‘Plan A’ for the Planet

Gross domestic product is slowing everywhere in the world. The reason is that productivity has been declining for 20 years. As a result, unemployment is really very high, especially among the younger generations in every country. And now we are in an economic crisis. So experts say we are probably looking at 25 years of slow growth.

But there is another malignant consequence of this recession. It has given rise to a much more profound problem: real-time climate change caused by masses of carbon dioxide dumped into the atmosphere of this planet from the two industrial revolutions of the 19th and 20th centuries.

What is terrifying about climate change is that it affects the water cycle of the Earth. So now we have more extreme winter snows, more severe spring and fall flooding, we have record summer droughts. What does this tell us? Our ecosystems cannot keep up with this dramatic transformation of the water cycle. They are dying. Our scientists tell us we are now in the sixth extinction event of our life on Earth – right now, real time – and that we could lose about 50% of all forms of life on this little oasis of the universe over the next eight decades. This is beyond our control. The survival of our own species is in peril.

This is a moment for decisive action. In fact, the world needs a compelling new economic vision. We need a game plan to make that vision deliverable quickly in every country in less than 30 years. And that will give us one last hope of making it through the door on time.

In fact, ‘Plan A’ is the only one that could give us a hope – if any hope is left – of quickly addressing climate change on our planet. And it cannot be an economic plan if it is not a climate plan as well. What it does is dramatically reduce our ecological footprint and get us soft carbon-based fuels. It is not rocket science. It is a pragmatic business plan that has been shown to be possible to introduce in the EU, now in China and probably all over the world. It’s our big chance, and it might be our last chance

Here we need to question what great economic paradigm shifts are all about. If we know the answer, we can draw up a road map in every country around the world to show how to find our way and navigate this journey in time.

There have been at least seven economic paradigm shifts when, at a certain moment of time, three defining technologies converge and create what we call a general purpose technology platform. They embrace new communication technologies, new sources of energy and new transportation systems which, when they converge, fundamentally change the way we manage, power and move our economic life across the value chains.

That was exactly what happened in the 19th century, when the Brits took us into the first industrial revolution. A new communication system – the telegraph – converged with a new power source – cheap coal – harvested by a new British invention – the steam engine – which was subsequently put on rails as locomotives.

That is also true for the second industrial revolution of 20th century, led by the United States, when centralized electronic communications, especially the telephone and later radio and television, converged with cheap Texas oil. Then the U.S. harvested the German internal combustion engine and put everybody on the road in cars, busses and trucks.

This took us all through the 20th century. The entire world went through this second industrial revolution. It peaked in July 2009 when Brent crude oil hit a record high of $147 a barrel. Global economy activity was placed on hold within the month. That was the economic earthquake. The collapse of the financial market 60 days later was the aftershock.

When oil starts to go over $95 a barrel, all other prices go up, because everything is made of or with fossil fuels – fertilizers, construction materials, most pharmaceutical products, synthetic fibers, power transport, heat and light. And around $120 a barrel prices become prohibitive, purchasing power slows down. So when we are in a period of economic growth, oil and other prices go up and then – bang! – the economy contracts and goes back down again.

We keep trying to master these cycles but we will never break them. So we are now in the long sunset of the second industrial revolution, the one based on centralized telecommunication, fossil fuel, nuclear power, internal combustion transport – road, rail, water and air. We will probably see this decline over the next 50 years. So it is high time for a new vision to emerge.

Angela’s Vision

When Angela Merkel became Chancellor of Germany she asked me to come to Berlin to help her address the issue of how to spur German economic growth. When I got there, my first question was: “Madam Chancellor, how can you grow the German economy when your businesses are plugged into second industrial revolution infrastructure? By plugging into that platform those businesses cannot achieve more productivity because the productivity of that platform peaked in the early 1990s.”

In fact, there are three factors that impact on productivity. Number 1 is capital for better machines. Number 2 is better-performing workers. We used to think that was everything. But now we know it represents only 14% of our productivity. And there is a third factor that accounts for other 86% of productivity. It is called aggregate efficiency, which is the ratio of potential to useful work at every conversion step across the value chain.

We take available energy out of nature every day. It can be a rare mineral for our smart phones, a metallic ore for our materials, or a fossil fuel. And at every step we have to make conversions, we have to store it and ship it. Than we have to make something out of it, and after that to consume and recycle it. It is a value chain. At every step of this value chain we embed energy into a better service to take it to the next stage. But we lose energy in the process of transformation. That is called entropy, or heat loss. So, for example, when a predator animal eats a victim, only about 10% of the victim is actually absorbed into the predator. The rest is its heat loss during the chase, consumption and metabolic transformation. So the aggregate efficiency is only 10%.

Society is no different, and that was my point in the conversation with Chancellor. I told her that the U.S. started the second industrial revolution in 1903 at 3% aggregate efficiency. That was the ratio of potential to useful work at every conversion step on a platform based on centralized telecommunication, fossil fuel, nuclear power and internal combustion engine transport. By the 1990s the U.S. peaked at 13% aggregate efficiency, while in Japan it reached a record high of 20%. Nothing has changed since then. So, you can have all the market, labor or fiscal reforms you want; you can develop all those killer products, Silicon Valleys, etc., but if you plug all the businesses into the old platform you can only get about 20% aggregate efficiency, which represents 86% of productivity.

So, in my first meeting with Chancellor Merkel I outlined the Third Industrial Revolution that is now emerging from a new convergence of communication, energy and transport. And at the end of that day she said: “Mr. Rifkin, we will have this vision you have just outlined for Germany.”

A Sweeping Revolution

But before proceeding with Germany, it is worth getting an idea of what the Third Industrial Revolution platform is all about. In fact, it is all about the world wide web and digitalization. In the 25 years since it was introduced to the masses, the communication internet has matured. Today there is a smartphone in everyone’s pocket. This is now converging with a digitalized renewable energy internet and a digitalized automated GPS, and very soon with a driverless transport and logistics internet.

These three internets are actually creating a one super-internet riding on top of the Internet of Things. We are now embedding sensors in every device, every machine and every appliance. The sensors will be in our fields, enabling us to watch how the crops grow; they will be in our factories, warehouses and distribution centers. We’ll have smart homes and smart vehicles. And all of them will be collecting big data and passing it forward.

By managing that big data as it moves to the communication and transport internet, we can find ways of increasing our aggregate efficiency and productivity, managing power and moving our economic activity. We’ll have a hundred trillion sensors everywhere and by 2030 everything is going to be connected. In fact we are externalizing the central nervous system of a human race. This is an external brain.

One practical implication of the Chancellor Merkel’s vision has been a dramatic transformation of the nation’s electricity sector. Right now around 30% of the electricity in Germany is renewable. And 40% of Germany’s energy will be solar and wind energy within five years, and 100% within 25 years

It really has huge potential. On the upside, what this means is the vast expansion in the democratization of economic life. Any of us can easily access affordable smart-phone mobile technology and have a transparent picture of the world’s economic activities. Even big companies haven’t had that big data before now. And that creates a level playing field: we all know what everyone else knows.

This also means human race can begin to directly engage with each other thanks to the internet. We can eliminate the middleman, remove all those vertically integrated organizations that kept us from each other while taking everything to the top. We can begin to think as an extended human family living in one world. We can begin to think of every creature as a part of this family. This is the ultimate in connectivity.

It is also giving birth to a new sharing economy. Right now, everyone on this planet is part of a value chain. Every day we – families, businesses, non-profit organizations – are taking things out of the environment, moving them around, storing, consuming and recycling them. This means if you are a startup company or a co-operative you can go on to this internet of things platform and mine your big data on your own value chain. Then you filter out all the noise and combine the data with your own analytics, create your own algorithms and apps. By virtue of this you can improve aggregate efficiency at every conversion step on the value chain. That, in turn, helps to dramatically increase productivity and dramatically reduce marginal costs. So you can stay competitive in the very smart digital global economy of the 21st century.

Some marginal costs are actually falling to zero. And when that happens we’ll see the growth of a new sharing economy that can eventually transform its parent, the classical capitalist model.

Over the last five years we can see the emergence of a hybrid economic system. People spend part of their time as owners and workers, buyers and sellers in the marketplace. They are producing goods and services, merging and exchanging properties for profit. This is a traditional capitalism and it is not going to disappear.

But young people are spending part of their time producing and sharing all sorts of virtual goods right now, for free, with zero marginal cost. And they are sharing with each other in a sharing economy that goes beyond the market.

We have already seen how this Third Industrial Revolution is impacting on the communication internet. Based on this knowledge it is possible to figure out what is going to happen with the energy and transport internets. We now have 3 billion people in the internet who are product owners, who are buyers and sellers of their own property. Right now millions of people are on the internet producing and sharing their music, their own YouTube videos, news blogs, and educational materials on Wikipedia. We also have 6 million students taking massive online college courses from the best professors, getting college credits at zero marginal cost.

Today we are investing in renewing the old. If every country simply reprioritizes and puts a fraction of that money into the Third Industrial Revolution, the internet of things infrastructure, we will get there in 30 years

If you have music technology in your home, it’s literally studio quality, a cheap way to produce digital recordings. Whether you share your music with one person or a billion via the web the cost stays the same – zero.

As a consequence we see whole industries that have been totally disrupted in less than two decades. The music industry is now crumbling. Newspapers and magazines have gone out of business. Television has shrunk, as kids are producing and exchanging videos with each other. But thousands of new enterprises have emerged. Some of them are on the capitalist market, some of them are non-profit.

We didn’t think the communication internet would go to the physical, the brick and mortar world. In fact, though, in a zero marginal cost society, the Internet of Things platform can take us across this firewall. In fact, this is a sweeping revolution.

Germans Go Renewable

Since our first meeting with Chancellor Merkel 10 years ago we can look at what has happened in Germany through this prism. One practical implication of the vision has been a dramatic transformation of the electricity sector in this powerful country. Right now around 30% of the electricity in Germany is renewable. And it is at zero marginal cost. Roughly 40% of Germany’s energy will be solar and wind energy within five years, and 100% within 25 years.

How is this possible? Rapid technological advances in solar and wind, along with a clear policy in place, have been the key. The fixed cost of this technology is an exponential curve, just like in computers chips. As recently as the 1950s a computer cost millions of dollars; the chairman of IBM predicted the world would need just seven computers. No one anticipated the exponential curve of Intel chips, which enabled computer to double in capacity and halve in price every two years. So today a smartphone is just $25.

There is a similar curve is with solar and wind. In 1979 the generation of one watt of solar electricity cost $79. Important it costs $0.5, and in 18 months it will be $0.25. Solar and wind power are on the same curve. We are going to have these technologies available to everyone, just like smartphones, within the next 15 or 20 years, by 2040.

But in Germany if you pay for your solar panel, wind turbine or a geothermal heat pump, the marginal cost of producing that energy is already near zero. Sometimes there is so much solar and wind in the grid that we have negative prices on a hot day, so power companies have to pay us. This is already happening in 2015.

Who is producing this new energy? There are four major power companies in Germany, RWE, E.ON, Vattenfall and EnBW. Once they were thought to be invincible, vertically integrated giants. But what happened to them in the last 10 years? It’s exactly what happened to the music industry, newspapers, book publishing and television. Millions of small players – farmers, consumers, neighborhood associations – came together and created electricity cooperatives. All of them got low-interest loans, as banks knew they would pay back the premium by selling energy back to the grid. Thus the vast majority of this electricity is being put together and generated by millions of small players. The big four power companies in Germany are now producing less than 70% of this renewable electricity. They only way to stay in the game is to change their business model.

Change or Die

When I first came to advise the big four German electricity companies seven years ago I told them they had to change their market strategy. At that time they were doubtful. My point at that moment was they did not have to give up selling centralized electricity, fossil fuel, and nuclear power. But I insisted that it was now time for them to start the transition to a smart-power company.

In fact they needed to be part of both the second industrial revolution, which is mature, but also in the third industrial revolution that is evolving. That way, over the next 30 years, they could make a transition to the next stage of history, which is post-carbon, in the mid-century. Thus, with a new model, an electricity company could make more money by selling less electricity.

That message struck a chord. So they set up partnerships with thousands of businesses, non-profits, government agencies, and they have managed big data to help their clients with analytics, algorithms and apps. This, in turn, helped dramatically boost their aggregate efficiency at every conversion step on their value chains, increased productivity and reduced their marginal costs. Then more than 1,000 institutions shared these productivity gains with the electricity company by virtue of so-called performance contracts.

For example, E.ON joined this model last spring. They sold off their fossil fuel and nuclear divisions and are now are moving to this energy management model. They want to build a digitalized electricity grid and turn it into an energy internet. They want to be a Facebook or a Google in energy intersection.

It doesn’t mean they need to abandon their conventional business overnight. What is really happening is they are all beginning to develop their second portfolio because they understand that if they are not involved now they will be totally out of the game 35-40 years from now.

Similar developments are under way in other European nations, such as France and Luxemburg, as well is in the Middle East. China is also there. When Premier Li Keqiang assumed office in March 2013 he immediately instructed his government to start working on a plan developed for the EU. So they have already rolled out a plan that implies the investment of $82 billion to build a digitalized electricity grid within four years. This would enable everyone in China to produce their own solar and wind power locally, and then send it to the grid.

This is a revolution. All of those startup businesses down the chain have to do nothing more than plug in this new digital communication that creates new innovations. But if they plug in the old platform they will get nothing.

Moreover, the coming together of the communication energy internet makes an automated GPS driver-less logistics internet possible. We built the whole global economy around the automobile in 20th century, but now it has created a problem. There are a billion vehicles in today choking us in traffic all over the world. They are also leaving a huge ecological footprint, as cars represent the third major cause of global emission of carbon after buildings and the production and consumption of beef.

Luckily, unlike their fathers and grandfathers, the younger generation – the millennials – are less keen to own their own vehicles. What they really want is the access to mobility in driver-less networks. They are keen to share vehicles. And with every shared vehicle, 15 vehicles are eliminated from production.

Car sharing is going to eliminate 90% of the world’s vehicles over the next 25-30 years. The remaining 200 million vehicles will be electric and fuel cell. They are going to be powered by renewable energy at nearly zero marginal cost. And there are going to be driverless systems with zero marginal labor costs.

This does not mean the end of the transportation industry. But it will require car-producing companies to change their business models if they are to remain in the game.

The Last Chance

No country can afford to waste a generation during this process. If it does, it will become a second-tier state in 20 years. In the EU a plan called Digital Europe is already there on the table. It is going to be the next part of the European Union’s journey. The EU started with the Coal and Steel Treaty. Then it formed a closer political union and moved to the Euro to create a monetary union. The next step was the creation a geographical union of 28 states. Now it is Digital Europe.

There are 500 million people in EU and 500 million people in our partnership regions around the Mediterranean. The plan is to lay out Digital Europe as infrastructure – communication, energy and transport – and then build on it – homes, offices, factories – on it as nodes. It is going to be electric-fitted, energy efficient and turned into a big data-center. Every building will have a micro power-plant in a surrounding site to generate energy. Every building will become a node for electric charging stations fuel cell outlets for automated transport stations. And all these nodes will connect. Thus millions of buildings will join up to form a new interconnected digital Europe.

China is working on similar plan called Internet Plus.

But how do we get funding for this kind of grand plan? In fact, money is not a problem as it is already there. Everyone – Europe, China or Russia – spends tens of billions of dollars on infrastructure each year. The real problem is prioritizing this investment.

Today we are investing in ‘new old’. We are pumping all these private and public funds into outdated second industrial revolution platform infrastructure – centralized telecommunication, fossil fuel nuclear power, internal combustion transport – which cannot provide more than 20% aggregate efficiency. If every country simply reprioritizes and puts a fraction of that money into the Third Industrial Revolution, the Internet of Things infrastructure, we will get there in 30 years.

We take available energy out of nature every day. And at every step we have to make conversions, we have to store it and ship it. Than we have to make something out of it, and after that to consume and recycle it. It is a value chain. At every step of this value chain we embed energy into a better service to take it to the next stage. But we lose energy in the process of transformation. That is called entropy, or heat loss

Developing countries can move there much quicker as it is far easier and less expensive to build virgin infrastructure than it is to transform an existing one. And that is why the UN Industrial Development Organization has embraced this program.

Every industry will be involved in this development. In Russia, for example, this would bring together telecom, cable and construction industries, electricity transition companies, real estate developers, transport, logistics and IT providers. They all have to be involved and lay out a smart infrastructure over 40 years.

This means bringing everyone back to work immediately to lay out a completely new energy grid across Russia, digitalize the electricity grid, and turn the transport sector into smart road, rail and water on automated GPS system. It is a huge roll-out to be started tomorrow morning. And it will pay us back in productivity gains and the energy efficiencies.

In fact, this is the only plan I know that could give us a hope – if any hope is left – of quickly addressing climate change on our planet. And it cannot be an economic plan if it is not a climate plan as well. What it does is dramatically reduce our ecological footprint and get us soft carbon-based fuels.

The ‘Plan B’ is that we don’t bother with this. Then what will happen? Can anybody tell me how stimulate the world economy? Create new opportunities for our kids? How can we address climate change? What is laid out here is not rocket science. It is a pragmatic business plan that has been shown to be possible to introduce in the EU, now in China and probably all over the world. It’s our big chance, and it might be our last chance.

Jeremy Rifkin is President of the TIR Consulting Group.
He is the principle architect of the European Union’s Third Industrial Revolution, a long-term economic sustainability plan to address the triple challenge of the global economic crisis, energy security, and climate change.

Mr. Rifkin also served as an adviser to President Nicolas Sarkozy of France, Chancellor Angela Merkel of Germany, Prime Minister Jose Socrates of Portugal, Prime Minister Jose Luis Rodriguez Zapatero of Spain, and Prime Minister Janez Jansa of Slovenia. He currently advises the European Commission, the European Parliament, and several EU and Asian heads of state.

He is the bestselling author of twenty books on the impact of scientific and technological changes on the economy, the workforce, society, and the environment.