Every great change in economic history has been brought about by technological innovations that in turn have profoundly altered economic relationships. In the earlier middle ages the technology was the labour of the peasants, and the relationship that of feudal fealty. The age of mercantilism was ushered in by wind and water mills and the relationship was that of the mercantile bond. It had to be shouted out in the market place so that bystanders could hear and witness, and even today we still call somebody who sees that finances are in order an auditor. Next up, steam machines and locomotives brought about the first industrial revolution. The defining relationship now was that between the factory owner and the worker who was paid as little as possible. The essential fuels and technologies of the second industrial revolution, at the end of the nineteenth century, were oil, electricity, the telegraph and then the telephone, and the automobile. This was the age of the few competing huge industrial giants, Standard Oil, Chrysler and Ford for example in the earlier part of the twentieth century, Exxon Mobil, Apple and Google in the later. Now workers were not only important for their power to work, but equally, so that the abundance that these megalopolies produced could be sold, for their ability to consume. So now they had to be provided with disposable income and wooed by ubiquitous advertising. We are on the brink of another such great re-ordering of both technology and behaviour.
The technological change will be from oil to renewables. Indeed, were it not that governments seek to delay it as long as possible it would already be in full swing. It will be characterized by three features which will distinguish it from its predecessors. One is the extraordinary swiftness with which, if they were left to themselves, market forces would bring it about. Unfortunately, though, the last thing those who talk endlessly about free trade want is free trade. (but that’s material for another blog). At even a fraction of the expenditure which is necessary to maintain oil or any other transport – the state pays for roads – we would all have been driving electric cars long since. It costs only a few pence to drive a hundred miles in an electric car, but nobody buys them because there are so few re-charging points. More charge points, please George, have you seen the future? The oil economy is being squeezed from both ends. On the one hand oil is becoming ever more costly to extract. On the other, once the technology has been paid for, the raw materials of renewables are free and its production costs minimal. Whereas oil has to be transported thousands of miles in huge tankers, transmission of electricity is instantaneous and free of charge. Nuclear is so costly from an economic point of view, in today’s environment it doesn’t even begin, although unfortunately, because of the blindness of the Government a new generation of nuclear power stations, white elephants already groaning under the weight of bullion on their backs, already has. Renewables are only expensive now because we are still in the phase of paying for their installation. But surely in the not very much longer term even that fabled accountant, a ten year old child, could see that in terms of marginal cost renewables are almost ridiculously much the best bet.
The second feature that distinguishes, and will perhaps fatally delay, the new technological revolution is investment in oil. The five big oil companies were so confident that nothing decisive would be decided at Paris, between them they have recently committed over a trillion dollars to opening new oil fields in the next decade. The scientists tell us that to avoid catastrophic global warming we need to leave 80% of known oil reserves in the ground. But much of that undrilled oil has already been sold on the futures markets. If it is left in the ground the financial losses will be astronomic. Every government, bank and pension fund in the world will stagger and in many cases fall. That is why every government sees it as a prime duty to ensure that so vast a loss does not happen. So here’s a pretty dilemma. Every government knows that renewable technology will and should come. But then there’s this immense financial loss. So what do you do? The answer is Paris (it was ‘historic’ ‘a game changer’). On the one hand, to much mutual congratulation and back slapping it was agreed that now everybody accepts climate change is important, even the United States, even the Chinese (even a modest whisper from the normally raucous voiced Australians). But on the other no decisive immediate action but vague future promises. The participants were after all politicians. Make me chaste Lord but not yet.
The third extraordinary circumstance which is accompanying the birth of this new economic order is climate change. We are faced with the gravest problem that has ever happened in the whole of human history. The warnings that the scientists are now giving us are so grave (but then what do most of them know about it? The Daily Mail and the man I met in the pub said something quite different) they utterly appal the mind. According to the Meinshausen calculations, which most scientists accept, to have an almost certain chance of avoiding climate catastrophe, after 2009 we can only afford to burn another 565 gigatonnes of carbon. To have a 66% chance we can only burn 1000 tonnes after 2011. Since we are currently burning more than 30G a year and rapidly heading towards 40, that gives us about twenty years to save the planet. And since it will be so difficult to turn round the vast carbon machine of the world and it cannot be done overnight, we need to start getting rid of fossil fuels now, today. The next decade will be the most important in the whole of human history. On the one hand an immense global catastrophe, on the other the immensely exciting zero marginal cost society of the future that it is in our power to bring about (that too a subject for another blog). So what do the Government do as soon as they come back so pleased with themselves from Paris? Give permission for fracking to happen in national parks and cut subsidies for renewables. Well of course we did, said Amber Rudd, the cost of renewables has fallen. We’re all going to cook I’m afraid, for Cameron and Osborne still think as if they had walked straight out of The Forsyte Saga. Not only are they failing to take the decisive action that is needed on climate. They are ensuring that the UK gets left far behind in the economy of the future. Germany is expected to be powering 30% of its electricity need from renewables by 2020. On one sunny day in June 2013 half the country’s whole electricity use was generated, much of it from domestic rooftops, for free. Whereas us? Stuck with expensive oil and gas installations and nuclear power plants to go on and on paying for. Would Luddites be the term?