources and/or to places of consumption. The advent of electricity meant that the link between the energy source and industrial locations could be extended even further

Transportation of coal was only economically profitable by sea or inland waterway. Therefore coal could only be used in close proximity to ports and waterways. Electricity, however, could be distributed more widely, although it did not take off until advances had been made in high voltage transport and in network construction, which were originally regional.

, and the electric motor opened the door to a spatial reorganization within factories towards greater rationality.

A factory can then be organized to reduce the transport of materials as much as possible (e.g. in steel mills) or to adopt the assembly line method (moving the product, rather than the workers) which already existed in an embryonic form, in particular for car bodywork.

Finally, as regards reorganization, we must not forget to mention the role of network technologies, i.e. technologies to transport goods or information: vehicles and roads, trains and railways, telegraph, telephone and now the new tools of information and communications technology (ICT). Railways have enabled the expansion of markets, the exploitation of economies of scale and comparative advantage, specialization of territories, etc. Similarly, information and communications technologies, new or not, have facilitated international trade, just-in-time production, coordination within networked companies and of very large companies.

Green technologies and direct productivity gains

Do green technologies correspond to the same profile as the major innovations that have marked economic history and generated significant productivity gains?

Let us start with the direct gains, which in this case are the costs of energy production based on renewable sources or CCS, or the cost of electric vehicles. It is obviously very difficult to make projections of the costs of green technologies over ten, twenty or thirty years. Given the present state of knowledge and by limiting ourselves to technologies that are at the heart of energy transition today, we must be cautious.

CCS does not reduce the cost of fossil fuels, but in fact the opposite. The cost of nuclear power - if it can be classified as a green technology - is widely discussed, but it must be noted that the current trend is towards its increase. On the contrary, the costs of renewable energies and electric vehicles are decreasing, and some hope that the renewable mix will be competitive in the short or medium-terms compared to fossil fuels and conventional internal combustion engines, even when taking into account the necessary changes to various networks. However, even for green tech promoters (Fraunhofer, 2012), it is difficult to imagine a drastic drop in the price of energy or mobility compared to the current situation (Figure 2). In future, energy is likely to become more expensive rather than the opposite. Surely, energy-saving technologies would be able to soften or even counteract this trend. But the role of energy transition and in this case of green technologies seems to be to protect the global economy from oil shocks rather than to drive down the price of energy services.

If we limit ourselves to green technologies that are already available and growing, we can therefore be sceptical about the potential of growth through 'direct' productivity gains. Can they induce a profound reorganization of the economy?

The Fraunhofer Institute estimates that in Germany, by 2030, the diversification of production will not enable a real decrease in energy prices.

Green technologies and the transformation of the economy

Green technologies can profoundly transform the way energy is produced. Instead of a centralized energy system, we can imagine one that is completely decentralized, where every consumer and every industrial site is a producer of energy. The question we ask here is whether green technologies can induce deeper reorganizations in the consumer sectors and the rest of the economy, as did the steam engine, electricity and transport networks.

Following the logic of J. Rifkin, let us imagine a completely different organization of energy production, with a boom in the development of renewables and the domination of electrically powered vehicles. Electricity would no longer be produced in large power plants, each building would be a source of energy, and the use of a smart grid would facilitate electricity exchanges, including with electric vehicles. This decentralized scenario is possible, as is a centralized renewable scenario. But how does it transform the organization of the production of other goods and services in the economy? CCS, nuclear and renewable energies transform energy production, but do not provide a new energy vector. Surely the electric grid would become smarter in the context of a transition towards a system that is 100% renewable. But ultimately it is always about a 'switch' that is turned on or off, in a factory or a building, as and when necessary. Who can differentiate between an electron derived from a coal plant or one from a solar panel (Zysman et al., 2012), between an electron transported by an old electric grid or one carried by a super-smart grid? What difference does it make to the consumer? Electrons may be 'green' instead of 'brown', but they are still electrons. The same is true for the electric car: it is a car with a different engine, which we may refer to as green, but it remains a car that will be driven on the same roads as today, and will be used in the same way. We change the engine of the vector, in this case the car, but there is no new vector opening the door to new uses.

Let us remember, therefore, that the reorganization enabled by green technologies already seems to have been 'exploited' by the twentieth century diffusion of electricity, automobiles and their respective networks. We can therefore remain sceptical about the potential indirect productivity gains of such technologies. The economic organization is certainly likely to change in the coming decades, especially with the spread of ICT that will open doors to new usages, but it is difficult to see green technology as having a leading role in this transformation.

Conclusion

The academic literature is full of arguments in favour of compatibility between growth and the environment, which are grouped under the term green growth. The strongest of these arguments remains that of the environmental damages that must be avoided, particularly the impact of abrupt climate change, 'tipping points', or future energy shocks. Environmental protection is therefore a necessity. Can we go further and, as GIR proponents believe, hope for a real growth wave that lasts several decades as a result of new green technologies? The GIR is clearly a positive and inspiring story, but we must be aware that unfulfilled aspirations can lead to major steps backwards.

We have seen that the hope for a GIR is fragile if we consider green technologies that are at the heart of investments in energy transition. This is not because they concern only a small part of the economy, but it is due to the doubts over their ability to generate significant productivity gains: directly, by lowering the price of energy or mobility; or indirectly by opening the door to profound economic reorganization.

Technologies that have shaped history have enabled such reorganizations, such as electricity, and supporters of the GIR must specify how green technologies can do the same. Surely the energy system can evolve dramatically with the emergence of renewable energy, electric vehicles and the development of smart grids, and it can shift from a centralized system to one that is completely decentralized. But how could the rest of the economy be encouraged to reorganize itself? If we do not want to give in to technological determinism, then it is clear that green technologies will not deliver an obvious reorganization.

The concept of GIR is therefore fragile and there is room for doubt on the ability of green technologies to stimulate a new wave of growth comparable to the industrial revolutions of the nineteenth and twentieth centuries. However, surprises are always possible, whether technological or organizational. After all, those who lived during the previous industrial revolutions were not aware of the transformations underway and of what they would bring in terms of their standards of living. The best approach therefore is to achieve green transformation to avoid environmental degradation: whether this will lead to a new wave of growth will be left for history to decide.

Towards a new industrial and energy revolution?

For some authors, including Nicholas Stern, the new industrial revolution has already begun and has the same power as previous technology cycles to transform the economy.
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Clean energy will remain expensive

The Fraunhofer Institute estimates that in Germany, by 2030, the diversification of production will not enable a real decrease in energy prices.
Show Media