The Great Disruption: Why the Climate Crisis Will Bring On the End of Shopping and the Birth of a New World - Paul Gilding (2011)

Chapter 12. Creative Destruction on Steroids-Out with the Old, In with the New

Whenever I give a presentation to a business audience about how dramatic the change is going to be, there are always some who respond, “Yes, I can see why it should be like that, but I can’t see how it’s going to happen, so I just don’t think it’s going to.”

When I say it’s inevitable because the science says these kinds of reductions are essential for economic and social stability, they respond, “Perhaps, but I can’t see how,” and they go into the limits of known technology, markets, incentives, government regulation, public support, and so on. Then I ask, “So how do you think it will unfold? Will we just slide into collapse?” There is rarely a cogent answer, just a repeat of the reasons they think it won’t happen.

I now understand this common response but didn’t until a conversation I had a few years ago with the CEO of a large global coal company. We were having a private conversation about the scale and pace of change on climate policy. I was saying how, based on the scientific assessment of required emission reduction pathways, the change would have to come fast and furious when it did because of our continued delays—delays they were advocating. Therefore, short of some remarkable progress on carbon capture, coal would then go into rapid decline. His response was he couldn’t see how this could happen. He said there was simply too much coal and too much momentum in the economy to stop it from being burned. Society needed the energy, and coal was plentiful and cheap. It suddenly occurred to me just how different our worldviews were in framing business strategy.

He saw the world as an engineer. He had to see how it would happen to believe it could happen. This is a good attribute in engineers, by the way, who work with the laws of physics, which are constant. But in this case, as the CEO, his “how” was considered only in the context of his present market framework, where price determined success and political support was high. So from his worldview, although he was a rational person and saw what the science demanded, he just couldn’t see the world acting to achieve that outcome. He didn’t think about the implications of that deeply because it wasn’t a changeable outcome for him—the shift simply wasn’t going to happen. Of course, his self-interest and that of his company made having this view easier for him, but that wasn’t the only driver.

My worldview was as a systems thinker and environmentalist. I saw what needed to happen, based on what the science was telling us were the consequences if we didn’t act. I knew society would, in its own interest, have to make that result happen to suit those immovable needs.

From my worldview, I saw his strategy, which was to assume decades of further growth in coal consumption, and knew it couldn’t happen. For me, the mechanism that would prevent it from happening was a secondary issue—we would find a way to get it done—whereas for him, it was the primary issue. To me, either we would cut CO2 emissions and he would lose his market or the world economy would collapse under the weight of climate and sustainability impacts and he would lose his market. He looked around and saw energy demand rising, coal being cheap, and many major countries having strong policies in support of coal. This made the science, while important, just one consideration. We agreed to differ.

Science is absolutely central to business strategy in this area. Science is also the reason I am so confident in how these issues will unfold. The world is a system that includes the ecosystem, the market, and human society. This means that even though we can’t pin down precise forecasts of individual events and the behavior of individual system components, we can safely assume, with sufficient certainty for planning, that the system as a whole is going to behave in certain broad ways, according to the laws of science and the history of how humans respond to threats.

I recognize, of course, that there is always some inherent uncertainty, but for the purposes of planning business strategy or our lives, there are some things we can pretty much rely on. So when I say “near certainty,” this is what I mean—a likelihood so high that it should be central to planning for the future.

Many such near certainties are currently being ignored by major global companies and investors. As a result, they face catastrophic financial risk that hasn’t yet been priced into the market.

One of these certainties is that the only future a business should plan for is dramatic, discontinuous change. Remembering that our economy operates inside our environment, this is what the science says is inevitable, so this is what will happen. If I am wrong about a one-degree war kind of response and we don’t act, then the economy will collapse under the weight of climate and sustainability impacts. That will also result in dramatic, discontinuous change. Mind you, there is little point in planning for that scenario, because a collapsing global economy would be so chaotic that any business strategy made today wouldn’t be of any relevance!

To further explore how this all translates into the market and business strategy, including how investors should see these issues, I will focus on climate and energy. There is much more to how this will unfold than energy, including, for example, huge changes in food and agriculture, transport and city design, materials flow, manufacturing, and packaging. But a focus on climate and energy provides us with a critical insight into the process as well as the most important short-term economywide impacts on both markets and emissions.

I will start with the things we know, the things I’m calling near certainties. One of these is that there is no significant future for coal or oil, short of some surprising breakthrough in technology. I realize I’m making a big call here, one that means pretty much every coal mining and oil company in this multitrillion-dollar market is more or less finished. This will be a surprise to most of them, so I had better explain.

We discussed earlier the need to reduce CO2e (greenhouse gas) concentrations to 350 ppm and aim for one degree of warming above preindustrial levels. While I’m confident this is close to the target we’ll end up with, for now we’ll explain what’s coming using the much less stringent target already accepted by most of the world’s governments and major corporations. This target is for us to limit warming so it does not exceed the very dangerous two degrees. Even this “plan for failure,” as I referred to it earlier, means we face discontinuous and dramatic change in the market—change that few investors and companies are considering, even though it is clear for all to see.

To examine these implications, let’s take a look at the science. A useful starting point is a study conducted by the highly respected German government–funded Potsdam Institute for Climate Impact Research (PIK), led by Professor Hans Joachim Schellnhuber, whom I’ve worked with on various Cambridge programs. The PIK conducted a study that calculated what a two-degree target meant for the total amount of CO2 that could be emitted—in other words, what was our total fossil-fuel budget? Remember in this context that a significant proportion of CO2 stays in the atmosphere for a long time after it is emitted, some for over one thousand years. This means what counts is the total amount we put up there, rather than when we put it there. That gives us a budget—the total amount we can burn to achieve a given outcome in CO2 concentrations in the atmosphere and resulting temperature. The answer provided by PIK is that we can emit around 890 billion tons of CO2 between 2000 and 2050, if we want to reduce the risk of exceeding two degrees to below 20 percent. (Some would argue a one in five chance of catastrophic warming is still too high, but let’s accept this for now as the minimum sensible target.)

The PIK then calculated, if we carried on with business as usual, when would the budget be used up—when would all the fossil fuels we can afford to burn be gone, requiring a complete stop in their use? Assuming we chose to reduce the risk of going past two degrees to about 20 percent, the answer would be that it will all be gone by 2024. This would still leave around 75 percent of proven economically recoverable reserves in the ground and an even greater proportion of total reserves never to be used. As the famous quote goes, “The stone age didn’t end because we ran out of stones.”

Remember, these are scientific, business, and economic assertions, not moral or ideological ones. This is good old-fashioned rational analysis.

So again, staying rational, there are only two paths we can go down. We act dramatically, within a decade, to slow down and then eliminate the burning of coal, oil, and gas, or we race past two degrees, racing toward the cliff of climate change spiraling out of control, not being sure where that cliff is or how big the fall will be. Not really a hard choice.

Now let’s consider this simple scientific analysis of the available fossil fuels in the context of business and markets. By definition, here we move from science and certainty to markets and assertion.

What about CCS? Can’t capturing the CO2 and burying it in the ground save at least the coal industry? There is little doubt in my mind that CCS can work in a technical and environmental sense. It seems it will be possible to capture CO2 from power plants and bury it safely. It will be complex and may take longer than we’d like, but it seems achievable. That is not the problem.

The challenge is economics. The question is, will the cost of burning coal added to the cost of capturing the CO2 and transporting it and burying it safely be able to compete with the cost of renewables? (Noting as well that using CCS dramatically reduces the efficiency of power generation from coal.) By contrast, renewables are proven technologies, are already being invested in at scale, are falling in price rapidly, and are not burdened by the capital risk and time delays of the massive new infrastructure required for CCS.

The time frames involved and the immaturity of CCS compared with the large commercial investment and research under way in renewables make it hard to see how coal with CCS can win the market battle.

I support government investment in CCS, and I hope it becomes a viable technology because we’ll need it for purposes other than coal, such as removing CO2 from the atmosphere. One way of doing so would be burning biomass like trees in power plants and then capturing the resulting CO2 and burying it, thereby generating electricity with negative CO2 emissions. So it should be supported.

Many otherwise rational people analyzing the coal issue fall into what I call the economic inertia trap—we have an enormous amount of coal, the industry is large, therefore it will keep going. Markets are far more brutal than that. If coal can’t compete, including maintaining government and community support, it will die a market death. While its inertia will slow that death it will not prevent it.

I am skeptical of CCS’s viability as a commercially competitive option when used with coal. Consider this: Despite decades of talk, at the time of writing there is not one commercial-scale demonstration project capturing and sequestering large amounts of CO2 from a coal-fired power station. Not one. All the various technologies needed are being used somewhere, but that doesn’t mean they are commercial in combination, especially given the time challenge of mass deployment by 2020. So the market’s view is clear. Despite coal-mining companies having their whole existence at stake, that a successful CCS industry would be worth trillions, and that there is enormous government political support for CCS, including funding, no company in the world has committed to building a full commercial-scale power plant with CCS.

Meanwhile we are already seeing spectacular growth in renewables, with investment approaching $200 billion per year even in the context of difficult economic conditions. Unlike politics, markets are ultimately rational, that’s why we see so little commercial money going into CCS. Or as we say in Australia: Talk is cheap, it takes money to buy beer.

I should be clear I’m certainly not against society investing in CCS and matching commercial money to do so. As we’ll discuss shortly, I think the market should be let rip on finding solutions, and we should not dictate technologies that are in or out. We should only dictate outcomes in terms of clean and safe. I’m just expressing my opinion on this particular one, as a business strategy risk question.

So is CCS technically possible? Yes. Would I recommend an investment fund relying on it to save their investments in coal? That would be a big call.

So back to our 2024 deadline and the investment implications of all this. Given that a sudden stop to all coal, oil, and gas consumption is not realistic and that CCS is at best a risky strategy, action will have to be taken, and urgently, to slow down growth in the use of fossil fuels, to allow our budget to last longer. Since no serious action is on the table yet, it will still be some years away. Yet we know the longer the delay, the harder the brakes will then be put on because the cliff can’t be moved. It’s those damn laws of physics again.

What this means is that, as of today, there is a huge risk in the valuation of all coal and oil reserves and therefore of all coal and oil companies. The market hasn’t yet priced in that around 75 percent of known economic reserves may never be extracted and sometime in the next decade, government will have to dramatically curtail the consumption of coal, oil, and gas.

This means that within this decade, and I think earlier rather than later, whatever government actually does, the market will wake up to the political and commercial risk and dramatically mark down those companies’ value. Every year that passes the risk gets higher and the fall becomes harder. When it happens, lower share price equals lower capital for investment, and the terminal decline of those industries will begin. Money will then move into clean forms of energy, making the perception shift self-fulfilling. When it happens, it will occur virtually overnight, as markets tend to shift sentiment in that way. Governments will then abandon support for coal and oil and go with the market toward renewables.

So in summary on this topic, it is clear government has to take action, so they will. That action must result in dramatic reductions in CO2 emissions, and the science says that must result in the decline of coal and oil, followed soon after by gas. There are no realistic scenarios where this can be achieved if we wait past 2015–2020, unless we decide to go past two degrees of warming. Given that all the world’s major governments and most major companies have agreed not to, the logic of the economic risk flows pretty easily.

So if you lose your shirt on your coal and oil investments, don’t say you weren’t warned!

This is just one example of the market implications of our “near certainties.” Now we move into the great unknowns. Without coal, oil, and gas, we’re going to need a whole lot of new technology and infrastructure. This is going to be the mother of all economic booms.

What will be the result of this transformation? Which technologies will succeed and in what time scales? For investors reading this, where’s the money going to be made?

Two notes of caution before I give my opinion on these questions.

First, we are now moving firmly into an area of major uncertainty, and we should be comfortable with that. We don’t need to know how we’re going to achieve it because we have a strong history of achieving what we set out to achieve as a society. If we were relying on one technology or even one class of energy generation, I would not be so comfortable asserting this, but we have a plethora of different possibilities for achieving our desired outcome, and we can be certain a number of them will succeed in achieving our objective of CO2-free energy supplies across the world at a manageable price.

What technologies we have available certainly matters, and that’s why I’m going to cover it here. We need to understand the range of potential ways forward so we can make a broad assessment of the realistic potential. We also need this so policy can be made and investments placed. However—and this is really important going back to my coal company CEO—it is not a question of how we will do it that will determine what happens to initiate it.

When Great Britain went to war in World War II, do you think they had clarity on all the details of transitioning into a war economy before they made the decision to act? Of course they considered it, as we must, but it wasn’t a determining issue because there was no choice. Do you think President Roosevelt calculated the United States could win the war by increasing military spending to 37 percent of U.S. GDP and producing a nuclear bomb before he decided to enter the war? Of course not; he just knew they had to succeed and so they would. He had confidence in human ingenuity delivering under pressure, when it’s given defined parameters and political support, and so must we.

So the countless analyses that have been done on technology and how we can transition to them are useful and worthwhile, for a whole range of reasons. But they are not what will determine whether we act, Mr. Coal CEO; we will act because we have to.

The second note of caution is on ideology and technology.

People focused on this area become fascinated by the technologies involved in the required energy transformation. Of course, our fascination with technology is not limited to energy and climate change. People love technology and love talking about it. There is nothing inherently risky with this until we turn it into an area of emotional belief. It is still relatively harmless if the issue is Apple vs. Microsoft, Ford vs. GM, or PlayStation vs. Xbox. But it matters a lot when applied to energy technology.

This has become a dangerous and destructive tendency on all sides of the climate debate, because it turns technologies into questions of belief, where you are asked to take sides. Are you pro or anti coal, nuclear, solar, and so on? This undermines rational thought. I’ve had many conversations inside companies where I hear completely ridiculous things from otherwise rational people. Another coal company CEO took me aside one day and told me about all the downsides of wind and why its potential is so exaggerated. He explained that the life cycle CO2 cost of wind makes it worse for climate change than coal. Only when questions become ideological do science and facts go out the window like that. (In case you’re wondering, wind power’s full life cycle CO2 emissions are lower than coal’s by about 99 percent!)1

Both sides are guilty, with some environmentalists being opposed to carbon capture and storage because it would be used to keep the coal industry alive, as though the objective were to kill the coal industry rather than to stop CO2emissions.

Nuclear power is the most fascinating in this regard because for decades it has defined an almost religious belief. The broadly defined liberal or left-leaning side of society was avowedly antinuclear, and the broadly defined conservative, pro-market, right-leaning side of society was pro-nuclear. In recent years with this “right-wing” technology being a beneficiary of the focus on the “left-wing” issue of climate change, nuclear power has cut a swath through this ideological divide. Some environmentalists, like James Lovelock and James Hansen, now actively support nuclear power. On the other side, various right-wing ideologues have had to come out in support of action on climate change.

A great example of this was Hugh Morgan, a mining company CEO, archconservative commentator, and unarguably Australia’s most effective and powerful climate denier and opponent of action over many decades. (His company, WMC, was a major Australian mining company, and my company consulted to them when they produced an environmental report in the late 1990s.) After he’d left his CEO role, Hugh was still active in the public debate. I heard him do an interview where he argued that he didn’t believe in climate change or the need to act. Then he advocated that people should definitely support nuclear power as the best solution to climate change (he was involved in a new nuclear venture). Such bizarre inconsistencies are inevitable when you lose the ability to think rationally by burying yourself in ideology.

There are many arguments against coal and nuclear power and many arguments for caution in taking various renewables to scale. That is not my point. I’m simply advocating a careful, rational discussion about the opportunities open to us and an intelligent debate about the alternatives, in the context that a failure to change will have consequences.

That’s why this matters, because it has consequences. Of course we need to have opinions about technology, particularly in business and investment strategy. However, when people campaign against technologies, as questions of ideology and belief, then argue we shouldn’t invest in them, we act more slowly because uncertainty is sown on our ability to move forward. This makes government less inclined to act.

So with these two notes of caution, where do I think we will go with technology? I certainly believe technology will play a critical role in the way forward. However, I’m not a techno-optimist who believes technology will fix it all. As we covered earlier, climate change is just one issue in sustainability, and there is no way we can address all our challenges with technology and keep growing the economy. This is made even stronger by the rebound effect, where technology drives efficiency and efficiency drives more technology use. This means behavior change and shifts in how we organize our lives will in the end be essential. But technology will be an important enabler.

To avoid the techno-ideology trap, it is helpful to have some criteria to consider technologies against. For energy, mine are simple. They have to deliver close to zero CO2 emissions, they should be as safe as we can afford, they should be able to be rolled out at scale quickly, and they should be considered in a systems context. The latter means we should consider factors like our quality of life, our geopolitical security, and our future prosperity and economic stability. In other words, remember we are designing a society, not a gadget.

With these criteria in mind, I know I cannot avoid the question “What about nuclear?” so I should cover it first.

I don’t see how nuclear can even be a good partial solution given the complications of waste, terrorism, and supply limits. I’m certainly open to being persuaded why I might be wrong, but I haven’t been yet. When I’m asked about nuclear power in public forums, which I frequently am, my answer is this: If you’re asking me would I rather have nuclear power or climate change, the answer is straightforward. Nuclear power is preferable, but it’s the wrong question. The question should be what is the cheapest safe form of available energy that emits zero CO2.

If that is the question, I suspect neither coal with carbon capture, for the reasons I outlined earlier, nor nuclear power will give us the answer. But we should let the process unfold and allow the market, which will incorporate the price of risk and public acceptance, find the best solution. I would be delighted if CCS became sufficiently competitive to retrofit every coal plant in the world in a decade, and I would be very happy to hear of a proven way to use nuclear power without radioactive waste, risk of meltdown, or producing materials that were dangerous in the hands of terrorists or rogue states.

However, against the criteria listed above, and on what we know today, renewable energy and geothermal together provide an intrinsically more elegant and intelligent solution to our energy needs than anything else. If we have the opportunity to move to a safe, clean, widely available energy source with zero fuel price and very low geopolitical supply risk, then we should try our best to make it work. Even if it costs more in the short term, surely the benefits of setting ourselves up for a more prosperous, stable society make that effort worthwhile.

Apart from the lack of CO2, the extraordinary amount of solar energy arriving on the planet means renewables make intuitive sense. Consider this: Every hour an amount of energy equivalent to what all of humanity uses in a year hits the earth’s surface from the sun. Even after allowing for the limits in accessibility and converting this into useful energy, a year’s supply arrives every week.2

Another “annual supply” of energy is available from the wind every month and another one again each month from geothermal. Then there is the hydro from rivers and energy in the waves and tides. So there is just so muchenergy available, it is implausible that we cannot access it effectively and at a reasonable price if we put our minds to the task.

Energy has been fundamentally important to humanity’s progress throughout history as it is today. This is one of the reasons action on climate change is controversial—because energy supply and availability is so critically integrated into our lives and our economy. That’s why recognizing the enormous amount of clean and safe energy we have available to us is such an important mental shift. We think we live in scarcity and as a result often act from a place of fear. The truth is very different. We live on an abundant planet and our future progress is now only constrained by our thinking.

There is further reinforcing logic at a system design level for solar and wind power. The fuel cost for generation is zero and the energy is available all over the planet, meaning all those imports and impacts on balance of payments are gone. This global energy security also largely eliminates a whole range of related geopolitical risks and the resulting military threats and instability, not to mention the enormous costs involved. The savings on offer are tangible and we don’t have to look hard to find real numbers. A fascinating peer reviewed study reported in the journal Foreign Policy pointed out that keeping aircraft carriers in the Persian Gulf from 1976 to 2007 cost over $7 trillion. This was a direct subsidy as the explicit mission was to secure oil shipments.3 Such missions will not be required to keep the sun shining or the wind blowing.

Another advantage of renewable energy is having zero fuel cost meaning no price uncertainty once plants are built. This allows business to guarantee their energy price and contract it for decades into the future, greatly reducing the energy price risk for long-term investments for energy-intensive industries. This makes national economies more resilient as well.

This is also interesting at the consumer level—imagine buying a car with a five-year contract to lock in your fuel supply at a given price because the energy provider had in turn locked in their price with a solar power plant.

Another powerful argument at the system level is that everything we’ve learned about technology indicates renewable energy will get cheaper and cheaper. Unlike fossil fuels, which we know will increase in price because of supply constraints and extraction complexity, renewables will get cheaper as they go to scale and keep doing so for decades to come. They don’t leak into the ocean, they don’t involve blowing up mountaintops, and there is no risk of peak sun, not for a few billion years, at least!

Of course, there are issues to overcome in going to scale like the supply of some rare metals used, water access, matching supply-and-demand timing, and connecting to the grid. But these are all being worked on today in the real world of the energy market and can be solved. My personal view is that the result will be energy cheaper than today, available in all countries within a few decades. With a war effort dedicated to the task, we can expect that even sooner.

This widely available, steady-price electricity is likely to transform the car industry as well. With electric cars already on the verge of widespread availability, we can expect dramatic change in our cities and our power systems. Having millions of battery-powered cars means that the auto fleet can also become a giant distributed storage system and each car can become a personally owned power utility. So when your car is parked and there is a peak demand for power on a hot day, you can sell the electricity in your car batteries back into the grid at a profit!

These are some of my conclusions on technology. We’ll return to more examples of such new business opportunities in later chapters on building a new economy. If you want to investigate the energy issues more deeply, there are many high-quality analyses available. In particular for the whole picture of climate solutions, I would recommend Al Gore’s book Our Choice. For a brief overview of how we could shift to 100 percent renewable energy in twenty years, I would recommend the Stanford University study summarized in Scientific American that I referred to earlier.4 For those who want a deep dive into energy, I’d recommend the free downloadable book from David MacKay at http://www.withouthotair.com.

The key investor point is that we have many, many options for clean energy; they are not laboratory experiments but serious full-scale commercial enterprises today. If you have any remaining doubts this is a short-term commercial issue, consider that in 2008 and again 2009, more capital was invested in new renewable power generation than in new fossil-fuel and nuclear power generation.5 The game is now firmly on.

As the market sorts this out, something else will come into play that I am convinced will kill off nuclear power and coal with CCS. That is the speed of change.

There is an understanding in the long cycles of technology penetration, one which holds that people usually underestimate how long it takes for a technology to reach critical mass and then overestimate how long it will take to go through exponential growth. We see this play out in many areas on a regular basis, like digital music being around a long time with little impact, then suddenly booming. Likewise digital cameras, e-book readers, and so on.

This is how it has been and will be with clean energy technologies. People say solar has been twenty years away from being competitive for forty years! True, but now we’re actually seeing the price fall dramatically and, perhaps even more critical, the amount of investment in the area growing exponentially. While the percentage of installed energy from renewables is small today because of the long capital cycles, growth rates of 25 to 40 percent per annum will soon overcome that. And again, that’s before government gets serious about driving change.

What are the business and investment implications of all this?

Much has been said about the economic transformation to a low-carbon economy. None of this compares with the real scale of the opportunity or the commensurate level of risk to those companies that aren’t ready. As outlined in previous chapters, government will have to act ruthlessly and firmly when they act. They will not tolerate the prevarication and debate we have seen around us in recent years. Government attitudes will resemble those in war, with a level of determination and focus that will see change occur messily and inefficiently but quickly and reliably. Government will ensure the public is deeply engaged and supportive, as they will need this support to implement the required actions.

The scale of change needed has been compared to a transformation like the Industrial Revolution. Even this doesn’t adequately frame it, because that happened relatively slowly. I think of the coming transformation being like a twenty-year dot-com boom on steroids with military support. Schumpeter’s creative destruction will move through the economy like a wild fire through a dry forest.

To implement this change quickly, government will have to direct the market to achieve a given level of emissions reduction in a certain time frame. The economic shift will be much faster than most commentators believe, because most analyses assume normal market conditions and investment cycles, not government mobilizing on a war footing with associated market intervention.

So we can assume humanity will respond late, with a plan something like what Jorgen and I developed in the one-degree war. This is not a pretty story for most companies, many of which will be replaced by smarter, faster, new companies.

Change on this scale will create some big winners among disruptive companies with new technologies and business models that address what will then be urgent social needs. It will also create some big losers among companies that are slow to respond or make the wrong call on the direction of change, such as backing the wrong renewable technology or staying with fossil fuels too long.

Consider some of the changes that have been associated with the move toward digital technology—minor in scale compared with those we face in dealing with our current challenges, but interesting examples of industry shifts. Kodak, one of the giants of the photographic industry until the 1990s, proved unable to cope with the shift to digital, even though they knew it was coming, and had to sack 60 percent of their workforce of sixty thousand. One of the successes of digital technology is the U.S. company Netflix, started as a DVD-by-mail company but now increasingly focused on unlimited streaming movies online. By taking advantage of the smaller size of a DVD and now streaming technology, Netflix was able to essentially destroy the giants of the video rental market in just a few years. Blockbuster shares, trading at $30 in 2002, now fetch less than $0.20. At one movie a day, the Netflix service costs just $0.30 a movie—a price that the old Blockbuster model simply can’t match.

Unlike the boom in the dot-com industry, when the new economy was hard to touch, making it at times difficult to differentiate talk from reality, the transition to a low-carbon economy is more nuts and bolts. I heard recently about a green investment fund that bought stocks in a ball-bearing company because they expected dramatic growth in sales to wind power companies for their turbines.

Also different from the dot-com boom is that many of these new businesses will have real-world income, selling electricity to utilities obligated by law to buy an increasing percentage of their power from renewable or other low-carbon sources. The numbers quickly become substantial. In 2008, about 125 million households in the United States spent an average of about $104 a month on electricity bills. That’s over $150 billion a year (and growing), just in residential consumer spending, just on electricity, just in the United States. When you include commercial and industrial electricity bills, total U.S. end user spending in 2008 amounted to a staggering $363.7 billion.6 This is just what end users pay for what they consume each year, so behind that is trillions invested in the capital equipment and infrastructure required to generate and deliver that output. Given that is just for electricity, not counting the much larger value in oil for transport being converted to renewable power in a few decades, this is a breathtaking opportunity.

There’s certainly massive numbers involved. The 2009 World Energy Outlook by the International Energy Agency forecast that $10.5 trillion in additional capital spending would be required for energy infrastructure under a proactive response to climate change just between now and 2030. Many analyses focus on the cost of all this change and wonder how we can afford it, especially if the economy is struggling at the time we choose to act. What they’re not taking into account is the similarly breathtaking opportunities to save money through energy efficiency, perhaps one of the most exciting areas of short-term opportunity for investors in this whole space.

The IEA’s current estimates suggest that the economic benefits of energy efficiency will be significantly greater than all the costs of the investments required to start decarbonizing the energy system. Their assessment suggests that from now to 2050, the incremental investment required to reduce emissions by 50 percent is around $46 trillion, with a major focus on energy efficiency. It sounds like a lot until you consider that resulting fuel cost savings of $112 trillion delivers a net economic benefit of around $66 trillion. Even discounted at 10 percent, this means a net savings today of $8 trillion.7 So again we see that the actual action required isn’t hard or expensive, it’s the decision to get on with the job that seems to be challenging.

As a result of the delays to date, we can be sure the coming market-driven change will not be smooth. But then markets rarely are. This poses particular challenges for investors who have to make decisions on timing. If you’re still thinking this is decades away, though, think again. HSBC estimates the global market for low carbon technologies will exceed $2 trillion per annum by 2020, with capital investment of around $10 trillion during the current decade.8 It also forecasts that China will overtake the United States in share of the global low carbon market while India will overtake Japan, cementing the geopolitical power shifts I will cover shortly. With the transformation thus in full swing by the end of this decade, anyone guiding a company or investment fund needs to pay careful attention now. While it will start with a focus on energy and water it will soon spread to all aspects of the high-carbon economy and then to sustainability more broadly.

Some of you are thinking, “Haven’t we heard all this before, several times? Wasn’t the energy revolution going to start in the 1970s with the oil shock and the beginning of the solar revolution? Then oil prices went down and it all went away? Haven’t people been saying ever since that the boom is ‘just around the corner’?”

Yes, all true, but this is fundamentally different for a simple reason. Each previous time, the transformation has been driven by economics; fossil-fuel prices went up so alternatives became competitive. We have let the market determine the pace of change, yet put no price into that market for the damage caused by climate change. So before, the argument that the alternatives were uncertain, or more expensive, was a really significant commercial impediment to change and a barrier to new policy to support that change.

This time, it’s driven by science. It doesn’t matter if oil and coal completely collapse in price, which I think they may well do at some point as clean energy takes off. We simply won’t be able to burn them because of the CO2impact. Through markets, taxes, or straight-out regulation, the science dictates that government stops us from burning fossil fuels that emit CO2. (Unless, of course, the much lower price for coal then makes coal with CCS economically competitive! That would be a good example of the unpredictability for investors in this area, but either way energy generation that emits CO2 is finished.)

All this means that, unlike the past forty years, it doesn’t matter if clean energy is more expensive anymore. In many cases it’s not anyway, and it will all get cheaper from here on, but that is now irrelevant. When you accept what we face, price no longer matters.

I know this seems like a ridiculous argument when so much of the impediment to change has been price, but think about it. When we wake up to the issue, do you really think we’ll do the assessment “Can we afford to save civilization, or would we rather keep our energy costs down while we hurtle off the cliff into collapse”? Of course we won’t.

I’ve used power generation as my prime example of the business opportunity and of technology options. This, however, is just the opening shot in a business sense. Yes, we have to produce power differently, but we also have to retrofit every house in the world to make it far more efficient, with insulation, draft proofing, double- or triple-glazed windows, and the like. We have to replace the auto fleet and build new infrastructure to support electric cars or whatever technology wins that race. We have to recycle and reuse 100 percent of all materials, including all drink containers, computers, and cars, by offering incentives to do so, like having container deposits on the one hundred billion or so plastic bottles and aluminum cans used in the United States each year.

And then we move into changes in agriculture to maximize the uptake of carbon in soil and to prevent the nitrification of our waterways. We’ll also need infrastructure and systems to manage and deliver water differently with changes in rainfall patterns. And on and on it goes, all the way through the economy.

This has all been argued before, in fact for many decades. This entire time people have advocated the need, to investors, governments, and corporations, that we should drive these changes—and by the way, it would be a great commercial opportunity if we did so. It was just that, though: advocacy that people should pursue it.

Now it’s different. I am not advocating the change; I’m saying it’s here and it’s unstoppable. The only question for business and investors is who gets on the boat and who drowns, because the tide has clearly turned.