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Beyond Obama's Plan: A New Economic Vision for Addressing Climate Change

A powerful new technology revolution is evolving that will allow enterprises and prosumers to make and share their own green electricity, and an increasing array of sustainable physical products and services, at near zero marginal cost.
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The White House today released its national climate plan for reducing CO2 emissions, warning that climate change is adversely affecting every region of the United States, with dire consequences for the economy. Unfortunately, the new initiatives by the US government to ward off rising temperatures are weak at best. What's sorely missing from the climate change debate is a new economic vision that can quickly transition the US and global economy out of carbon based energy and into renewable energies, while simultaneously increasing productivity and reducing the amount of the earth's resources used in the economic process, ensuring a more prosperous and sustainable society. That vision is now taking hold.

A powerful new technology revolution is evolving that will allow enterprises and prosumers to make and share their own green electricity, and an increasing array of sustainable physical products and services, at near zero marginal cost, just as billions of prosumers now do with information goods. (Marginal cost is the cost of producing an additional unit of a good or service after the fixed costs have been absorbed). The Communication Internet is converging with a fledgling Energy Internet and nascent automated Transport and Logistics Internet, creating a new technological infrastructure for society--a Third Industrial Revolution--that could fundamentally alter the global economy and usher in an ecological civilization in the first half of the 21st century. Billions of sensors are being attached to resource flows, warehouses, road systems, factory production lines, the electricity transmission grid, offices, homes, stores, and vehicles, continually monitoring their status and performance and feeding big data back to the Internet of Things. By 2030, it is estimated there will be more than 100 trillion sensors connecting the human and natural environment in a global distributed intelligent network.

Enterprises and prosumers will be able to connect to the Internet of Things (IoT) and use Big Data and analytics to develop predictive algorithms that can speed efficiency, increase productivity, reduce the use of natural resources, and lower the marginal cost of producing renewable energy and manufactured products to near zero. They will be able to share what they've made with others on an emerging Collaborative Commons that is beginning to flourish alongside the conventional capitalist marketplace.

Zero Marginal Cost Renewable Energy

For example, the bulk of the energy we use to heat our homes and run our appliances, power our businesses, drive our vehicles, and operate every part of the global economy will be generated at near zero marginal cost and be nearly free in the coming decades. That's already the case for several million early adopters who have transformed their homes and businesses into micro-power plants to harvest renewable energy on-site. Even before the fixed costs for the installation of solar and wind are paid back--often as little as 2 to 8 years--the marginal cost of the harvested energy is nearly free. Unlike fossil fuels and uranium for nuclear power, in which the commodity itself always costs something, the sun collected on rooftops and the wind travelling up the side of buildings are nearly free. The Internet of Things will enable prosumers to monitor their electricity usage in their buildings, optimize their energy efficiency, and share surplus green electricity with others on the Energy Internet.

The same exponential curves that drove the marginal cost of generating and distributing communication to near zero has touched off a similar revolution in the field of renewable energy. Richard Swanson, the founder of SunPower Corporation, observed the same doubling phenomena in solar that IT companies observed in computer chips. Swanson's law holds that the price of solar photovoltaic (PV) cells tends to drop by 20 percent for every doubling of industry capacity. Crystalline silicon photovoltaic cell prices have fallen dramatically, from $60 a watt in 1976 to $0.66 a watt in 2013.

Solar cells are capturing more solar energy that strikes them while reducing the cost of harvesting the energy. Solar efficiencies for triple junction solar cells in the laboratory have reached 41 percent. Thin film has hit 20 percent efficiency in the laboratory. If this trend continues at the current pace--and most studies actually show an acceleration in exponentiality--solar energy will be as cheap as the current average retail price of electricity today by 2020 and half the price of coal electricity today by 2030.

The impact on society of near zero marginal cost solar energy is all the more pronounced when we consider the vast potential of these energy sources. The sun beams 470 exajoules of energy to Earth every 88 minutes--equaling the amount of energy human beings use in a year. If we could grab hold of one-tenth of 1 percent of the sun's energy that reaches Earth, it would give us six times the energy we now use across the global economy.

Like solar radiation, wind is ubiquitous and blows everywhere in the world--although its strength and frequency varies. A Stanford University study on global wind capacity concluded that if 20 percent of the world's available wind was harvested, it would generate seven times more electricity than we currently use to run the entire global economy. Wind capacity has been growing exponentially since the early 1990s and has already reached parity with conventionally generated electricity from fossil fuels and nuclear power in many regions of the world. In the past quarter century, wind-turbine productivity increased 100-fold and the average capacity per turbine grew by more than 1,000 percent. Increased performance and productivity has significantly reduced the cost of production, installation, and maintenance, leading to a growth rate of more than 30 percent per year between 1998 and 2007, or a doubling of capacity every two and a half years. Industry analysts forecast that the harvesting technology for solar and small wind power will be as cheap as cell phones and laptops within fifteen years.

Local, regional, and national governments around the world have instituted feed-in tariffs in the past few years, guaranteeing a premium price for renewable energy above the market value of other energies for a set period of usually 15 to 20 years to encourage early adopters to invest in the installation of wind, solar, geothermal, biomass, and small hydro renewable energy generation and feed the new green electricity back to the transmission grid. Today, millions of business and homeowners in Europe are taking advantage of feed in tariffs and investing their own capital to install renewable energy harvesting technologies on site. While the up-front capital investment is significant, they are beginning to receive low-interest-rate green loans from banks and credit unions. The banks are more than willing to lend money at reduced interest rates because the premium price of the green energy being produced virtually ensures the loan will be honored.

Sixty-five countries have instituted feed-in tariffs, and over half of them are in the developing world. Feed-in tariffs have proven to be a powerful policy instrument in moving renewable energy online. Nearly two-thirds of the global wind and 87 percent of global photovoltaic capacity has been spurred by feed-in tariffs. Unfortunately, in the United States, only California, Vermont, Maine, Oregon, Washington, Hawaii, and Rhode Island have implemented even cursory feed-in tariffs.

Naysayers argue that subsidies for green energy, in the form of feed-in tariffs, are too costly for society. The reality is that they merely speed up adoption and scale, encourage competition, and spur innovation, which further increases the efficiency of renewable energy harvesting technologies and lowers the cost of production and installation. In country after country, solar and wind energy is nearing parity or at parity with conventional fossil-fuel and nuclear power, allowing the government to begin phasing out tariffs. Meanwhile, the older fossil-fuel energies and nuclear power, although mature and well past their prime, continue to be subsidized at levels that far exceed the subsidies extended to renewable energy. Instituting robust feed in tariffs in all 50 states is a much more effective commercial incentive than carbon trading schemes to quickly usher in a post-carbon society.

Already, 27 percent of the electricity in Germany is being generated by renewable energy - mostly solar and wind--at near zero marginal cost and the percentage of green electricity is expected to exceed 35% by 2020. On Sunday, May 11th 2014, 75% of Germany's electricity demand was generated by renewable energy, a milestone for the world's most robust industrial economy per capita. So much near zero marginal cost electricity was being fed into the nation's power grid that electricity prices plunged into the negative category for much of the day. While the cost of subsidizing the new renewable energies places a relatively small short term burden on businesses and homeowners, in the mid- to long-term, Germany and other countries will enjoy near zero marginal cost energy and a dramatic increase in efficiency and productivity across the economy, resulting in sustainable economic growth far into the future.

It is particularly interesting to note that in Germany, which is setting the pace for transitioning into green electricity in Europe, the big traditional power and utility companies--E.ON, RWE, EnBW, Vattenfall Europe--owned only 7 percent of the renewable-energy capacity installed by the end of 2011. Individuals, however, "owned 40 percent of the renewable energy capacity, energy niche players 14 percent, farmers 11 percent, various energy-intensive industrial companies 9 percent, and financial companies 11 percent. Small regional utilities and international utilities owned another 7 percent." Nearly half of the German wind turbines are owned by residents of the regions. In other EU countries, the pattern is the same. Consumers are becoming prosumers and generating their own green electricity.

Gérard Mestrallet, CEO of GDF Suez--the French gas utility--says that just ten years ago the European energy market was dominated almost exclusively by a handful of regional monopolies. "Those days are gone forever," says Mestrallet, now that "some consumers have become producers." Peter Terium, CEO of RWE, the German-based energy company, acknowledges the massive shift taking place in Europe from centralized to distributed power, and says that the bigger power and utility companies "have to adjust to the fact that, in the longer term, earning capacity in conventional electricity generation will be markedly below what we've seen in recent years."

Had anyone suggested ten years ago that the big power and utility companies of Europe would begin to crumble as millions of small, distributed, renewable-energy micropower players began to generate their own green electricity for the grid, it would have been dismissed as fantasy by the powers that be. Not now. "It is a real revolution," says Mestrallet.

Nor is Europe alone. In December of 2013, the Chinese government leapt ahead of other countries, announcing that it is dedicating an initial $82 billion to establish a Third Industrial Revolution distributed "Energy Internet" that will serve as the centerpiece of an Internet of Things technology platform and infrastructure. Under the plan, millions of people in neighborhoods and communities across the country, as well as hundreds of thousands of businesses, will be able to produce their own solar- and wind-generated green electricity locally at near zero marginal cost, and share it on a national Energy Internet.

The Energy Internet, embedded in an Internet of Things platform will change the way power is generated and distributed in society. Already, millions of homeowners, businesses, and neighborhood producer and consumer cooperatives are harvesting clean renewable energy at near zero marginal cost. In the coming era, hundreds of millions of people will produce their own green electricity and share it at near zero marginal cost with each other on an Energy Internet, just as we now generate and share information online. When Internet communications manages green energy, every human being on Earth becomes his or her own source of power, both literally and figuratively. Zero marginal cost energy is "power to the people."

The Democratization of Manufacturing

While millions of people are now producing and sharing their own green electricity on an emerging Energy Internet, hundreds of thousands of hobbyists and thousands of startup companies are already printing out their own manufactured products using free software, and cheap recycled plastic, paper, and other locally available feedstock at near zero marginal cost. The additive manufacturing process, powered by electricity generated from renewable energy, uses one tenth of the materials of traditional factory production, resulting in a dramatic reduction in CO2 emissions and the use of the earth's resources. By 2020, prosumers will be able to share their 3D printed products with others on the Collaborative Commons by transporting them in driverless electric and fuel cell vehicles, powered by near zero marginal cost renewable energy, facilitated by an automated Logistics and Transport Internet.

China is setting the pace in the development of 3D printing. Beihang University is using 3D printing to manufacture sophisticated parts used in rockets and satellites. WinSun, another Chinese company, built ten small houses in less than 24 hours in 2014, using cheap recycled materials. The construction of the houses required very little human labor, and cost less than $5000 a piece to construct, making possible the production of millions of cheap homes at low or near zero marginal cost in China and other developing countries. Tiertime, China's largest producer of desktop 3D printers for use in small businesses and households, unveiled its newest model UP! in 2014. The company is competing head to head with America's leading producers of 3D printers, in the hopes of capturing much of the global market in the years ahead.

While Great Britain sparked the First Industrial Revolution, and the United States led the world into the Second Industrial Revolution, China has set its sights on leading the world into the Third Industrial Revolution by being the first superpower to build out an Internet of Things infrastructure and accompanying Collaborative Commons. In 2010, China seized the initiative over other countries, announcing its intention to erect an Internet of Things, focusing on the smart Energy Internet and an automated Logistics and Transport Internet, with the goal of meshing them with the Communication Internet to create the infrastructure for a Third Industrial Revolution. The Chinese government expects to invest $800 million on the initial build-out of the Internet of Things by 2015. The Chinese Ministry of Information and Technology forecasts that the IoT market will exceed $80 billion by 2015 and $166 billion by 2020.

The efficiency and productivity gains of the Third Industrial Revolution are likely to far outstrip those of the First and Second Industrial Revolutions. Several billion people and millions of organizations connected to the Internet of Things allows the human race to share their economic lives in a global Collaborative Commons, in ways previously unimaginable. This turning point in connectivity potentially exceeds even the integration of economic activity wrought by electrification and the accompanying spread of the telephone, radio and television in the 20th century. Cisco systems forecasts that by 2022, the Internet of Things will generate $14.4 trillion in cost efficiency savings and revenue. A General Electric study published in November 2012 concludes that the efficiency gains and productivity advances made possible by a smart industrial Internet could resound across virtually every economic sector by 2025, impacting "approximately one half of the global economy."

The Sharing Economy on the Collaborative Commons

Forty percent of the US population is already actively engaged in the sharing economy on the Collaborative Commons. 800,000 individuals in the US are now using car sharing services. In car sharing services, once the fixed costs are absorbed, the marginal cost of sharing the vehicle moves to near zero with each additional user.

Global transport currently accounts for fifteen percent of global warming emissions. Each car share vehicle eliminates 15 personally owned cars, resulting in a dramatic reduction in both CO2 emissions and the massive amount of material resources, energy, and labor that goes into manufacturing each automobile. In a recent study focused on the city of Ann Harbor, Michigan, Lawrence D. Burns, formerly the corporate vice president of research, development, and planning at General Motors, found that "about 80% fewer shared, coordinated vehicles would be needed than personally owned vehicles to provide the same level of mobility, with less investment." If we were to extrapolate Burns' study on a global scale, it is possible to envision car sharing services eliminating upwards of 800 million of the 1 billion privately owned cars now on the road, for a dramatic reduction in both CO2 emissions and the massive amount of material resources, energy, and labor that goes into manufacturing each automobile. If the remaining 200 million vehicles were powered by green electricity transmitted across the Energy Internet, carbon emissions in the transport sector would be reduced to near zero.

Buildings are another major contributor to climate change, accounting for approximately one third of global warming emissions. A significant percentage of these emissions come from hotels and resorts. (The travel and tourism sector is one of the largest industries in the world and represents nine percent of global GDP.) Now, millions of homeowners are sharing their apartments and houses with travelers via global online services like Airbnb and Couchsurfing, bypassing commercial hotels. For homeowners and apartment dwellers, whose fixed costs have already been absorbed, the marginal cost of opening up their homes to travelers is near zero. The big brick-and-mortar hotel chains, with their huge operating costs, simply can't compete with cheap short-term rentals or even free accommodations whose marginal costs of operation approach zero. In New York alone, Airbnb's 416,000 guests who stayed in apartments and houses between mid-2012 and mid-2013 cost the New York hotel industry 1 million lost room nights. As millions of homeowners open up their apartments and houses to travelers, we can expect a significant decline in the use of hotels and a corresponding decrease in CO2 emissions.

Millions of people are also redistributing their used clothing on the Collaborative Commons via online networks like ThredUP. The global textile industry is a major contributor to global warming, accounting for 10 percent of the total carbon impact. ThredUPs 385,000 visitors per month shared over 350,000 items in 2012, and orders are growing by a whopping 51% a month. More people sharing fewer clothes reduces the amount of new clothes purchased, resulting in fewer global warming gas emissions.

A younger generation is also sharing their tools, their children's toys, and countless other items on the Collaborative Commons. Freecycle, a redistribution network, gifted and passed along 700 million pounds of used items in the past year. If those items were stacked in garbage trucks, they would extend "the equivalent of over thirteen times the height of Mt. Everest."

In a zero marginal cost society, extreme productivity decreases the amount of information, energy, material resources, labor and logistics costs, necessary to produce and distribute economic goods and services, once fixed costs are absorbed. And the goods and services that are produced at near zero marginal cost are redistributed and shared over and over again on the Collaborative Commons, dramatically reducing the number of things sold, meaning fewer resources are used up and less global warming gases are emitted into the earth's atmosphere.

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The nations of the world are far more likely to make commitments to CO2 reductions if pegged to the vast economic benefits that come from erecting an Internet of Things platform that can unleash extreme productivity, reduce the marginal cost of producing and distributing renewable energy, 3D printed goods, and services to near zero, and give rise to a sharing circular economy on the Collaborative Commons. If the Third Industrial Revolution becomes the centerpiece of the United Nations Climate Change Conference in December 2015 in Paris, rather than a sideshow, humanity might yet snatch victory from defeat, turn the corner on climate change, and restore the planet to health.

Jeremy Rifkin is the author The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism. Mr. Rifkin is a principal architect of the European Union's long-term Third Industrial Revolution economic development plan, and an advisor on sustainable development to heads of state around the world. He is the president of the Foundation on Economic Trends in Washington, DC.

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