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The next innovation wave

The next innovation wave
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First Published: Tue, Dec 08 2009. 10 47 PM IST
Updated: Tue, Dec 08 2009. 10 47 PM IST
The one certain thing amid the rampant uncertainty surrounding the ongoing global climate change talks in Copenhagen is this: All those national leaders, climate change negotiators, business leaders and journalists who have gone to the Danish capital to save the world in the long run will pollute it in the short run.
Several newspapers reported on Tuesday that only five of the estimated 1,200 limousines that will ferry the high and mighty around Copenhagen are either hybrids or electric vehicles. Some 140 private planes have been used to fly in participants other than those who have used commercial flights. The participants and observers will stay in heated hotel rooms and go to conferences in well-lit halls. The carbon footprint of the Copenhagen talks is not going to present a pretty picture.
Yet, there are some initial attempts around the world to make the shift to the low-carbon economy of the future. Costa Rica aims to be the first carbon-neutral country in the world by 2021. Abu Dhabi is building a new carbon-neutral city called Masdar that will house 1,500 businesses and 50,000 people within a decade. There are also many large companies trying to either minimize or wipe out their carbon footprint.
These are initial voluntary moves, but a global climate change deal should eventually increase the price of carbon—either through taxation or a cap and trade system—to an extent that there will be strong economic and legal incentives to cut pollution.
Such a transition to a carbon-neutral or low-carbon world economy in the coming decades should provide huge potential opportunities for emerging economies such as India to leapfrog to the global technology frontier. Consulting firm McKinsey and Co. has estimated in a 2009 study that global attempts to keep global warming below 2 degrees Celsius will require upfront investments of €530 billion a year in 2020 or €810 billion per year in 2030. “This corresponds to 5-6% of BAU (business as usual) investments in fixed assets in each respective year,” says McKinsey.
Building a new, new economy will require immense capital investments. It is very likely that the world will have to rebuild its stock of transportation, housing, consumption and energy ecosystem to make a low-carbon economy a reality. Such a transition will need action on multiple fronts: nextgen technologies, financing mechanisms and legislative change, for example.
Masdar is being built from scratch in the windswept desert outside Abu Dhabi. It will have houses built to minimize direct sunlight and hence the need for air conditioning, shaded walks on narrow streets, solar-powered cars that would run under the city, water recycling and much more. Existing cities will also have to adapt to such new forms of organization.
India can profit from the coming shift to a low-carbon economy.
To understand why, it may make sense to step back and examine long waves of economic growth and technological innovation.
The early economists believed that an economy would inevitably sputter to a halt: a stationary state. The amount of extra output that an extra unit of input could deliver would keep dropping because of diminishing returns. But these early economists did not anticipate how technology and innovation would keep defeating diminishing returns by pushing out the global production possibility curve. Even two centuries after the predictions of the early economists of an inevitable stationary state of zero growth, economies continue to grow.
The world has seen at least five long waves of technology since the birth of the Industrial Revolution in the late 18th century: the steam engine and cotton ginning, steel and railways, electrical and chemical engineering, automobiles and plastics, and finally, information technology. Some economists have pointed out that long business cycles have coincided with these long waves of innovation.
Each new innovation wave presents opportunities for upstarts to gatecrash into the big league. This is true for countries as much as it is for companies: Periods of discontinuous change usually throw up new leaders. India could gain some advantage from the information technology age just as Japan could do in the age of automobiles and plastics.
Mitigating climate change could unleash another wave of technological innovation in around a decade from now: new products, energy sources and modes of living. The way to a low-carbon economy will not involve a regression to the enforced norms of simple living that poverty imposes. It should necessarily be progressive and rooted in new technologies.
The next great wave of innovation could crest a decade from now. India should position itself to profit from these megatrends rather than be a passive spectator.
Niranjan Rajadhyaksha is managing editor of Mint. Your comments are welcome at cafeeconomics@livemint.com
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First Published: Tue, Dec 08 2009. 10 47 PM IST