Creative Destruction and Covid

This article is a part of the Thesis Eleven online project: Living and Thinking Crisis




by Peter Newman (Perth)

We live in a fog of possibilities as Covid continues to spread and destroy. The present crisis offers serious possibilities as well as awful threats and challenges. Policy regimes now are more potentially open to progressive change than ever before, not least with reference to climate change. After nearly 50 years of environmental activism, academic work and political involvement I can now see how the possibilities of global environmental reform, can accelerate. But this can only be realised if the economic system undergoes ‘creative destruction’.

This is not revolution as it’s a phrase coined by Joseph Schumpeter about how capitalism works, especially during and after economic collapses. He coined this term in 1939 as he analysed the impact of the Great Depression using the long-wave theory of the Russian economist Kondratieff. Creative destruction happens when the economic system collapses in such a way that the old technologies being used to generate profit and employ people can no longer continue, thus creating space for new firms and new technologies to emerge. Mostly these innovations have been waiting in the wings of the new economy but cannot be mainstreamed until the collapse of the institutional and financial supports of the old economy.

The creative destructions described by wave theorists over the past decades are set out in Figure 1:

  • the 1840’s (Hard Times, as Dickens called them) which led to Victorian Prosperity;
  • the 1890’s Great Depression which led to the Belle Epoque;
  • the 1930’s Great Crash which led to Keynesian Growth; and
  • the 1980’s Dot-Com Recession which led to the Knowledge Economy period we are now living through.

The waves of innovation that have completely changed the economic systems of cities and nations around the world are poised to change again. Or so I hope. For most of the last 40 years I have been following the writings of prophetic economists who seemed to understand these long wave theories, hoping that they would see them applied to the issues of climate change and removing our need for fossil fuels. Those writing about the next wave tended to argue that ICT and smart technologies would be the next big thing. They were right in terms of the big growth in firms like Google, Apple, Microsoft, Samsung, and so on, but until now there was no big collapse like the 1930’s. The fourth wave with its coal-fired power, freeways, car dependence, aviation and so on kept the economic system largely fossil-fuel based.

Where was the creative destruction? Perhaps these technologies were not ready, so the blip of the Dot-Com and the GFC let us seamlessly move into the knowledge-economy without significant structural change. And our cars and planes and fossil fuel power stations kept chuffing out the greenhouse gases based on an economy dominated by over-mature but very powerful industries. Perhaps it needed an apocalypse to shake that system up?

Then we turned the corner of a new decade with raging bushfires in Australia, and the unleashing of a frightening new pandemic. Could this be the crisis that would creatively lead to a new green economy as I optimistically suggested in Figure 1 and have written much about for most of this century?

Figure 1 Waves of Innovation following ‘creative destruction’ through industrial history with prospects for the future. Source: Author, based on wave theory diagrams over the past few decades.

I have been following these issues closely and now see that three significant innovations are rapidly mainstreaming:

  • Renewable power (mostly solar PV) with Li-ion batteries;
  • Electro-mobility with Li-ion batteries (especially the new electric forms of transit and micromobility); and
  • Smart city technologies (blockchain, sensors, Apps, machine learning) that enable these three to be integrated.

These three innovations form a ‘cluster’, as Schumpeter called them. They form a cluster that may indeed be the sixth wave as they are rapidly mainstreaming after being seen as slow innovations with little hope of replacing the big systems of coal-fired power, fossil fuel-based cars and associated infrastructure that fitted the scale at which they worked best: massive power grids and freeways.

The three innovations of the sixth wave are modular and can work effectively at small scale or can be scaled up where needed. They can be put to work into any new urban development, rural village, industrial estate, shopping centre, even urban slums in the developing world. They are very cheap and they enable the best of our urban civilization to thrive without any fossil fuels. They will lead to economic growth being redefined beyond fossil fuels and hopefully without poverty (as we have committed as nations to achieve by 2030 through the Sustainable Development Goals).

The IEA have begun to measure the creative destruction in the 37 nations of the OECD, where coal consumption for power has dropped 22% and renewables have grown by 20% (solar grew 16%, wind 4%). Figure 2 shows the dramatic change in the US power system. The mechanism for this is that the sudden loss of demand in the Covid downturn means that new solar and battery systems have marginal costs of zero, thus the reductions in demand must be made by fossil fuel-based power. Demand will go up again, but old power stations forced to lie idle will only hasten their phase-out and in the interim we can see that grids can work very well with solar and batteries at various scales supported by smart systems and even electric vehicles with their batteries.

Figure 2 The creative destruction to coal already evident in power consumption in the US. Source: redrawn from IEA 2020.

Similar accelerated switching is happening with electro-mobility, where rapid growth is now happening with electric cars, electric buses, Trackless Trams, and electric micro-mobility (skate boards, scooters, bikes), which were particularly favoured for local active transport in the pandemic lockdowns. The return of motor vehicles into cities quickly reminded us how easily urban roads fill and the big need for better public transport, local walking/cycling, and more stay-at-home digital meetings. Many cities in Europe took the Covid opportunity to make more space for walking/cycling and plans for better transit.

So is this fossil fuel-free future just going to happen anyway? No. It can be stopped by inept, misguided or corrupt governments and other interventions. The zero-carbon future complete with strong employment growth, will still need choices to be made. There are two groups that can destroy the creative destruction or put it off long enough to ensure this new economic growth is stunted. I am calling them misguided governments and fringe issue academic lobbyists.

Misguided Governments

The NGO alliance group Energy Tracker has been analysing what the G20 nations have committed to spend on their recovery plans. US$151 billion has been earmarked to prop up fossil fuel systems, compared to US$89 billion on clean energy systems. The collapse of many companies like aviation or power stations presents governments with a chance to put in immediate funds to staunch the economic blood flow. But it is more sensible to creatively seek out how the future economy can be helped rather than propping up the old one.

There are still governments who want to save coal as they know its past role in creating modern economies with their electrification of homes, businesses and industries which provided the huge economic growth of the 20th century. Now that solar and wind are clearly cheaper, coal’s rallying cry is that we must have it as base load power because the sun always goes down and wind can stop blowing. As well as coal for base load, we must have gas for peak loads in the early evening when renewables are unable to suddenly ramp up. Small gas turbines have been used for past decades to quickly provide the peak loads demanded by communities at dinner time.

However the last years have seen a dramatic turnaround as power grids have begun to phase out coal for base load in Europe, America and even Australia. The UK which invented coal-fired power hardly needs them at all anymore and the last one is to be phased out in a few years. Smart systems with combinations of renewables and well-placed batteries/storage are working well. Around the corner we have new opportunities for large scale batteries and EV’s that can also help as the last coal is phased out.

In Australia we are facing a ‘gas-led recovery’ according to the Australian Government’s Covid Commission, led by a captain from the gas industry. This is despite clear evidence that gas is not needed in the power system, as solar is much cheaper and batteries can now be built to provide the peak power and grid stability. The large battery built in South Australia by Tesla has paid for itself in 2 years and is able to respond to grid variability in micro-seconds, whereas gas turbines take 6 seconds. Gas exports are struggling like oil companies now that their systems of growth are being undermined.

Big Roads designed for the fourth wave of innovation are still rolling out of government road agencies and are ‘shovel ready’. But ready for what? They are ready because these agencies are stuck in old ways following manuals written 50 years ago. They have plenty of plans but desperately need billions to make roads that really lost most of their tarnish back in the 20th century. Rebuilding and refurbishing transit systems and the new infrastructure for electromobility is the new agenda.

If we start subsidizing such coal, gas and road recovery projects we will be bouncing backwards, not forwards. And it will be a long way back that will simply make us uncompetitive in a global economy dominated by carbon free power and fuel. Funds for infrastructure need to be about distributed power systems with battery storage and electro-mobility with battery-based recharge systems. These are now market ready and the technical and professional systems in our cities need to mainstream them with governments helping them rather than the old guard. They need to help develop the new manuals after the creative destruction of the old ones.

Fringe Issue Academic Lobbyists

Eighty percent of the fossil fuels in our global economy can now be removed in a decade quite cheaply and create far more new jobs solving both climate change and the potential for solving the looming issues of greater poverty. However, there is another way that this future can be slowed down or stopped: confusing the options. The confusion of options is what the big companies who have most to lose, are hoping for.

We have had a long period of researchers pushing to win funding for their latest system that can solve the problems of fossil-fuel dependence. Creative destruction is about new futures and Covid creates a big chance to push all kinds of solutions. It is good to have options, but if they just create a fog of confusion then we end up not moving forward to the new economy.

In the IPCC we have to evaluate what the literature is suggesting are options for the future in terms of mitigating climate change. We also see many papers and commentators lobbying heavily for options that are clearly linked to the fossil fuel industry. Even though they are now fringe issues they are sometimes being presented as possible options that must be considered. The overall effect is to confuse governments who then produce their lists of potential solutions and because they do not like to ‘pick winners’ they leave decisions and strategies until the options are clearer.

Australia’s Chief Scientist has created a Technology Investment Roadmap with a huge number of options being presented. Rather than leading to a ‘roadmap’ for politicians it has just been put on the side while the ‘gas recovery’ is pushed quietly through the system. There appears to be a lack of recognition that solar, batteries, EVs with smart city integration no longer need to be invented, they just need to be scaled up. A roadmap for this is definitely needed as politicians and the public remain confused by ‘options’ and the big companies with heavy investments at stake make sure that government and investors know that the future is ‘unclear’.

The investment markets have much clearer assessments and for the next 10-20 years it is solar-batteries-EVs-smart systems which they identify as leading the innovation curve. Any questions to Bloomberg or other financial analysts will come up with this cluster of innovations as a very clear answer to what economies now need to build around. But such investors need the infrastructure to be given some certainty. Governments play a key role in infrastructure and if they are confused then they can undermine the certainty required to take the necessary risks and move ahead in the new economy. The myriad of competing options should now be seen as myths, at least for the next 10-20 years, and at least in our cities. We now know what to do.

The most influential myth is that of the Hydrogen Economy, which illustrates the confusion still being generated. This is an idea suggested 50 years ago as the fix that would create a new fossil fuel-free economy. I have in the past been a supporter of this possibility. But once it became clear that solar and Lithium-Ion batteries dramatically rewrote the book of the future, I wondered what the future would be for Hydrogen. Something or nothing?

In fact it is ‘something’ as the other 20% of fossil fuels can be removed by Hydrogen. But it is a rural and regional fuel for industrial processing and long-haul transport, it is not an urban fuel.

Ross Garnaut addressed this issue in his book Superpower where he argues for Hydrogen as the fuel for rural and remote regions where much space and sun exists as well as the resources that need to be processed. He suggests that Australia, and other places with minerals, space and sunshine, can move quickly to provide Hydrogen from solar-based electrolysis of water and use this to refine minerals. In the Australian Pilbara iron ore refining using Hydrogen could create potentially 400,000 jobs. He further suggests that Australia can export Hydrogen to Japan and Korea as they seek to decarbonize their refineries. So, there is a future for Hydrogen.

However, the confusion is being created because the Hydrogen Economy proponents want it to be the fuel of everything, including transport. Backed by fossil fuel companies, the Hydrogen enthusiasts want to suggest that we should not pursue Li-ion Battery Electric Vehicles (BEV), we should wait for Hydrogen Fuel Cell Vehicles (HFCV).

There is a problem in waiting as we will not be able to use the creative destruction processes of recovery to build our economy around what is now cleaner, cheaper and better for our cities. There is also a fundamental problem with trying to make Hydrogen work in our cities.

Producing Hydrogen takes a great deal of space. It takes three times the space in solar cells compared to using solar PV directly for its power or putting its excess power directly into a Li-ion battery. The process of electrolysing water and distributing the Hydrogen before it can be used wastes a great deal of energy (and space). Why not put this energy directly to work in power and transport? BEV’s are already three times cheaper than HFCV’s?  In cities we need the rooftop space for the PV cells directly being used. It is a waste of space and energy and money to take the extra steps for Hydrogen and then have to distribute it, when we already have power grids. But Hydrogen proponents are like fundamentalists holding fast to what seems like a pure solution, even after it has been superseded.

The issue is not that scientists and community activists shouldn’t have strong views about the transition path ahead, it’s just that the resulting confusion is being used to stop action to phase out fossil fuels. The BEV solution is already part of the sixth wave and the markets for them are dramatically growing. But many governments are not sure, they are confused, ‘maybe we should wait’ … This is exactly what the fossil fuel industry want governments to do.

We need the new cluster of innovations to be delivered into the mainstream, now. The remarkably cost effective solar-batteries-EV’s-smart city innovations are rapidly accelerating but can be stopped. The cluster works, they are clean, they are popular, they can be the backbone of the new economy, they are needed now. There is no confusion. The cities and regions that choose this future will indeed enable a better future to emerge from the Covid collapse.

Can the existing political culture follow the public, NGOs, many business groups and investors to see that a new economy can quickly emerge based around the urban cluster of solar-batteries-EV’s-smart city technologies and the Hydrogen solution in rural and regional areas? They should not put another cent into the old economy of fossil fuels and they should not be confused by the fog created from fringe issue academic lobbyists who are being used by old economy strategists seeking to prolong their inevitable ‘creative destruction’.

Biography

Peter Newman is the Professor of Sustainability at Curtin University in Perth, Australia. Peter is an academic who has written 20 books and over 350 papers on sustainable cities with a global reputation and has worked to deliver his ideas in all levels of government. Peter has worked in local government as an elected councillor in Fremantle, in Western Australia’s state government as an advisor to three Premiers and in the Australian Government on the Board of Infrastructure Australia and the Prime Minister’s Cities Reference Group. He is the Co-ordinating Lead Author for the UN’s IPCC on Transport. In 2014 he was awarded an Order of Australia for his contributions to urban design and sustainable transport particularly for his work in saving and rebuilding Perth’s rail system. In 2018/19 he was the WA Scientist of the Year. He is the Editor-in-Chief of the Springer journal, Sustainable Earth. Email: p.newman@curtin.edu.au Twitter: @PeterNewmanCUSP

Feature image: Network of Stoppages, Marcel Duchamp (1914)

10 thoughts on “Creative Destruction and Covid

  1. Thank you for the clarifiers on technology paths and also on H2 – except that there is no confusion there. It is historically a coal derived technology and is now being pushed broadly to keep fossil resources (and, in other countries, nuclear energy ) in the system, precisely because it is here where the surplus power is generated, not in renewables. Also, hydrogen may be fine for industrial, heavy transport and similar uses, but here it is not the only potential renewable storage medium there is.

    A view from Europe: https://www.climatechangenews.com/2020/06/17/eu-make-big-push-hydrogen-despite-green-concerns-infrastructure-gaps/

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