Purging ghosts, and thriving

The future doesn’t exist yet. But stories of the future are always at play in our minds, shaping our choices and hence shaping the future.  

However, the stories in individual minds or organisations are rarely explicit, inevitably limited, often inconsistent and frequently incoherent. They are “ghost scenarios” and commonly a reaction to “ghost stories” about the past.  

And they haunt us.  

They can scare us and lead us to places where, in hindsight, we wish we hadn’t gone.

We are scared about climate change, but even more scared about the affordability of addressing it. We are scared about violence in our societies and the prospect of more conflicts in our troubled world, but even more scared to speak truth to power.

But if our ghost stories scare us into accepting climate change or accepting the abuse of power, our children and grandchildren will suffer and lament our negligence.

So, can we peer through the fog of misleading ghost stories? Can we develop and act on better stories?

For example, the dominant ghost story about energy transitions addressing climate change is that they are inevitably slow-moving, costly, supply-driven burdens. Over the past decades, many of our minds have become possessed by narratives about unaffordability and sacrifice. Many respectable articles emphasise the trillions of dollars of investment that will be required to accomplish energy system transformation.  

Few, however, place this in the context of total investments in the entire economy to recognise the relatively modest scale of energy transition investments. Fewer still emphasise that “costs” for one party are usually “revenues” for another, so that the overall drag on the macro-economy is actually very modest.  

With this broader landscape in view, the impact proves to be just a few percentage points in the projected size of the entire economy looking out decades from now. This is equivalent to just a couple of years of economic growth at most and is very small compared to the impact of, for instance, politically-driven trade frictions or dislocations in monetary or fiscal policy. 

Indeed, the modest nature of even direct costs becomes apparent once they are translated into their impact on the final costs of what people actually consume. While the added costs to producers of making “green” steel or synthetic fibres may be 50% or more, the cost impact on consumers may be as little as 2%, e.g. just $1 on a pair of jeans. Each value-adding step in the supply chain dilutes the upstream cost premium.

So, the overall collective “cost” to society of making these investments will be low (or even entirely offset by technological benefits and avoided costs), and can also bring great prosperity to some investors and good jobs to many people.  

The challenge is that the benefits and costs are rarely evenly distributed. Considerable effort is required to align the stars in a way that is both commercially effective and morally fair. Alignment mechanisms are needed to motivate, reward or compensate those sectors of the economy and society where investments are concentrated. This is the real challenge, not the magnitude of the so-called “costs” themselves.

Emissions-trading and taxation schemes can make a stab at this, combined with border-adjustment mechanisms to address imports from outside the applicable jurisdiction. However, the large sums involved at the upstream end of supply chains appear punitive to the targeted businesses and also reduce their competitiveness in exporting beyond the jurisdiction. It is hard to win support for such schemes and implement them at a level which has a timely impact.

To overcome understandable resistance and avoidance problems, as with all taxation-like systems, the ideal solution would be to broaden the base and dilute the impact on individual payers.  

As noted previously, the costs are hugely diluted and affordable to most at the final-user end of business chains.  And just 8 business chains account for over half of all emissions – electronics, construction, fashion, vehicle manufacturing, food, FMCG, professional services, and other freight.  If there was credible information available to highlight the emissions footprint of these end-use products and services, then differentiation and standard-setting would direct incentives up supply chains to motivate and align the necessary upstream incentives.  

This is an information challenge, but we live in the information age. This should be increasingly possible. We can already track strings of financial transactions through a supply chain, so we should be able to supplement this with tracking emissions footprints using emerging data scraping, data management, data verification and AI techniques.  Increasing requirements to report Scope 3 emissions at the corporate level should be gathering data that could be made relevant at the product level. I am already aware of a number of initiatives exploring this approach with the goal of demonstrating the low carbon-intensity competitive advantage of selected end-use products.  

Bringing such stars closer into alignment can kick-start the commercial engine, and then significant changes can happen “fast” and are often disruptive. You only have to look at what is happening currently with the global sales of battery-electric passenger vehicles or the deployment of solar power, or further back to the growth of the LNG industry in the 1970’s or the car industry earlier in the 20th century. And because global systems are so large, this explosive pace of growth can last for decades before it begins to be moderated by saturation effects.  

This presents exciting economic opportunities for companies and policy-setting authorities that become forerunners in both difficult but attractive transition areas and also information management along key business chains.  

Energy transitions shift from being perceived only as a spectral hardship. Instead, they can become recognised as a series of fast-moving, modest cost, high-opportunity, demand-enabled, tipping-points of uncertain timing - driven by the alignment of relevant financial and informational stars.  In addition, it becomes clearer that there is a competitive advantage for smart businesses, smart policy-makers and smart politicians in accelerating that alignment.

This is a different kind of story. A better story. With fewer ghosts.

illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

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