The End of Growth: Adapting to Our New Economic Reality (30 page)

Lovins has advocated a “negawatt revolution,” arguing that utility customers don’t want kilowatt-hours of electricity; they want energy services — and those services can often be provided in far more efficient ways than is currently done. In 1994, Lovins and his colleagues initiated the “Hypercar” project, with the goal of designing a sleek, carbon fiber-bodied hybrid that would achieve a three- to five-fold improvement in fuel economy while delivering equal or better performance, safety, amenity, and affordability as compared with conventional cars. Some innovations resulting from Hypercar research have made their way to market, though today hybrid-engine cars still make up only a small share of vehicles sold.

While his contributions are laudable, Lovins has come under criticism for certain of his forecasts regarding what efficiency would achieve. Some of those include:

• Renewables will take huge swaths of the overall energy market (1976);

• Electricity consumption will fall (1984);

• Cellulosic ethanol will solve our oil import needs (repeatedly);

• Efficiency will lower energy consumption (repeatedly).
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The reality is that renewables have only nibbled at the overall energy market; electricity consumption has grown; cellulosic ethanol is still in the R&D phase (and faces enormous practical hurdles to becoming a primary energy source, as discussed above); and increased energy efficiency, by itself, does not appear to lower consumption due to the well-studied rebound effect, wherein efficiency tends to make energy cheaper so that people can then afford to use more of it.
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Once again: energy efficiency is a worthy goal. When we exchange old incandescent light bulbs for new LED lights that use a fraction of the electricity and last far longer, we save energy and resources — and that’s a good thing. Full stop.

At the same time, it’s important to have a realistic understanding of efficiency’s limits. Boosting energy efficiency requires investment, and investments in energy efficiency eventually reach a point of diminishing returns. Just as there are limits to resources, there are also limits to efficiency. Efficiency can save money and lead to the development of new businesses and industries. But the potential for both savings and economic development is finite.

Let’s explore further the example of energy efficiency in lighting. The transition from incandescent lighting to the use of compact fluorescents is resulting in dramatic efficiency gains. A standard incandescent bulb produces about 15 lumens per Watt, while a compact fluorescent (CFL) can yield 75 l/w — a five-fold increase in efficiency. But how much more improvement is possible? LED lights currently under development should deliver about 150 l/w, twice the current efficiency of CFLs. But the theoretical maximum efficiency for producing white light from electricity is about 300 lumens per Watt, so only another doubling of efficiency is feasible once these new LEDs are in wide use.
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Moreover, energy efficiency is likely to look very different in a resource-and growth-constrained economy from how it does in a wealthy, growing, and resource-rich economy.

Permit me to use the example of my personal experience to illustrate the point. Over the past decade, my wife Janet and I have installed photovoltaic solar panels on our suburban house, as well as a solar hot water system. In the warmer months we often use solar cookers and a solar food dryer. We insulated our house as thoroughly as was practical, given the thickness of existing exterior walls, and replaced all our windows. We built a solar greenhouse onto the south side of the house to help collect heat. And we also bought a more fuel-efficient small car, as well as bicycles and an electric scooter.

All of this took years and lots of work and money (several tens of thousands of dollars). Fortunately, during this time we had steady incomes that enabled us to afford these energy-saving measures. But it’s fair to say that we have yet to save nearly enough energy to justify our expenditures from a dollars-and-cents point of view. Do I regret any of it? No. As energy prices rise, we’ll benefit increasingly from having invested in these highly efficient support systems.

But suppose we were just starting the project today. And let’s also assume that, like millions of Americans, we were finding our household income declining now rather than growing. Rather than buying that new fuel-efficient car, we might opt for a 10-year-old Toyota Corolla or Honda Civic. If we could afford the PV and hot water solar systems at all, we would have to settle for scaled-back versions. For the most part, we would economize on energy just by cutting corners and doing without.

The way Janet and I pursued our quest for energy efficiency helped America’s GDP: We put people to work and boosted the profits of several contractors and manufacturing companies. The way people in hard times will pursue energy efficiency will do much less to boost growth — and might actually do the opposite.

What was true for Janet and me is in many ways also true for society as a whole. America could improve its transportation energy efficiency dramatically by investing in a robust electrified rail system connecting every city in the nation.
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Doing this would cost roughly $600 billion, but it would lead to dramatic reductions in oil consumption, thus lowering the US trade deficit and saving enormous amounts in fuel bills. At the same time, the US could rebuild its food system from the ground up, localizing production and eliminating fossil fuel inputs wherever possible. Doing so would increase the resilience of the system, the health of consumers, and the quality of the environment, while generating millions of employment or business opportunities.
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The cost of this food system transition is difficult to calculate accurately, but it would no doubt be substantial.

However, the nation would be getting a late start on these efforts. We could fairly easily have afforded to do these things over the past few decades when the economy was growing. But building highways and industrializing and centralizing our food system generated profits for powerful interests, and the vulnerabilities we were creating by relying increasingly on freeways and big agribusiness were only obvious to those who were actually paying attention — a small and easily overlooked demographic category in America these days. As oil becomes more scarce and expensive, more of the real costs of our reliance on cars and industrial food will become apparent, but our ability to opt for rails and local organic food systems will be constrained by lack of investment capital. We will be forced to adapt in whatever ways we can afford. Where prior investments
have
been made in efficient transport infrastructure and resilient food systems, people will be better off as a result.

To the degree that energy efficiency helps us
adapt
to a shrinking economy and more expensive energy, it will be essential to our survival and well being. The sooner we invest in efficient ways of meeting our basic needs the better, even if it entails short-term sacrifice. However, to hope that efficiency will produce a continuous reduction in energy consumption while simultaneously yielding continuous economic growth is unrealistic.

Business Development: The Cavalry’s on the Way

A remarkable book appeared in 2004 to almost no fanfare and little critical notice. The author was Mats Larsson, a Swedish business consultant, and his book was titled
The Limits of Business Development and Economic
Growth
.
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Unlike the thousands of business books published each year that promise to help managers become more effective, or that hint at new opportunities for profit, Larsson’s conveyed a sobering message — one that the business community evidently didn’t want to hear: Our human ability to invent genuinely new activities is probably limited, and most recent inventions have consisted merely of finding ways to speed up activities that humans have been performing for a very long time — communicating, transporting themselves and their goods, trading, and manufacturing. These processes can only be taken to the limits where things can be done at almost no time and at a very low cost, and we are fast approaching those limits.

“Through centuries and millennia,” Larsson writes, “humans have struggled to simplify production and make tools and products less expensive and easier to manufacture.” Possible examples are legion from virtually every industry — from telecommunications to air travel. “Now we are finally in a situation where many things can be done in close to no time and at a very low cost.”
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He goes on:

[A]t close scrutiny we do not seem to have done anything except gradually automate activities that human beings have been performing for a few hundred, and sometimes thousand, years already. The development of a large number of different technologies that help us to automate these tasks has driven economic development and business proliferation in the past. Now, technological progress is at the stage where a number of these technologies and products have been developed to a point where we cannot realistically expect them to develop much further. And, despite widespread belief of the opposite, we cannot be certain that there are enough new products or technologies left to be developed for companies to be able to make use of the resources that are going to be freed from existing industries.
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For the skeptical reader such sweeping statements bring to mind the reputed pronouncement by IBM former president Tom Watson in 1943, “I think there is a world market for maybe five computers.” Fortunes continue to be made from new products and business ideas like the iPad, Facebook, 3D television, BluRay DVD, cloud computing, biotech, and nanotech; soon we’ll have computer-controlled 3D printing. However, Larsson would argue that these are in most cases essentially extensions of existing products and processes. He explicitly cautions that he is not saying that further improvements in technology and business are no longer possible — rather that, taken together, they will tend to yield diminishing returns for the economy as a whole as compared to innovations and improvements years or decades ago.

Fundamentally new technologies, products, and trends in business (as opposed to minor tweaks in existing ones) tend to develop at a slow pace. “Many of the big, resource-consuming trends of the near past are soon coming to an end in terms of their ability to attract investment and cover the cost of resources for development, production, and implementation.”

Back in the late 1990s business was buzzing with talk of a “new economy” based on e-commerce. Internet start-up companies attracted enormous amounts of investment capital and experienced rapid growth. But while e-commerce flourished, many expectations about profit opportunities and rates of growth proved unrealistic.

Automation has reached the point where most businesses need dramatically fewer employees. “Presumably, this should make companies more profitable and increase their willingness to invest in new products and services,” writes Larsson. “It does not. Instead, there is competition between more and more equal competitors, and all are forced to reduce prices to get their goods sold. The advantages of leading companies are getting smaller and smaller and it is becoming ever more difficult to find areas where unique advantages can be developed.”
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Regardless of the industry, “Most companies tend to use the same standard systems and more and more companies arrive at a situation where time and cost have been reduced to a minimum.”
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It is bitterly ironic that so much success could lead to an ultimate failure to find further paths toward innovation and earnings.

Larsson estimated in 2004 that impediments to business development would begin to appear in the decade 2005–2015. His analysis did not take into account limits to the world’s supplies of fossil fuels, nor declines worldwide in the amount of energy returned on efforts spent in obtaining energy. Neither did he examine limits to debt or declining ore quality for minerals essential to industry.
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Remarkably, though, his forecast — based entirely on trends within business — points to an expiration date for global growth that coincides with forecasts based on credit and resource limits. This convergence of trends may not be merely coincidental: after all, automation is fed by cheap energy, and business growth by debt. Limits in one area tighten further the restrictions in others.