Now that Donald Trump has pulled out of the Paris climate deal, what hope is there for addressing the more than critical issue of climate change? As discussed in one of my previous blog posts on the topic, I believe we shouldn’t despair, especially to the extent that moving towards clean energy makes sense for global companies in economic terms.
A clear impetus for global companies to move towards clean energy comes from Stanford University economist Tony Seba. In his recent report titled Rethinking Transportation 2020-2030 professor Seba forecasts that within eight years there will be no petrol or diesel cars, trucks and busses sold anywhere in the world. In other words, the entire market of land transportation will switch from fossil fuel to renewable energy. Moreover, given the technological advancement, Mr Seba argues that people will stop driving altogether, and switch to self-drive, hence, autonomous electric vehicles (AEVs), as these are much more cost efficient. According to the report data, compared to regular petroleum cars, AEVs have ten times higher vehicle-utilization rates, 500,000-mile vehicle lifetimes, a near-zero marginal cost of fuel, and far lower maintenance and insurance costs. Finally, the report forecasts an increase in the highly competitive market share of the ‘transport-as-a-service’ (TaaS) business model. Alongside already existing solutions like Uber or Lyft, on-demand autonomous electric vehicles will emerge, which will sooner or later take over the market. Given the near-zero fuel costs and high vehicle-utilization rates, TaaS companies will be able to offer services at very low costs, such that owning a vehicle personally would not make much sense to people anymore. Taken together, this scenario implies that in the near future, there will be considerably lower demand for fossil fuels, as vehicles will be electric and people will stop buying cars altogether, as using TaaS will provide a lower-cost transport alternative.
Clearly, this futuristic forecast should gain the attention of the petroleum industry, as it is basically predicting its collapse. Hence, there is a business case to start looking towards energy, instead of oil, yet, unless that is clean energy, the advent of electric vehicles doesn’t mean much in terms of climate change. On the contrary, there is a risk of not just continuing operation of coal-fired plants, but an actual increase in their activity due to greater demand for electricity. Yet, competition in the global energy market gives hope here. By now, the world seems to have reached the tipping point, where renewable energy is cheaper than coal. Hence, it makes sense for global economies, such as China and India, to move away from coal. Indeed, according to the Climate action tracker, China and India are moving towards renewable energy quicker than expected, which means gaining a competitive edge for them, and a possible economic fallout for Trump.
So, there is a need to adapt and rethink in light of the seemingly inevitable economic disruption for many global businesses and industries, such as the loss of jobs in conventional energy and transportation industries. However, the prediction of TaaS implies also ‘trillions of dollars in new business opportunities, consumer surplus and GDP growth’. As Tony Seba’s report indicates, savings on transportation costs will result in a permanent boost of household income, which will drive higher consumer spending, hence support GDP, business and jobs growth throughout the economy. Also, due to decreased transportation costs, improved mobility will positively impact access to jobs, education and healthcare, which all supports further business growth potential. Finally, linking back to where I started, there are positive environmental implications to look forward to. Alongside the renewable energy disruption, the TaaS disruption may bring us to a largely carbon-free road transportation system by 2030.
All in all, it seems that the moral considerations of climate change are backed up by technological progress and economic advantages of renewable energy, which global companies need to adapt to, unless they are willing to lose in this competitive race.