Green Transition

The Aspirations of the Green Industrial Revolution: a Historical Perspective

The Green Industrial Revolution is clearly a positive and inspiring story, but there is room for doubting the ability of green technologies to stimulate a new wave of growth comparable to the industrial revolutions of the nineteenth and twentieth centuries.

1. The Aspirations of the Green Industrial Revolution

While local and global environmental challenges are continuing to grow, many industrialised countries have been facing lower productivity gains since the end of the period of high growth in the 1960s, along with a serious economic crisis in recent years. In this context, many advocates of an increase in environmental protection emphasise the positive economic effects of the measures they propose. Authors such as Jeremy Rifkin and Nicholas Stern even 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). Making reference to the history of the industrial revolution in the nineteenth and twentieth centuries, these authors, 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, “comparable, or superior, to those generated by the introduction of the steam engine, railways, electricity or information technology”.

The promise of the GIR is not to protect the economy and its growth potential from resource scarcity and environmental degradation, but to trigger a new wave of growth that will get industrialised countries out of their current low growth situation. 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, an approach motivated by the fact that GIR proponents directly or indirectly invoke history to support their narrative of a new wave of growth driven by green technology.

2. Technologies that have left their marks on industrial revolutions

The history of the industrial revolution is much richer than that of technology: it is accompanied by drastic changes in the organisation of work and business, of social compromise, or of consumers’ behaviour. Like GIR promoters, we nevertheless focus here solely on the role of technologies. Can green technologies induce productivity gains comparable to the mechanisation of the textile industry or to the dissemination of innovations such as the steam engine, electricity, the steel industry, the combustion engine, synthetic chemistry, telegraphy or telephony?

2.1. Productivity gains

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. The fundamental innovation at the origin of such advances was not necessarily intended to deliver the eventual outcome (the examples of the transistor and the laser are emblematic in this regard). 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. 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 productivity gains? This can be in a fairly simple and direct way, such as for example the  of the textile industry that increased worker productivity within a few decades and brought down the price of yarn and fabrics.

The “major technologies” have, more indirectly, opened the door to profound economic reorganisation. 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 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, and the electric motor opened the door to a reorganisation and greater efficiency within factories.

Finally, as regards “reorganisation”, 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, 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. Reorganisations are not always deep, and the border between “direct” and “indirect” productivity gains is very indistinct.

But it should be noted that the technologies that have made history have not only lowered the price of certain goods or services, but have also—often—opened the door to economic reorganisations that have generated significant productivity gains.

2.2. The potential market

The technologies that have shaped history have had an impact in the major sectors of final or intermediate consumption. Fabric, for clothing and furniture, was traditionally an important part of most household budgets, typically constituting the second highest sector of expenditure after food with a share of 12% to 16% throughout the nineteenth century. The decline in the price of fabrics, a product with a high price elasticity of demand, has consistently expanded the market for this product in terms of volume – socially and spatially across the world. It was only later that a tendency towards market saturation became apparent. The first industrialisation was led by textiles, which accounted for about one third of industrial production.

Obviously, a consumption sector can represent a small share of household expenditure and yet be the engine of an “industrial revolution”. The railway and automotive industries stimulated, or even created, their own market, uncovering needs that contemporaries had not identified. The promoters of railways expected to greatly reduce the cost of transporting goods and therefore stimulate trade; they had no idea that the demand for travel would grow exponentially. For example, in the early nineteenth century, a French Minister, Adolphe Thiers, joked about the influx of Parisians wanting to make the train journey between Paris and Saint Germain, declaring it to be a toy that Parisians would quickly tire of.

The technologies that have made history have not only lowered the price of certain goods or services, but have also—often—opened the door to economic reorganisations that have generated significant productivity gains.

The key technologies in economic history have also impacted on intermediate consumption. In this category belong the steam engine, the train, synthetic chemistry, metallurgy, electricity and ICT. All these technologies have had wide-ranging impacts across many sectors to varying degrees. Transport networks of goods and information concern all sectors. The steam engine, which was first applied in the coal mines, went on to revolutionise transport and became integrated into factories.

In summary, while their non-cost benefits enabled them to develop initially in specific niches, technologies that have had an impact on history have mainly spread through the generation of significant, direct or indirect, productivity gains. They have touched upon major sectors of consumption or have spread to the whole economy.

3. Comparing green technologies to the major innovations of yesterday

Do green technologies correspond to the same “profile” as major innovations of economic history? Let us begin by discussing the size of the potential market.

3.1. The potential market for green technologies

The market for green technologies is booming. The market for renewable energy reached $260 billion in 2011(Bloomberg, 2012), twice as much as in 2007. Admittedly, this represents only 15% to 30% of investments in the energy market, and between 0.5% and 2.5% of total investments. However, the aforementioned technological revolutions were initially related to consumption niches and segments of industry, traditional technologies and sectors remaining dominant over a long period in quantitative terms. In the infancy of the steam engine, its low energy productivity and the pumping nature of its movement (rather than a rotary movement) restricted its use to the removal of water from coal mines. Around eight decades elapsed between Newcomen’s patents (1710-1712) and the steam engine’s escape from this economic “niche”. It is therefore difficult to draw conclusions from the size of the current market for green technologies.

But what can we say about their potential market? From the perspective of intermediate consumption, green technologies can be considered as generic. All sectors consume energy for their heating or mobility needs, and some more than others, such as transport, agriculture and manufacturing. In macroeconomic terms, energy costs in the United States are of the order of 8% of GDP, with levels of around 10% or greater during oil peaks (EIA).

The size of the potential market for green technologies is therefore substantial—comparable to fabric in the nineteenth century— and the outlook is anything but bleak. Whether countries decouple their energy consumption from GDP or not, in relative or absolute terms, it is a safe bet that our societies will continue to need “energy services” at least as much as they do today. Whether the heating of houses becomes more ecological, or is replaced by improved insulation, there remains a large market for green technologies.

Authors within the ecological economics movement emphasise that the role of energy in the functioning of the economy is underestimated (e.g. Ayres and Warr, 2009). Living standards and energy consumption are closely linked: without energy, there is no food, no mobility, no heating, no industrial processing and no computers. We can compare this observation to the work of certain historians that consider energy to be at the heart of industrial revolutions. Thus, for R.J. Forbes (1958), the invention of the steam engine in the eighteenth century is the central feature of the industrial revolution, followed by the introduction of new driving forces: the hydraulic turbine, the combustion engine and the steam turbine in the nineteenth century, followed by the gas turbine in the twentieth. For Wrigley (1988), it is the emergence of energy sources and raw materials independent from land production and the mineral-based energy economy which is at the heart of the industrial revolution. While these works do not receive unanimous acceptance among historians, no more than those of ecological economics receive from economists, we can however draw from this analysis the conclusion that green technologies seem to fulfil the criterion of “market size”, making it a potential successor to the steam engine.

3.2. “Direct” productivity gains

However it remains necessary for green technology to be able to generate productivity gains. 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. 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. But 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.

In the 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 green technologies seems to be to protect the global economy from oil shocks rather than to drive down the price of energy. 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 reorganisation of the economy?

4. Must we be deterministic in order to be optimistic?

Green technologies can profoundly transform the way energy is produced. Instead of a centralised energy system we can imagine one that is completely decentralised, where every consumer and every industrial site is a producer of energy. The question we ask here is whether green technologies can induce a deeper change in the consumer sectors and the rest of the economy, as did the steam engine, electricity and transport networks. Stern (2012) is not explicit on this point; the heart of his analysis is based on the addition of green technologies to the current technological revolution identified by Perez (2002). The latter, in the Schumpeterian tradition, considers the emergence of a new wave of growth thanks to a new technological “constellation” which strongly “interacts” with the organisation of the economy.

For Perez this new constellation is based primarily on ICT. Green growth is a direction for the deployment of the information revolution; it is not a revolution in itself.

J. Rifkin displays a strong technological determinism, making the assumption that energy technology determines not only the organisation of consumer sectors, but more generally the economy and society. As fossil fuels were centralised, they would have led to major vertical businesses and to the Taylorisation of factories as well as schools. As he sees renewable energies as decentralised, they would then lead to a distributed, lateralised economy.

There is a great temptation to regard the nineteenth century phenomenon of the concentration of workers into factories on a growing scale and on an increasingly hierarchical basis as the logical consequence of mechanisation and the use of “centralised” energy sources. It is indeed machinery and a concentration of economic activity that have been the most striking impacts experienced by the people that lived through the beginning of the industrial revolution. Yet the process of concentration has very different origins, starting with the willingness of entrepreneurs to specialise and, in particular, to have better control over their workers (to monitor the quality of work, to have control over working time, for the protection of trade secrets, etc.). Decentralised proto-industry had already started to decline before the steam engine began to transform industry. While the concentration of economic activity continued after the adoption of electricity, even though it carried the promise of the revitalisation of trades and home production in rural areas—which were in decline but regarded with nostalgia since they helped to ensure social order. Historically, technological developments have been accompanied by a substantial reorganisation of the economy and society. The existence and direction of causal links, and whether their characteristics were unique and mechanical or imprecise and conditional, is a debate that divides historians. Unlike Rifkin, our analysis is that technologies do not determine the organisation of the economy, but open doors to its reorganisation; the path to be taken is as much a matter of political and economic power relations. By “opening doors” technology is not neutral. While no one is forced to enter through an open door, it is however very attractive and it is not clear whether we can ever go back.

Whether countries decouple their energy consumption from GDP or not, in relative or absolute terms, it is a safe bet that our societies will continue to need “energy services” at least as much as they do today.

Without prejudging the future outcome of such power relations, we ask the question: which doors do green technologies open? Without starting from the assumption that the economy is organised according to its energy system, through which process can green technologies influence consumers and other sectors of the economy?

Following the logic of  Rifkin, let us imagine a completely different organisation of energy production, with a boom in the development of renewables and the domination of electric 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. This decentralised scenario is possible, as is a centralised renewable scenario. How does it transform the organisation of the production of other goods and services in the economy?

Renewable energies transform energy production but do not provide a new energy vector. Surely the electric grid would become smarter, but ultimately it is always about a “switch” that is turned on or off, in a factory or a building. Who can differentiate between an electron derived from a coal plant or one from a solar panel, 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.

The reorganisation 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. Economic organisation is certainly likely to change in the coming decades, especially with the spread of ICT that will open doors, but it is difficult to see green technology as having a leading role in this transformation.

5. Do we need green technology to reorganise the economy?

Technology does not seem to open the door to profound reorganisations of the economy, except possibly within the energy sector. As we have seen above, history has been marked by reorganisations that were autonomous in relation to technological developments, along the lines of the Taylorisation of work.

Let’s take the example of car sharing, or more generally the collective use of private cars. It should be noted that this can be achieved using electric vehicles, such as the AutoLib’ in Paris, but it can also be done with conventional cars. Car sharing is only one example of what we usually call the functionality economy. The functionality economy is a new economic organisation which – in a very broad definition – considers usage to be more important than ownership and favours service providers over the producers of goods. Thus, rather than buying a car—electric or not—a consumer can buy a mobility service: the right vehicle to suit a particular requirement can be accessed as needed. Such a system can be extended to a large quantity of goods, from household appliances to photocopiers, through carpets and industrial solvents. Such a system is supposed to be resource-efficient because the goods are likely to be more durable, better maintained, repaired, recycled and/or fewer in number.

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 this “green” economic reorganisation sustain the hope of a GIR by generating major productivity gains? The current economic system leads to the production of goods that rapidly become obsolete, and to the possession of underused goods: a car costs around 6,000 euros per year, all expenses included, and spends 95% of its time in a car park. The functionality economy, by organising the collective use of individual goods, enables the division of these costs and the realisation of productivity gains that are potentially immense.

6. Conclusion

The academic literature is full of arguments in favour of a compatibility between growth and environmental protection, which are grouped under the term “green growth”. The strongest of these arguments remains that of environmental damages that must be avoided, particularly the impact of abrupt climate change, “tipping points”, or future energy shocks, therefore environmental protection is a necessity. Can we go further and, as GIR proposes, hope for a real growth “wave” that lasts several decades as a result of new green technologies?

We have seen that the hope for a GIR is fragile if we consider the green technologies that are at the heart of today’s energy transition. This is because they concern only a small part of the economy, but also 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 reorganisation.

Technologies that have shaped history have enabled such reorganisations, 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 centralised system to one that is completely decentralised. But how could the rest of the economy be encouraged to reorganise itself? If we do not want to give in to technological determinism, then it is clear that green technologies will not deliver an obvious reorganisation.

To realise the hopes of a new wave of green growth, we must rely on major breakthroughs in green technologies or in green and “techno-autonomous” economic reorganisations.

If the expansion of knowledge is at the heart of the industrial revolution (Mokyr, 2002), then we can anticipate technological breakthroughs. These would include the development of nanobatteries, biofuel production by novel bacteria or from algae, cement that captures CO2 and all the technologies promised by Biomimicry: why not produce hydrogen in a process that draws inspiration from photosynthesis? Why not imitate marine sponges in their ability to build their silicon skeletons at 4°C? Such breakthroughs remain hypothetical. The functionality economy and more generally the circular economy are green reorganisations that do not necessarily imply new green technologies but still contain the potential for significant productivity gains.

However, surprises are always possible, whether technological or organisational. 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 living standards. The best approach therefore is to achieve green technological and organisational transformation, to avoid environmental degradation—and its impacts, whether economic or otherwise. Whether this will lead to a new wave of growth will be left for history to decide.

The GIR is clearly a positive and inspiring story, but 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. We must be aware that unfulfilled aspirations can lead to major steps backwards.

 

References

Ayres, R. and B. Warr (2009). The Economic Growth Engine, Edward Elgar Publishing Limited.

Bloomberg New Energy Finance (2012). Global trends in renewable energy investment 2012. Report for UNEP.

Fraunhofer—Institut für Solare Energiesysteme (2012). Levelized cost of electricity renewable energies. May 2012.

Forbes, R. J. (1958). “Power to 1850”, in A History of technology: the industrial revolution 1750-1850. Oxford University Press.

Lovins, A., Lovins, H. and Hawken, P. (2000). Natural Capitalism: Creating the Next Industrial Revolution.

Mokyr, J. (2002). The Gifts of Athena: Historical Origins of the Knowledge Economy. Princeton, Princeton University Press.

Perez, C. (2002). Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages. Edward Elgar, UK.

Rifkin, J. (2012). La Troisième Révolution industrielle. Éditions Les liens qui libèrent.

Stern, N. (2012). “How We Can Respond and Prosper: The New Energy Industrial Revolution”. Lionel Robbins Memorial Lecture Series.

Verley, P. (1997). L’échelle du monde. Essai sur l’industrialisation occidentale. Paris, Gallimard, Collection Idées (seconde édition augmentée, Gallimard, collection Tel, 2013).

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