Deploying Proven Technology for Climate Change
Business model innovation is more important today than new technology innovation if we want to stave off the worst impacts of climate change.
The International Energy Agency, McKinsey & Company, the Carbon War Room, among others, have established that we have cost-effective technologies to stave off the worst impacts of climate change. Yet, instead of focusing on deployment, many proven climate change solutions are gathering dust.
To make substantial progress on thwarting climate change emissions, returning to full employment, reducing health care impacts, and protecting water resources, we need more business model innovation and less of an obsession with technology innovation. Under existing policy, proven technologies that save money can be scaled up in cogeneration, local food, small hydro, energy efficiency, vehicle conversions to natural gas, water pressure capture, industrial efficiency, livestock intensification, and energy access.
This is reminiscent of the situation in 2003 when solar technology was more than three decades old, and costs had plummeted. But solar costs were still not cheap enough to convince businesses to pay for ten years of electricity upfront.
To eliminate the upfront cost in 2003, I founded SunEdison, which popularized “no money down solar” using an adapted business model, the power purchase agreement (PPA), which attracted mainstream capital. The PPA model in solar has been replicated globally, and validated by governments, retailers like Wal-Mart, school systems, and others.
Through business model innovation and incremental technology innovation, the solar industry has grown from 1,000 megawatts per year to 40,000 megawatts expected in 2013, supporting millions of jobs around the world.
Yet today, some present the irrational argument that those proven technologies—to meet climate change goals—are not good enough to deploy at scale. The argument goes, “If they were good enough, they would have scaled already.” I see the problem differently: Technology innovation is important, but with oil at more than $100 per barrel, it is time to capture the value of existing technology through business model innovation.
Historically, business model innovation has paid back. Consider business model innovations such as Henry Ford’s assembly line, Amazon.com’s one-click purchasing, and microfinance for the poor. Alex Osterwalder, author of Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, noted, “A business model describes the rationale of how an organization creates, delivers, and captures value.”
While business models can “capture value” from climate change technologies, corporations, governments, and now some nonprofits often deliberately shun business model innovation. According to Henry Chesbrough, executive director of the Center for Open Innovation and adjunct professor at UC Berkeley’s Haas School of Business, new business model innovation “conflicts with existing assets and business models, as well as cognition in understanding these barriers.”
When we first introduced our business model innovation at SunEdison, governments, corporations, and even most nonprofits said that our model was illegal or just would not work. The model conflicted with the status quo.
Many businesses simply dismiss the deployment of proven technologies, blaming it on high cost or inability to scale. After the 1970s Arab oil crisis, there was a boom in funding tech innovations to protect the United States from future oil price shocks. From this, we invented low-weight carbon fiber, a multitude of alternative fuels, and fuel-sipping hybrids. Yet with global consumers paying $2.5 trillion more every year for gasoline and diesel today (as compared with 1999), almost everyone lacks confidence that we can deploy these technologies to reduce oil prices (and our misery).
This pessimism comes from not understanding business model innovation. Fuel sipping technologies cost more upfront, even though they save money over time. For example, hybrid technologies add to the price of a car. We need business model innovations to move past early adopters to mainstream consumers. Enter Uber, SideCar, Car2Go, ZipCar, and others. These companies appeal to consumers because they eliminate the upfront cost of buying a car. ZipCar, for example, assumes the vehicle, insurance, and fuel costs so that consumers pay just one, simple-to-understand, all-inclusive price. The new businesses make profits based on lowest lifecycle costs, and that often means using hybrid cars.
Even governments have lost faith in our ability to deploy clean technologies. Today, $100/barrel oil is crippling economies and reducing economic growth projects across the globe. The Obama administration raised fuel economy standards to 54.5 miles per gallon by 2025 to match existing standards in Japan and the European Union. While the entire G20 has already agreed to collaborate on eliminating fossil fuel subsidies, it hasn’t matched the 54.5 miles per gallon standard globally. If the G20 matched the goal, we could deploy decade-old technology at scale, reducing global demand of oil by 10 percent. The impact would cut oil prices by as much as 50 percent, saving the world more than $1.4 trillion annually.
In the end, our inability to promote business model innovation at scale holds back the largest economic opportunity of our lifetimes.
Citibank analysts recently measured this opportunity and reported that we could cost-effectively deploy $5.7 trillion of renewable electricity without raising electricity rates. It is confident in existing business model innovation led by companies like SunEdison. This alone is enough investment to help us stave off the worst impacts of climate change, according to the International Energy Agency (IEA). In total, the IEA predicts that resource efficiency and climate change solutions can be deployed at a scale of $10 trillion in new investments by 2020.
When the prize is $1.4 trillion in annual savings on oil bills, why aren’t Citibank and others just as confident in our ability to displace demand for oil using business model innovation for clean fuels?
With business model innovation, we can dust off the proven, cost-effective technologies; create millions of new jobs, reduce costly health impacts, protect our global water supply, and stave off the worst impacts of climate change.