CHAPTER TWO

A NEW NARRATIVE

The economy is always a confidence game. While we used to think of commerce and trade as being backed up by gold or silver, in reality, it has always been backed up by a more important reserve—public trust. When that trust is robust, the economy flourishes, and the future beckons us forward. When the public trust is shattered, economies fail and the future dims.

Has America lost its mojo? It seems that everywhere we turn, we are at each other’s throat, carping and whining, playing the blame game, replaying old slights and hurts, boorishly reminiscing about the good old days, eulogizing the greatest generation, romanticizing the 1960s generation of peace and love, and disparaging every generation since—the selfish, over-empowered generation X, and the facile, hyperactive, distracted millennial generation. A nation that obsessively relives the past, complains incessantly about the present, and laments a future that is not yet here needs to “get a life,” as the kids might say.

President Barack Obama was swept into the White House, in part because, for just the briefest moment of time, he was able to lift the spirit of the American people out of the doldrums of despair and rally the collective consciousness of a nation to the idea that we can do better. He gave Americans, especially the young, a feeling of hope, crystallized in three spiffy words: “Yes we can.”

Unfortunately, no sooner had the young president settled into the White House than he squandered the most delicate and precious asset any leader possesses—the ability to unite people behind a common vision of a better future. To be fair, I have seen this phenomenon over and over in my dealings with heads of state. They come into office on fire with ambitious visions of the future, only to succumb to the daily slog of putting out little fires.

On his first day in office, President Obama turned immediately to the issue of resuscitating the economy. His administration latched on to the idea of bundling economic recovery with the two other critical challenges facing the country—energy security and climate change. The president began to talk up the prospect of a green economy and how it would create thousands of new businesses and millions of new jobs.

The message resonated with many members of Congress. But the reason an overarching new economic game plan has never been rolled out is not just because we need to cut back public spending and reduce government deficits, but because the administration is missing, to quote former president George W. Bush, the “vision thing.”

Whenever President Obama mentions his green economic recovery, he rattles off a laundry list of programs and initiatives his administration is either doing or proposing. And there are real dollars behind these initiatives. The federal government has already committed $11.6 billion for energy efficiency, $6.5 billion for renewable energy generation (primarily wind and solar), $4.4 billion for grid modernization to develop a smart grid, and $2 billion to advance battery technology for electric plug-in and fuel cell vehicles.1 The president also takes every opportunity to visit a solar or wind turbine park, a factory manufacturing solar panels, or a car company testing electric vehicles to demonstrate his sincere commitment to a green economic future.

What Obama is lacking is a narrative. We are left with a collection of pilot projects and siloed programs, none of which connects with the others to tell a compelling story of a new economic vision for the world. We’re strapped with a lot of dead-end initiatives—wasting billions of dollars of taxpayer money with nothing to show for it.

The man who inspired a nation to greatness during his election campaign, suddenly morphed into a caricature of the Washington policy wonk, droning on about the latest technology breakthroughs without any sense whatsoever of how they might fit together as part of a larger story. If President Obama clearly understood the underlying dynamics of the next great Industrial Revolution, he might have been able to sell the American public on a comprehensive economic plan for the country’s future.

When Brussels began to take a serious look at a new sustainable economic vision for the European Union back in 2002, it faced the same problem of being awash in sentences but lacking a story line.

The story line begins with an understanding that the great economic transformations in history occur when new communication technology converges with new energy systems. The new forms of communication become the medium for organizing and managing the more complex civilizations made possible by the new sources of energy. The infrastructure that emerges annihilates time and shrinks space, connecting people and markets in more diverse economic relations. When those systems are put in place, economic activity advances, moving along a classic bell-shaped curve that ascends, peaks, plateaus, and descends in tandem with the strength of the multiplier effect established by the communications-energy matrix.

Infrastructure, at the deepest level, is not a static set of building blocks that serves as a kind of fixed foundation for economic activity as we’ve come to regard it in popular economic lore. Rather, infrastructure is an organic relationship between communications technologies and energy sources that, together, create a living economy. Communication technology is the nervous system that oversees, coordinates, and manages the economic organism, and energy is the blood that circulates through the body politic, providing the nourishment to convert nature’s endowment into goods and services to keep the economy alive and growing. Infrastructure is akin to a living system that brings increasing numbers of people together in more complex economic and social relationships.

The introduction of steam-powered technology into printing transformed the medium into the primary communications tool to manage the First Industrial Revolution. The steam printing machine with rollers, and later the rotary press and linotype, greatly increased the speed of printing and significantly reduced the cost. Print material, in the form of newspapers, magazines, and books, proliferated in America and Europe, encouraging mass literacy for the first time in history. The advent of public schooling on both continents between the 1830s and 1890s created a print-literate workforce to organize the complex operations of a coal-powered, steam-driven rail and factory economy.

In the first decade of the twentieth century, electrical communication converged with the oil-powered internal combustion engine, giving rise to the Second Industrial Revolution. The electrification of factories ushered in the era of mass-produced goods, the most important being the automobile. Henry Ford began to manufacture his gasoline-powered Model T car, altering the spatial and temporal orientation of society. Virtually overnight, millions of people began to trade in their horses and buggies for automobiles. To meet the increased demand for fuel, the nascent oil industry revved up exploration and drilling, making the United States the leading oil producer in the world. Within two decades, cement highways were laid out across vast stretches of the American landscape and American families began relocating in new suburban communities that only a few years earlier were isolated rural hamlets. Thousands of miles of telephone lines were installed, and later radio and television were introduced, recasting social life and creating a communication grid to manage and market the far-flung activities of the oil economy and auto age.

Today, we are on the cusp of another convergence of communication technology and energy regimes. The conjoining of Internet communication technology and renewable energies is giving rise to a Third Industrial Revolution (TIR). In the twenty-first century, hundreds of millions of human beings will be generating their own green energy in their homes, offices, and factories and sharing it with one another across intelligent distributed electricity networks—an intergrid—just like people now create their own information and share it on the Internet.

The music companies didn’t understand distributed power until millions of young people began sharing music online, and corporate revenues tumbled in less than a decade. Encyclopedia Britannica did not appreciate the distributed and collaborative power that made Wikipedia the leading reference source in the world. Nor did the newspapers take seriously the distributed power of the blogosphere; now many publications are either going out of business or transferring much of their activities online. The implications of people sharing distributed energy in an open commons are even more far-reaching.

THE FIVE PILLARS OF THE THIRD INDUSTRIAL REVOLUTION

The Third Industrial Revolution will have as significant an impact in the twenty-first century as the First Industrial Revolution had in the nineteenth century and the Second Industrial Revolution in the twentieth century. And just as in the two former industrial revolutions, it will fundamentally change every aspect of the way we work and live. The conventional top-down organization of society that characterized much of the economic, social, and political life of the fossil fuel–based industrial revolutions is giving way to distributed and collaborative relationships in the emerging green industrial era. We are in the midst of a profound shift in the very way society is structured, away from hierarchical power and toward lateral power.

Like every other communication and energy infrastructure in history, the various pillars of a Third Industrial Revolution must be laid down simultaneously or the foundation will not hold. That’s because each pillar can only function in relationship to the others. The five pillars of the Third Industrial Revolution are (1) shifting to renewable energy; (2) transforming the building stock of every continent into micro–power plants to collect renewable energies on site; (3) deploying hydrogen and other storage technologies in every building and throughout the infrastructure to store intermittent energies; (4) using Internet technology to transform the power grid of every continent into an energy-sharing intergrid that acts just like the Internet (when millions of buildings are generating a small amount of energy locally, on site, they can sell surplus back to the grid and share electricity with their continental neighbors); and (5) transitioning the transport fleet to electric plug-in and fuel cell vehicles that can buy and sell electricity on a smart, continental, interactive power grid.

The critical need to integrate and harmonize these five pillars at every level and stage of development became clear to the European Union in the fall of 2010. A leaked European Commission document warned that the European Union would need to spend €1 trillion between 2010 and 2020 on updating its electricity grid to accommodate an influx of renewable energy. The internal document noted that “Europe is still lacking the infrastructure to enable renewables to develop and compete on an equal footing with traditional sources.”2

The European Union is expected to draw one-third of its electricity from green sources by 2020. This means that the power grid must be digitized and made intelligent to handle the intermittent renewable energies being fed to the grid from tens of thousands of local producers of energy.

Of course, it will also be essential to quickly develop and deploy hydrogen and other storage technologies across the European Union’s infrastructure when the amount of intermittent renewable energy exceeds 15 percent of the electricity generation, or much of that electricity will be lost. Similarly, it is important to incentivize the construction and real estate sectors to encourage the conversion of millions of buildings in the European Union to mini power plants that can harness renewable energies on site and send surpluses back to the smart grid. And unless these other considerations are met, the European Union won’t be able to provide enough green electricity to power millions of electric plug-in and hydrogen fuel cell vehicles being readied for the market. If any of the five pillars fall behind the rest in their development, the others will be stymied and the infrastructure itself will be compromised.

The European Union set out with two goals in mind at the beginning of the current century—transforming itself into a sustainable, low-carbon emission society and making Europe the world’s most vibrant economy. Becoming a low-carbon emission economy means shifting from a Second Industrial Revolution run on fossil fuel energies to a Third Industrial Revolution run by renewable energies. While a considerable task, we should keep in mind that the transformation of the European and American economies from wood-based fuels to coal-powered steam technologies took place over a half century, as did the shift from coal and steam-powered rail technology to an oil, electricity, and auto economy. These historical trends should give us some confidence that the transition to a renewable energy era should be possible in a comparable time frame.

Finding the new Third Industrial Revolution narrative wasn’t easy. As every author knows, having a story line is just the beginning. It’s then necessary to develop the narrative. A good narrative is an organic process that builds on itself and begins to take on a life of its own, often leading an author in directions he hadn’t anticipated. In this case, the story line—the convergence of Internet communication technology and renewable energies—led us to each of the five pillars that together make up the interactive narrative of a Third Industrial Revolution. The search for the story took us on a remarkable journey, with a number of surprising twists and turns along the way.

GOING FOR GREEN ENERGY

In 2000 and 2001 there was already serious discussion in Europe about setting a target of 20 percent renewable energy generation by 2020. This would mean that 30 percent of the electricity would be coming from green energy sources by the end of the second decade of the twenty-first century. Pillar 1—the shift to 20 percent renewable energies—became a benchmark.

The transition to a new renewable energy system is coming much quicker than anyone had anticipated just a few years ago. The price of conventional fossil fuels and uranium continue to rise on world markets as they become increasingly scarce. The costs are compounded by the rising externalities brought on by CO₂ emissions, which is having a dramatic negative effect on the climate of the planet and the stability of the Earth’s ecosystems.

Meanwhile, the price of the new green energies is falling rapidly due to new technology breakthroughs, early adoption, and economies of scale. The cost of photovoltaic (PV) electricity is expected to decline at a rate of 8 percent a year, halving the cost of generation every eight years.3 With electricity rates expected to rise by a moderate 5 percent, it is estimated that PV will reach grid parity across all European markets by 2012 (grid parity means that the cost of generating electricity from alternative sources will be the same or less than the cost of generating conventional power from fossil fuels or nuclear sources).4

The growing differential between the rising costs of the old fossil fuel energies and the declining cost of renewable energies is setting the stage for an upheaval of the global economy and the emergence of a new economic paradigm for the twenty-first century. The commercial growth in solar and wind technology is reminiscent of the dramatic growth in personal computers and Internet use. The first personal computers were introduced into the mass market in the late 1970s. By 2008, there were more than one billion.5 Similarly, the number of Internet users more than doubled in the first decade of the twenty-first century, reaching two billion in 2010.6 Now, solar and wind installations are doubling every two years and are poised to follow the same trajectory as personal computers and Internet use over the next two decades.7

However, the old energy industries continue to be a powerful force, primarily because of deep pockets that help them influence the shaping of government energy policies. Government subsidies and other forms of favoritism artificially prop up the aging energy sector, giving it an unfair advantage over the new green energy industries. While the oil, coal, gas, and nuclear industries begrudgingly concede that green energies are ascending, they argue that they are too soft and insufficient to ever run a global economy, and will at best serve as supplements to fossil fuels and nuclear power. Their argument, however, doesn’t hold up under scrutiny.

Scientists point out that one hour of sunlight provides enough power to run a global economy for a full year.8 In the European Union alone, 40 percent of the roofs and 15 percent of all the building facades are suitable for photovoltaic applications. The European Photovoltaic Industry Association (EPIA) estimates that the installation of PVs on all existing viable building surfaces could generate 1,500 gigawatts of power, covering 40 percent of the total electricity demand in the European Union.9

In a 2007 study reported in Scientific American, researchers calculated that if only 2.5 percent of the solar irradiation found in the southwest region of the United States were converted to electricity, it would equal the nation’s total electricity consumption in 2006. The study concluded that the same region could provide 69 percent of US electricity and 35 percent of the country’s total energy by 2050.10

Europe is currently far ahead of the rest of the world in solar energy, accounting for 78 percent of all the installed photovoltaic power in 2009, with Japan, the United States, and China significantly further behind.11

In 2009, more wind power was installed in the European Union than any other power source—making up 38 percent of the total deployment of new energy. The industry, which currently employs nearly 200,000 workers across the European Union and generates 4.8 percent of the electricity, is forecasted to provide nearly 17 percent of the electricity for the European market by 2020 and 35 percent of all the electricity in Europe by 2030, when it will have a workforce of nearly half a million people.12

The United States has enough wind resources to power the entire nation several times over.13 In October 2010, Google and the financial firm Good Energies announced plans to lay down a $5 billion underwater electricity transmission line for offshore wind farms along a 350-mile stretch from Norfolk, Virginia, to northern New Jersey.14 The new transmission backbone would allow eastern states to ramp up offshore wind generation and greatly increase the amount of green electricity in their energy mix.

A Stanford University study of global wind capacity estimates that harnessing 20 percent of the available wind on the planet would provide seven times more electricity than the world now uses.15 In urban and suburban areas, stand-alone wind turbines near building sites will likely become a fast-growing part of the green wind market by the end of the decade as millions of homes, offices, and industrial sites add generation capacity. Companies like Southwest Windpower in the United States provide small wind turbines that can generate 25–30 percent of the electricity needed to power an average home. The wind turbine costs between $15,000 and $18,000 and has a payback in as few as fourteen years.

Hydropower currently makes up the largest portion of green generated electricity in the world. In the European Union, hydropower generates 180,000 megawatts of electricity, much of which is concentrated in mature large-scale operations. The untapped potential, say industry experts, is in small distributed hydropower installations. The economically viable sites scattered across Europe could generate 147 terawatt hours (TWH) annually. In the United Kingdom, according to the federal government’s Environment Agency, small hydropower could provide power for 850,000 homes in the future.

In the United States, hydropower composes 75 percent of the current renewable electricity generation. The Electric Power Research Institute (EPRI) estimates an increase of 23,000 megawatts of hydropower by 2025 from a combination of large damns, micro–hydropower generation, and ocean wave energy.16

Geothermal energy beneath the Earth’s surface represents a vast reservoir of virtually untapped green power. Temperatures in the interior regions of the Earth reach 4,000 degrees Celsius or more, and that energy is continuously flowing to the surface. Europe’s hot spots for geothermal energy are Italy and France. Other countries rich in geothermal energy include Germany, Austria, Hungary, Poland, and Slovakia.

In the United States, the geothermal energy within two miles of the Earth’s surface is approximately three million quads, or enough energy to provide for America’s needs for 30,000 years.17

Installed geothermal energy around the world increased by 20 percent between 2005 and 2010. Still, in the thirty-nine countries that have the potential to meet 100 percent of their electricity needs with geothermal energy, only nine have developed any significant installed power.18

While the United States leads in the amount of installed geothermal power, with power plants producing 3,086 megawatts, there is still huge untapped potential. An MIT study estimates that a modest investment of $300 to $400 million over fifteen years would make geothermal power generation competitive in the US electricity market. With a public and/or private investment of $800 million to $1 billion over the same fifteen-year time period, the MIT panel estimates that geothermal power could produce more than 100,000 megawatts of commercially available power by 2050.19

Biomass is the final slice of the growing green energy mix and includes fuel crops, forestry waste, and municipal garbage. Biomass is the most contentious of the green energy options. The World Bioenergy Association claims that “the world’s bioenergy potential is large enough to meet the global energy demand in 2050.”20 Bryan Hannegan of the Electric Power Research Institute (EPRI) agrees that bioenergy could play a significant role in green energy production but suggests, on the basis of current economic analysis, that it will likely provide only 20 percent of global energy demand by 2050.21 Still, that’s a considerable amount. The Natural Resources Defense Council (NRDC) reports that thirty-nine million tons of crop residue go unused in the United States alone each year—sufficient waste to produce enough electricity to power every home in New England.22

Several constraints must be factored into the production of bioenergy. For example, growing corn to produce bioethanol is actually counterproductive. The amount of energy input required to grow the crop and process and transport the ethanol makes the energy value of the final product a near wash.23

The major considerations in producing energy from agricultural crops and forest residue are the amount of land and water taken up that could be used more productively for producing food and fiber, and the increase in global warming gasses from growing biomass and processing and transporting energy.

The conversion of municipal waste to energy for the production of electricity and heat is probably the most promising application of bio-mass. In 2010, the world population produced approximately 1.7 billion tons of municipal solid waste (MSW). More than a billion tons ended up in landfills, while only 0.2 billion tons were converted from waste to energy—indicating the significant untapped potential of this green energy resource. Nearly 98 percent of the energy is generated from mass-burn and refuse-derived fuel (RDF) combustion, which have deleterious impacts on the environment, including the emission of harmful gases. The remaining 2 percent of waste to energy is produced using more benign thermal and biological treatment technologies.

A study conducted by Pike Research estimates that the global market for thermal and biological waste technologies, which reached $3.7 billion in 2010, will grow to $13.6 billion in 2016 as municipal authorities and commercial operations switch over to the new, cleaner conversion technologies.24

The ability to bring all of these green energies online will depend on commercial scalability. To expedite the process, governments are putting in place various incentives to encourage the shift to green energies. Currently, more than fifty countries, states, and provinces have “feed-in tariffs,” which offer producers of renewable energy a premium price above market value for green electricity they sell back to the grid.25 Feed-in tariffs have opened the commercial floodgates for solar and wind-generated power by giving early adopters lucrative incentives to enter the market.

Feed-in tariffs have also generated hundreds of thousands of jobs in the past few years. For example, in Germany in 2003, conventional energy employment (coal, oil, gas, and uranium) accounted for 260,000 jobs. By 2007, renewable energy accounted for 249,300 jobs. More impressive, however, is that renewable energy used for primary energy consumption remains below 10 percent. In other words, less than 10 percent of the energy produced by renewable sources created nearly as many jobs as all other energy sources combined.26

Spain is another example of an explosive shift toward a renewable energy regime. The Spanish economy, which supports over 188,000 renewable energy jobs and 1,027 renewable energy companies, has produced five times the employment of the conventional energy industry.27

Even without feed-in tariffs, jobs in the US renewable energy industry are surging, while employment in the conventional energy sector is declining. In the wind industry alone, over 80,000 jobs have been created over the past decade—the same number of jobs that exist in the entire US coal mining industry. And wind still makes up only 1.9 percent of the US energy mix, while coal accounts for over 44.5 percent of US energy production.28

190 MILLION POWER PLANTS

Europe’s future has been staked to green power. The question is how to collect the solar, wind, hydro, geothermal heat, and biomass energies. The first inclination was to go to places where the sun always shines, like southern Europe and the Mediterranean, and create giant solar parks to collect the energy. Similarly, grab the wind where it is most abundant, such as off the Irish Coast and other wind corridors. Get the hydro from Norway and Sweden, and so on.

For power and utility companies, not to mention banks and governments, which were used to gathering fossil fuels that were concentrated at limited sites, doing the same with renewable energies seemed to make sense. And big centralized solar parks and wind farms began popping up in scattered parts of Europe where those energies are abundant.

Around 2006, however, some energy entrepreneurs, policy analysts, nongovernmental organizations, and politicians made a simple observation that inevitably led to a profound change in the discussion around a sustainable economic model. The sun shines on every part of the Earth every day, even if the intensity varies. The wind blows all over the world, even if the frequency is intermittent. Wherever we tread, there is a hot geothermal core under the ground. We all generate garbage. In agricultural areas, there is crop and forestry waste. On the coasts, where a large portion of our population lives, the waves and tides come in every day. People living in valleys rely on the steady stream of water coming from mountain glaciers for their hydroelectricity. In other words, unlike fossil fuels and uranium, which are elite energies and only found in certain regions of the world, renewable energies are everywhere. This realization fundamentally changed the thinking of my colleagues. If renewable energies are distributed and found in various proportions and frequencies everywhere in the world, why would we want to collect them in only a few central points?

We realized we were using outmoded twentieth-century ways of thinking about energy based on our previous experiences with fossil fuels. While none of us oppose giant wind farms and solar parks—I even think they are essential to making a transition to a post-carbon Third Industrial Revolution economy—we began to believe these alone would not be sufficient.

If renewable energy is found everywhere, how do we collect it? In early 2007, the European Parliament Energy and Climate Change committees were preparing reports on next steps in energy security and global warming. I received a call from Claude Turmes, the European Parliament’s leading authority on renewable energy. He urged me to enlist the construction industry in our efforts. Claude knew that I was in touch with some of Europe’s and America’s leading construction companies working in sustainable design and that I was beginning to give talks about the need to convert building stock into mini power plants. He reminded me that the construction industry is the “elephant in the room” when it comes to the day-to-day economy and one of the largest industrial employers in the European Union, representing 10 percent of the GDP.29 Claude suggested that the construction industry might be a key ally and a counterweight to the big energy companies, who were continually thwarting green legislation and sustainable development policies at the Commission and in the member states.

If “It’s the economy, stupid,” then it’s construction that generates business activity and creates new jobs. There are an estimated 190 million buildings in the twenty-seven member states of the European Union.30 Each of these buildings is a potential mini power plant that could suck up the renewable energies on site—the sun on the roof, the wind coming up the external walls, the sewage flowing out of the house, the geothermal heat underneath the buildings, and so on.

If the First Industrial Revolution gave rise to dense urban cores, tenements, row housing, skyscrapers, and multilevel factories, and the Second Industrial Revolution spawned flat suburban tracts and industrial parks, the Third Industrial Revolution transforms every existing building into a dual-purpose dwelling—a habitat and a micro–power plant. We had found pillar 2.

The construction industry and the real estate sector are now teaming up with renewable energy companies to convert buildings into mini power plants to collect green energies on site to power the buildings. Frito-Lay’s Casa Grande Arizona plant is among this new generation of micro-power plants. The concept is called “net-zero.” The factory will generate all of its own energy by placing solar concentrators on site to cook potato chips in the factory.31 In Aragon, Spain, GM’s production facility has installed a 10-megawatt solar plant on its roof, which produces enough electricity to power 4,600 homes. The initial investment of $78 million will be paid back in less than ten years, after which electricity generation will be virtually free.32 In France, the construction giant Bouygues is taking the process a step further, putting up a state-of-the-art “positive power” commercial office complex in the Paris suburbs that collects sufficient solar energy to provide for all of its own needs and even generates surplus energy.33 Even homeowners can now turn their houses into mini power plants. For an upfront cost of around $60,000, a homeowner can install solar panels on his or her roof and generate enough electricity to power much or all of the home. Any surplus can be sold back to the grid, and payback can run anywhere from four to ten years.

Twenty-five years from now, millions of buildings—homes, offices, shopping malls, industrial and technology parks—will have been converted or constructed to serve as both power plants and habitats. The wholesale reconversion of each nation’s commercial and residential building stock into mini power plants over the next three decades will touch off a building boom—creating thousands of new businesses and millions of new jobs—with an economic multiplier effect that will impact every other industry.

How does this translate at the local level? In the United Kingdom alone, the Cameron government estimates that simply insulating the country’s twenty-six million homes to make them more energy efficient and prepare them to more effectively utilize subsequent green energy production could create as many as 250,000 jobs.34

Converting buildings to micro–power plants will spawn even more diverse business opportunities and tens of millions of jobs. Let me give you a single example of the commercial possibilities that lie ahead in the construction and real estate sectors. In 2008, my global policy team entered into a conversation with Raffaele Lombardo, the president of the region of Sicily, on how to remake the island into a TIR economy. Sicily’s five million inhabitants are relatively poor by Western European standards but enjoy an abundance of solar irradiation. A study commissioned by the region found that if just 6 percent of the rooftop surface area was equipped with solar panels over the next two decades, the island could produce a thousand megawatts of electricity—enough to provide the electricity needs for one-third of the Sicilian population. The same study identified more than 36,000 local small- and medium-sized construction companies, architectural firms, and engineering companies that could carry out the installation process. The partial conversion to a TIR economy would create a €4 to €5 billion market and generate an additional €35 billion in revenue for small- and medium-sized businesses and Sicilian families over a twenty-year period.35

Italy’s feed-in tariff provides the important commercial impetus to jump-start the process. The tariff is paid for by the citizenry in the form of a 5 percent increase in electricity rates. To date, the vast majority of applications for installing solar electricity have been for large PV plants, with far fewer applications going to distributed power generation projects. That ratio could be reversed, however, if the government were to underwrite loans to small- and medium-sized enterprises (SMEs) and homeowners to help pay for the solar installations.

Green mortgages could also help facilitate the building conversions. Banks and other lending companies could provide lower interest rates for businesses and homeowners that install solar panels. Assuming an average of eight to nine years for payback on the energy savings from the installation, businesses and homeowners holding a twenty-year mortgage would be generating all of their own electricity off grid for the last eleven to twelve years of their loan. The monthly savings on the electricity bills could be leveraged against the monthly mortgage payment and be the basis for a reduced interest rate. The reconfiguration of the building as a power plant, in turn, appreciates the assessed value of the real estate holding. Some banks are already beginning to offer special green mortgages. In the years ahead, green mortgages are likely to restructure the mortgage lending business and help create a building boom in countries around the world.

Now, let’s zoom up to thirty thousand feet to see the macro employment impacts of increasing the energy efficiency of buildings and installing renewable energies. Researchers at the Energy and Resources Group and the Haas School of Business at the University of California at Berkeley developed an analytical jobs creation model for the power sector between 2009 and 2030, based on synthesized data from fifteen separate studies on increasing energy efficiency and installing and servicing renewable energy in US buildings. The model takes into account a wide range of variables including jobs lost in other parts of the power sector from the shift to energy efficiency and renewables, indirect job creation because of increased spending by workers, and the multiplier effects of the initial economic activity on other commercial enterprise. The study forecasts that “cutting the annual rate of increase in electricity generation in half and targeting a 30% RPS (Renewable Portfolio Standard) generates about four million cumulative job-years through 2030.”36 If the RPS standards were to be raised to 40 percent—several regions of the world have already reached as high as 60 percent RPS, and many more are targeting even higher RPS standards by 2030—the net number of new jobs in the United States would exceed 5.5 million.

As we discuss in a later section, these job numbers take into consideration only pillars 1 and 2—renewable energy and converting buildings to micro–power plants—as stand-alone initiatives unconnected to energy storage, the establishment of an intelligent utility network for distributing energy, and the transformation of the transport fleet to electric plug-in and hydrogen fuel cell vehicles. By way of an analogy, the above jobs model forecast is akin to projecting employment twenty years into the information technology (IT) revolution, but before the creation of the Internet. When all five pillars of the TIR are interconnected, they create a new nervous system for the economy, spurring a leap in energy efficiency and untold new business opportunities and jobs.

After a century of big energy companies dominating the economy, not to mention wielding influence over government policies and the geopolitics of international relations, a new plan was being proposed that would democratize the production and distribution of energy by creating millions of mini energy entrepreneurs. As one observer remarked, this is all about “power to the people.”

THE SUN ISN’T ALWAYS SHINING,
THE WIND ISN’T ALWAYS BLOWING

Although renewable energies are abundant and clean and allow us to seriously entertain the idea of living in a sustainable world, they come with their own unique problems. The sun isn’t always shining and the wind isn’t always blowing, or when it is blowing, it may not be needed. Renewable energies are, for the most part, intermittent; whereas the hard energies, while finite and polluting, are nonetheless a fixed stock.

In May 2002, I sat down for a little chat with Romano Prodi, then president of the European Commission, at the EU embassy in Washington, DC. I confided in Romano that I was deeply concerned about achieving 20 percent renewable energy by 2020, which would mean that nearly one-third of Europe’s electricity would be dependent on wind, sun, and other intermittent sources of energy. I said, “Romano, let me paint a picture for you. It’s 2020, and the EU has achieved its target of 20 percent renewable energy. It’s a very hot summer. In the middle of July, cloud cover blocks the sun’s rays for several weeks across much of Europe. Equally bad luck, the wind stops blowing over much of Europe at the same time. And if that weren’t enough, the water tables are down at hydroelectric sites because of climate change–induced draught, and the electricity goes out across Europe. What do we do?”

Romano, a professor and highly regarded economist by background, twice prime minister of Italy and one of Europe’s most revered senior politicians is, in fact, rather modest and quiet. He put his chin in his hand, as if to ponder the full meaning of what he had just been told, and then threw the ball back in my court. “Any ideas?” he asked. “Yes,” I said. “We need to quickly invest in research to bring technologies online that can store renewable energies. If we don’t, we won’t be able to employ renewable energy on a scale that will get us to a post-carbon era. Without storage we’re sunk.” (Eight years later, Bill Gates would echo the sentiment that cost effective, reliable storage technology is the key to a sustainable future.)

Power and utility companies were already grumbling that when 15 to 20 percent or more of the electricity on the grid comes from renewable energy, the grid would be at the mercy of the weather, and we’d be faced with the prospect of periodic brownouts and blackouts across the continent. There are a number of promising storage technologies, including flow batteries, flywheels, capacitors, and pumped water. I had been researching the various possibilities and had recently come to the conclusion that while we should advance all of these storage options, hydrogen probably offered the best long-term hope as a storage medium because of its flexibility.

Hydrogen had long been sought after by scientists and engineers as the Holy Grail for a post-carbon era. It is the lightest and most abundant element in the universe—the stuff of the stars—and contains not a single carbon atom. Hydrogen is found everywhere on Earth, but it rarely exists free-floating in nature. Rather, it is embedded in other energy sources. It can, for example, be extracted from coal, oil, and natural gas. In fact, most of the hydrogen used for various industrial and commercial activities is derived from natural gas. Hydrogen can also be extracted from water. Every student recalls the electrolysis experiment in high school chemistry class. Two electrodes, one positive and the other negative, are submerged in pure water that has been made more conductive by the addition of an electrolyte. When electricity—direct current—is applied, the hydrogen bubbles up at the negatively charged electrode (the cathode) and oxygen at the positively charged electrode (the anode). The key challenge is whether it’s economically feasible to use renewable forms of energy that are carbon free, like photovoltaic, wind, hydro, and geothermal, to generate electricity that is then used in the electrolysis process to split water into hydrogen and oxygen.

I reminded Romano that for nearly fifty years our astronauts had been circling the Earth in spaceships powered by hydrogen fuel cells and said that it was time to bring the technology down to Earth to provide a storage carrier for renewable energies.

Here’s how it works. When the sun is shining on the photovoltaic panels on the roof, electricity is generated, most of which is used instantly to power the building. If, however, there is a surplus of electricity that is not immediately needed, it can be used in the process of electrolysis to sequester hydrogen in a storage system. When the sun isn’t shining, the hydrogen can be transformed back into electricity by a fuel cell to provide power.

Romano was intrigued. He already knew quite a bit about hydrogen. His older brother Vittorio, a world-class nuclear physicist, was a member of the European Parliament and an expert on the subject. Vittorio and I became good friends, and he took on the important task of educating legislators and the business community on the workings and benefits of hydrogen as a storage medium for renewable energy.

Within weeks of our meeting, I provided Romano with a strategic memorandum on the possibilities of using hydrogen as a storage carrier for renewable energies. President Prodi wasted no time. In June of 2003, at a Brussels conference, he announced a €2 billion hydrogen research initiative by the Commission to ready Europe for a hydrogen economy. In his opening remarks he explained the historic significance of employing hydrogen as a storage medium for a Third Industrial Revolution infrastructure: “But let us be clear about what makes the European hydrogen program truly visionary. It is our declared goal of achieving a step-by-step shift towards a fully integrated hydrogen economy, based on renewable energy sources, by the middle of the century.”37 Pillar 3 was now in place.

In 2006, I prepared a second memo on the subject for Chancellor Merkel, suggesting that Germany launch its own hydrogen research and development initiative. She did, committing significant funds to advancing the new storage technology. In 2007, the European Commission, under President Barroso, announced a €7.4 billion public-private partnership—a Joint Technology Initiative (JTI)—to move from hydrogen research and development to deployment across Europe.38

The first three pillars—the creation of a renewable energy regime, loaded by buildings and partially stored in the form of hydrogen—suggested the need for the fourth pillar: a way to distribute all the energy being generated and stored by millions of buildings to communities across Europe.

THE ENERGY INTERNET

The idea of creating a smart grid was gaining currency by the middle of the decade but still had not found its way into any formal EU or member state initiatives. IBM, Cisco Systems, Siemens, and GE were all gearing up to enter the field, hoping to make the smart grid the new superhighway for transporting electrons. The power grid would be transformed into an info-energy net, allowing millions of people who produce their own energy to share surpluses peer-to-peer.

This intelligent energy network will embrace virtually every facet of life. Homes, offices, factories, and vehicles will continuously communicate with one another, sharing information and energy on a 24/7 basis. Smart utility networks will be connected to weather changes, allowing them to continuously adjust electricity flow and internal temperatures to both weather conditions and consumer demand. The network will also be able to adjust the electricity used by appliances, and if the grid is experiencing peak energy use and possible overload, the software can direct, for example, a homeowner’s washing machine to skip one rinse cycle per load to save electricity.

Since the true price of electricity on the grid varies during any twenty-four-hour period, real-time information displayed on digital meters in every building would allow for dynamic pricing, letting consumers increase or decrease their energy use automatically, depending on price. Consumers who agree to slight adjustments in their electricity use will receive credits on their bills. Dynamic pricing also will let local energy producers know the best time to sell electricity back to the grid, or to go off the grid altogether.

The US government recently allocated funds to develop the smart grid across the country. The funds will be used to install digital electric meters, transmission grid sensors, and energy storage technologies to enable high-tech electricity distribution; this will transform the existing power grid into an Internet of energy. CPS Energy in San Antonio, Texas; Xcel Utility in Boulder, Colorado; and PG&E, Sempra, and Southern ConEdison in California will be laying down parts of the smart grid over the next several years.

The smart grid is the backbone of the new economy. Just as the Internet created thousands of new businesses and millions of new jobs, so too will the intelligent electricity network—except “this network will be 100 or 1,000 times larger than the Internet,” says Marie Hattar, vice president of marketing in Cisco’s network systems solutions group. Hattar points out that while “some homes have Internet access, . . . some don’t. Everyone has electricity access—all of those homes could potentially be connected.”39

For twenty years, heads of state and global business leaders asked me, “How do you expect to manage the energy needs of a complex global economy with ‘soft’ renewable energies?” The old guard in government and in the power and utility industry are as unaware of the potential of distributed power to change the very nature of energy as the music moguls were when first confronted with file sharing.

The invention of second-generation grid IT has changed the economic equation, tipping the balance of power from the old, centralized fossil fuel and uranium energies to the new, distributed renewable energies. We now have advanced software that allows companies and industries to connect hundreds of thousands and even millions of small desktop computers. When connected, the lateral power exceeds, by a magnitude, the computing power of the world’s largest centralized supercomputers.

Similarly, grid IT is now being used to transform the electricity power grid in several regions of the world. When millions of buildings collect renewable energies on site, store surplus energy in the form of hydrogen, and share electricity with millions of others across intelligent intergrids, the resulting lateral power dwarfs what could be generated by centralized nuclear, coal, and gas-fired power plants.

A study prepared by KEMA, a leading energy consulting firm, for the GridWise Alliance—the US smart grid coalition of IT companies, power and utility companies, academics, and venture capitalists—found that even a modest $16 billion in government incentives to smarten the nation’s power grid would catalyze $64 billion worth of projects and create 280,000 direct jobs.40 Because the smart grid is critical to the growth of the other four pillars, it will generate hundreds of thousands of additional jobs in the renewable energy sector, the construction and real estate markets, the hydrogen storage industry, and electric transportation, all of which rely on the smart grid as an enabling platform. These employment estimates are small, however, in comparison to the jobs that will be created with the €1 trillion the European Commission now projects is needed for public and private investment over the next ten years to bring the distributed smart grid network online across the world’s largest economy.41

Today’s idea of a distributed smart grid was not what most of the major ICT companies had in mind when they first began to talk about intelligent utility networks. Their early vision was for a centralized smart grid. The companies foresaw digitalizing the existing power grid, with the placement of smart meters and sensors, to allow utility companies to collect information remotely, including keeping up-to-the-minute information on electricity flows. The goal was to improve the efficiency of moving electricity across the grid, reduce the costs of maintenance, and keep more accurate records on customer usage. Their plans were reformist but not revolutionary. As far as I knew, there was little discussion about using Internet technology to transform the power grid into an interactive info-energy network that would allow millions of people to generate their own renewable energy and share electrons with one another.

In 2005, IBM executives in Germany began corresponding with me on the possible future uses of the smart grid. I had been talking up the possibility of transforming the power grid into an intergrid for sharing energy in my Wharton School’s Executive Education classes and in presentations with utility companies like Scottish Power, Cinergy, and the National Grid. The idea of an intelligent electricity grid was the central theme of my 2002 book, The Hydrogen Economy. I wasn’t the only one talking about it. Amory Lovins, in particular, had been raising the prospect for a number of years, as had a number of other power and utility wonks.

As early as 2001, the Electric Power Research Institute (EPRI) observed in its report, “Perspectives for the Future,” that distributed generation would likely evolve

in much the same way the computer industry has evolved. Large mainframe computers have given way to small, geographically dispersed desktop and laptop machines that are interconnected into fully integrated, extremely flexible networks. In our industry, central-station plants will continue to play an important role, of course. But we’re increasingly going to need smaller, cleaner, widely distributed generators . . . all supported by energy storage technologies. A basic requirement for such a system will be advanced electronic controls: these will be absolutely essential for handling the tremendous traffic of information and power that such a complicated interconnection will bring.42

The IBM guys in Germany put me in touch with Guido Bartels, a Dutch national who was doing a lot of work pushing IBM’s intelligent utility network concept around the world. Guido was also chairman of GridWise, the consortium of IT and power and utility companies working with the Department of Energy in the United States to move the smart grid forward. Guido and I began a series of discussions on IBM’s future. Still, it was pretty clear that the company’s primary thrust was reforming the grid using a traditional, central-management style. The idea of microgrids connecting and selling energy back to the grid, while acknowledged as a potential function of the company’s intelligent utility network, had not yet reached prime time to become the centerpiece of a new economic vision—although IBM was clearly interested in taking the next steps into a TIR future. Bartels and Allan Schurr, in particular, grasped the potential of a truly distributed smart grid and worked to advance a TIR infrastructure with clients around the world.

Pier Nabuurs, another Dutch national, and the CEO of KEMA, was also beginning to talk of the merits of a bidirectional info-energy network. Nabuurs was Bartels’s counterpart in the European Union, heading up the SmartGrids European Technology Platform. Like GridWise in the United States, SmartGrids was composed of IT and power and utility companies working with the European Union to advance smart grid implementation across the European continent. Nabuurs pushed for an internet for energy that would aggregate and route electricity generated from thousands of micro-grids.

Nabuurs sensed a change taking place in European power and utility companies—something not yet shared by their American counterparts. Intense discussions were taking place inside the corporate suites. These companies had been, for more than a century, attached at the hips to giant energy companies whom they relied on for the fossil fuels to generate electricity. A younger generation of executives, noticing a heightened interest from local municipalities, regions, small- and medium-sized enterprises, cooperatives, and homeowners, in producing their own renewable electricity on micro-grids, saw an opportunity to recast the role of their companies. They envisioned power and utility companies adding a new function and, with it, a new business model to accompany their traditional role as suppliers of energy and managers of transmission and distribution. Why not use intelligent utility networks to better manage the existing flow of electrons coming from centralized fossil fuels and uranium fuel, while also using the distributed capability of the new smart grids to collect and transmit electrons coming in from thousands of on-site micro-grids? In other words, go from a unidirectional to a bidirectional management of electricity.

In the new scenario, the companies would give up some of their traditional top-down control over both supply and transmission of electricity to become, at least partially, an integral part of an electricity network involving thousands of small energy producers. In the new scheme, the utility part of the power and utility companies becomes far more important. The company becomes the manager of an info-energy network. It moves increasingly away from selling its own energy to becoming a service provider, using its expertise to manage other people’s energy. By this new reasoning, utilities in the future will co-manage companies’ use of energy across their entire value chain, just as IT companies like IBM help businesses manage their information. The potential new business opportunities would eventually exceed their conventional business of simply selling electrons.

The young upstarts got a boost for their vision from an unlikely source. Neelie Kroes, the EU commissioner responsible for competition policy, dropped a bombshell on the power and utility sector in early 2006. Deregulation of the electricity market had allowed a handful of national power and utility giants to spread their wires across borders and buy smaller players. The European Commission was becoming increasingly concerned over the ability of a few mega power and utility companies to control access to markets by monopolizing both the supply and distribution of power. Kroes declared war on the power and utility companies. From that point on, the companies would be required to unbundle networks from supply activities—or, put more simply, they would not be allowed to own both the supply of power and the transmission lines to distribute that power. Kroes made very clear the European Commission’s intention, saying that

one of the issues of real concern is, indeed, a market structure with bundled infrastructure and supply activities. This is a concern for all network industries where the underlying infrastructure is very costly to duplicate. Owners and operators of critical networks often compete with companies that need to have access to those same networks. Can we expect such integrated companies to treat competitors in a fully fair manner? Their own self-interest would suggest not. . . . [T]he sector inquiry has shown that new entrants often lack effective access to networks, the operators of which are alleged to favour their own affiliates.43

Speaking on a very personal note, Kroes said, “I very much welcome the moves towards full structural unbundling (i.e., separation of the supply and retail business from monopoly infrastructures).”44

The action by the competition commissioner was not taken in a vacuum. It was part of a larger concerted effort to open the door to the new green distributed energies of the Third Industrial Revolution. Anecdotal evidence was mounting all over Europe that the power and utility companies were making it difficult for local producers of renewable energy to sell their electricity to the grid. This obstructionist policy by the power and utility companies flew in the face of EU directives supporting the increasing generation of electricity from local renewable energy sources.

As far as the European Commission is concerned, Kroes said, “it is the clear objective of the liberalization process to ensure that new companies can enter and prosper on the market, in order to increase competition and to provide a greater choice for consumers, e.g., for ‘green’ electricity.”45

The German and French governments were quick to register their displeasure with Kroes. Both countries were headquarters for some of the giants in the European power and utility business—E.ON and RWE in Germany and EDF in France. What the media and public didn’t know is that behind the scenes all hell was breaking loose, at least inside the offices of some of the sector’s major players.

In March of 2006, around the same time Kroes was out on the hustings talking up “unbundling,” Utz Claassen, the tough CEO of EnBW, the fourth largest power and utility company in Germany, invited me to Berlin to speak to his company and clients on climate change, energy security, and the transformation of the power and utility sector. Even though 45 percent of EnBW was owned by EDF of France, a company that produces 78 percent of French electricity from nuclear power, Claassen picked up on the theme of distributed generation of renewable energy.46 Three months later, he invited me to Heilbronn, Germany, to address his entire company. Some five hundred employees filled the hall. After I laid out the vision of a Third Industrial Revolution, Claassen took the podium. To the surprise of many of his employees, who had cut their teeth on conventional fossil fuels and nuclear energy and were used to a centralized, top-down flow of power, Claassen said the energy market was changing and so was EnBW. He pledged that EnBW would be at the front of the pack, leading the charge to a new distributed energy era. He was quick to assert that while the old energies and business models were not being retired, the company had to make room for the new energies and the new business models that would accompany them.

By early 2008, power and utility companies across Europe were taking baby steps into the new energy era, including NTR of Ireland and Scottish Power. Even staunch bulwarks of the old order like E.ON, the gargantuan German power and utility company, were having second thoughts about their future.

I had been asked by E.ON to engage in a marathon two-hour debate with its chairman and CEO, Dr. Johannes Teyssen, in March 2008 in Rotterdam. When I met him, he seemed like the very epitome of the traditional German business leader, sporting a severe expression and a traditional black three-piece suit. In fact, he turned out to be very cordial and engaging. Teyssen argued that every conceivable source of energy would be needed to meet the energy demands of Europe in the coming decades, including fossil fuels, nuclear, and even renewable energy. He was mute, however, on the question of distributed power.

I couldn’t help but notice that throughout the debate a British gentleman, whom I suspected was in his forties, was continuously whispering in Teyssen’s ear when I was talking. After the debate, he came up and introduced himself. His name was Kenton Bradbury, and he was the senior vice president responsible for infrastructure management and future strategies at E.ON. He said that the company was starting to look at the whole issue of smart grids, micro-generation, and distributed power, and was keen to know more, especially about how some power and utility companies were beginning to work with construction companies to develop smart buildings that could serve as mini power plants and feed electricity back to the grid.

In the ensuing months we corresponded by email and talked by phone. I also connected him with some of the members of our policy group, including Guido Bartels at IBM; Pier Nabuurs at KEMA; and Rudy Provoost, the CEO at Philips Lighting. Kenton presented some of the new business opportunities that would arise out of a Third Industrial Revolution infrastructure at an E.ON board meeting a few months later.

Recall that I mentioned that a younger generation of execs were anxious to take their companies into a new business model—without abandoning the conventional business plan—in which their utilities would become advisors and consultants, working with clients to help manage their energy, like IBM and other IT companies do with information management. Interestingly, I heard that E.ON had gone into a deep retreat in the fall of 2008, and using the IBM disruptive change model as a case study, examined various scenarios by which they might overhaul the mission and strategic agenda of the company toward the Third Industrial Revolution paradigm.

The IBM case study, which has now become famous to the point of being a cliché in MBA programs, refers to the company’s decision in the mid-1990s to shift its focus from selling computers—its core business—to selling services. IBM had come to the realization by then that there was very little value left in simply selling computers. With dozens of companies selling the “boxes,” and with Asian competitors able to produce the machines with the same degree of quality but at lower prices, IBM saw diminishing margins in continuing to emphasize the product side of their business.

Louis Gerstner, IBM’s CEO, saw the writing on the wall and began to envision a new business model. First, he asked, “What is IBM’s core competency?” The answer was “managing the flow of information.” With the new image of itself in hand, this technology titan of the twentieth century turned its giant ship into new waters, selling its consulting expertise to companies looking to better manage their information. Soon, companies everywhere were introducing a chief information officer (CIO) to their executive suite.

For the power and utility companies, “managing energy” is their core competence. But what their clients really want from them is advice on how to implement energy systems that are more efficient and use less energy. In a highly competitive world where energy costs are now eclipsing labor costs in some industries, the name of the game is energy savings—it’s one of the few areas in which substantial gains can keep margins from shrinking and even collapsing altogether.

So how do E.ON and other power and utility companies go from trying to sell more and more electrons to a new business model in which their mission is to advise clients and create programs designed to use fewer electrons? The most difficult aspect, from a management perspective, is the delicate process of phasing out of the old business model over a period of time—without killing it off prematurely—while also aggressively pursuing the new business model. This will test the management skills of the best and brightest among the younger generation of executives in the power and utility sector.

As for IBM, it appears that they are envisioning two very different kinds of smart grids, a reformist model for the United States and a revolutionary one for Europe. As mentioned previously, IBM’s initial vision of the super grid was narrow and reform-minded: digitalize the grid, improve its performance, and provide up-to-the-moment information to the power and utility companies to help them better manage their operations. At least, that’s what everyone was hearing.

The IBM game plan began to change in early 2007 as the European Union and a growing number of its member states, regions, and municipalities, as well as various players in the business community, began to gravitate toward a Third Industrial Revolution model. IBM began talking about a distributed intelligent utility network for the European Union. One industry analyst confided in me that the distributed model better fits the architecture of the European Union, which is, after all, a network of localities, regions, and member states whose governance pattern is far less hierarchical and flatter than elsewhere. What about IBM’s plans for the United States and North America? The same source was unequivocal on the matter. A centralized super grid would likely make more sense.

Thus far, American power and utility companies, for the most part, have been reticent about introducing a TIR business model. Ed Legge, of the Edison Electric Institute, the lobbying arm for America’s power and utility industry, is blunt on the matter: “We’re probably not going to be in favor of anything that shrinks our business. All investor-owned utilities are built on the central-generation model that Thomas Edison came up with: You have a big power plant. . . . [D]istributed generation is taking that out of the picture—it’s local.”47

There’s a lot involved in the weighty decision to build two different smart grids—a centralized, top-down system in the United States and a distributed and collaborative system in the European Union. Industry observers estimate that it will cost approximately $1.5 trillion between 2010 and 2030 to transform the existing US power grid into an intelligent utility network.48 If the smart grid is unidirectional rather than bidirectional in design, the United States will have lost the opportunity to join with Europe in the Third Industrial Revolution and, with it, the prospect of retaining its leadership in the global economy.

PLUG-IN TRANSPORT

One last pillar must be integrated into the network to make a Third Industrial Revolution: transport. Converting buildings into mini power plants and creating an energy internet will provide the infrastructure to power electric plug-in and hydrogen fuel cell vehicles—the first of which rolled off the assembly lines in 2011. The US government has invested $2.4 billion to bring the new generation of electric automobiles to the market and is even offering a $7,500 tax incentive to assist with the purchase of a new electric vehicle.49

Plug-in electric vehicles are causing a sea change in the energy and transport sectors. For a hundred years, the auto industry engaged in an intimate relationship with the oil companies, just like power and utility companies did in the past. That relationship is now beginning to fray. Over the past twelve months, the major car companies have signed agreements with the leading electric power and utility companies to prepare a new infrastructure for the smart electric plug-in transport of the twenty-first century.

Electric utilities are hurriedly installing electric power charging stations along motorways, in parking lots, garages, and commercial spaces to provide the electricity for the new plug-in vehicles. General Motors is partnering with utility companies—including ConEdison, New York Power Authority, and Northeast Utilities—in its 2011 rollout of the Chevrolet Volt. In Berlin, Daimler and RWE, Germany’s second largest power company, have launched a project to establish charging points for electric Smart and Mercedes cars around the German capital. Toyota has joined with EDF, France’s largest utility, to build charging points in France and other countries for its plug-in electric cars.

Small companies like AeroVironment, Coulomb Technologies, and ECOtality have already entered the market with electric vehicle charger stations; and now GE, Siemens, and Eaton are preparing to join the competition with their own electric vehicle chargers. Most of the charging stations, which run between $3,000 and $5,000 per unit, are currently being marketed to municipalities to build public charging docks. The companies are beginning, however, to eye the potentially lucrative residential market, hoping that millions of prospective electric cars buyers will pay $1,000 for their own home charging units. The electric power charging market is expected to climb quickly from the current $69 million to $1.3 billion by 2013, as electric vehicles begin to roll out in larger numbers.50

A 2010 study by the global management consulting firm PRTM projects that by 2020, the electric vehicle value chain is likely to be approximately $300 billion and create more than a million jobs in the global economy. An aggressive effort by US car makers could account for more than 275,000 of those jobs.51

By 2030, charging points for plug-in electric vehicles and hydrogen fuel cell vehicles will be installed virtually everywhere, providing a distributed infrastructure for sending electricity both from and to the main electricity grid. And by 2040, it is estimated that 75 percent of light-duty vehicle miles traveled will be electrically powered.52

The enormous distributed power embedded in the TIR infrastructure becomes apparent when we consider the potential of electric plug-in and hydrogen-powered fuel cell vehicles as power plants on wheels. Since the typical car is parked about 96 percent of the time, it can be plugged back into the interactive electricity network to provide premium power back to the grid. An all-electric and hydrogen fuel cell fleet powered by green energy has four times the electricity storage capacity of the existing national power grid in the United States. If just 25 percent of the vehicles were to sell energy back to the grid—when the price of electricity is right—it would replace every conventional, centralized power plant in the country.53

The automobile companies are locked into a fierce competition to get electric plug-in and hydrogen-powered fuel cell vehicles to market. Inside the automotive industry, however, there is a heated discussion going on among those who favor electric vehicles and others who believe that electric vehicles are a transitional strategy toward fully operable hydrogen transport. Most automotive companies are readying both electric and hydrogen vehicles for market, Daimler among them. Its management is particularly bullish about the prospects of fuel cell vehicles. Let me share the story of how I first heard of Daimler’s plan.

I had asked Jens Weidmann, Chancellor Merkel’s economic advisor, whether the chancellor might be willing to host a small dinner of a dozen or so of Germany’s key business leaders to discuss the future prospects for a green German economy, particularly Germany’s role in transitioning the world into a Third Industrial Revolution. As circumstances would have it, the global financial system had shut down just weeks earlier. The mood at the dinner was somber and introspective. Halfway into the evening, a messenger hurried into the room and whispered into the chancellor’s ear. She halted the table discussion to announce that the US House of Representatives had just voted “no” on President Bush’s bailout package. Her announcement was met with incredulity around the room. I could see that each of the participants were mulling over what this vote in Congress would mean for their companies in Germany.

Anxious to lighten up the mood and rekindle a more optimistic discussion about the future, the chancellor turned to Dr. Dieter Zetsche, the chairman of Daimler, and asked him what his company’s plans were for the future. He told the chancellor that Daimler is set on a course to revolutionize the car industry and is moving aggressively to mass-produce hydrogen-powered fuel cell cars, trucks, and buses in 2015. The shift from the internal combustion engine to the fuel cell, according to Zetsche, would be a critical watershed in transforming the German economy.

Merkel was taken aback, as was everyone else in the room. While we were all aware that Daimler and other companies were working on electric and fuel cell vehicles, this was the first time Daimler’s chairman slipped with the news that his company had decided to “go for it,” as we say in America, and bring the future into the present.

The chancellor scanned the table to see the reaction of others and stopped for a brief extra moment when passing by me. Recall that I had asked her to commit the German government to a hydrogen research program back in 2006, which she did. Zetsche’s decision to commit the world’s oldest automotive company to a hydrogen future seemed to herald the beginning of a new economic era for the country that had launched the Second Industrial Revolution, with the introduction of the internal combustion engine.

In September 2009, Daimler joined with seven industrial partners—EnBW, Linde, OMV, Shell, Total, Vattenfall, and the National Organization of Hydrogen and Fuel Cell Technology—to establish a network of fuel cell stations across Germany to ready the market for the mass introduction of fuel cell vehicles in 2015.54

It’s still anyone’s guess if Daimler’s gamble will pay off. Whether we settle on electric batteries or fuel cells or some combination of both, what’s clear is that the oil-powered internal combustion engine—the central technology of the Second Industrial Revolution—is on the way out. Our children will be driving vehicles that are silent, clean, smart, and plugged into an interactive network that is flat, distributed, and collaborative. This fact alone is a sign that we are at the end of one economic era and at the beginning of another.

The creation of a renewable energy regime, loaded by buildings, partially stored in the form of hydrogen, distributed via smart intergrids, and connected to plug-in, zero-emission transport, opens the door to a Third Industrial Revolution. The entire system is interactive, integrated, and seamless. This interconnectedness is creating new opportunities for cross-industry relationships and, in the process, severing many traditional Second Industrial Revolution business partnerships.

To appreciate how disruptive the Third Industrial Revolution is to the existing way we organize economic life, consider the profound changes that have taken place in just the past twenty years with the introduction of the Internet revolution. The democratization of information and communication has altered the very nature of global commerce and social relations as significantly as the print revolution in the early modern era. Now, imagine the impact that the democratization of energy across all of society is likely to have when managed by Internet technology.

The Third Industrial Revolution build-out is particularly relevant for the poorer countries in the developing world. We need to keep in mind that 40 percent of the human race still lives on two dollars a day or less, in dire poverty, and the vast majority have no electricity. Without access to electricity they remain “powerless,” literally and figuratively. The single most important factor in raising hundreds of millions of people out of poverty is having reliable and affordable access to green electricity. All other economic development is impossible in its absence. The democratization of energy and universal access to electricity is the indispensible starting point for improving the lives of the poorest populations of the world. The extension of micro credit to generate micro power is already beginning to transform life across the developing nations, potentially giving millions of people hope of improving their economic situation.

But can we make the jump? Although there was the beginning of an understanding in Brussels that the five pillars that make up the Third Industrial Revolution needed to be integrated as a single system, there was an equally strong counterweight that threatened to derail the process.

NO MORE PILOTS

“No more pilot buses” came from the far side of the giant conference table. Ten pairs of eyes nervously turned in unison to gaze on Herbert Kohler, a Daimler vice president in charge of group research and advanced engineering. Pier Nabuurs, the CEO of KEMA, who was sitting next to Kohler, delivered the punch line, blurting out, “we’re piloted out.” Our eyes darted over to Jose Manuel Barroso, the powerful president of the European Commission, who was hosting the meeting, to see his reaction. He paused, and then a slight smile curled up on his lips, which was followed by a similar relieved reaction across the table.

Kohler was venting a frustration shared by everyone in the room. Around the table were representatives from some of the leading businesses in the world. What they had in common was that each of their companies was beginning to break away from the Second Industrial Revolution architecture and journey into a new commercial era, and each was just becoming aware of how its individual pursuits might fit into a larger economic picture. They all wanted scale-up, realizing it was key to assuring speedy market penetration.

It was December 6, 2006. I had asked President Barroso for the meeting, suggesting that it would be helpful for some of Europe’s and America’s leading companies to share their thoughts on how to make the European Union both the most sustainable economy in the world and, at the same time, the most commercially successful.

President Barroso’s agenda was a complicated one. Under his stewardship, the European Union was readying a 20–20–20 by 2020 formula, which would put the world’s leading economy far ahead of other nations in addressing the threat of climate change. The proposal called for a 20 percent reduction in greenhouse gas emissions by 2020, based on 1990 emission levels; a 20 percent increase in energy efficiency by the same year; and a 20 percent increase in the deployment of renewable energies, again by 2020. The targets would require compliance across the twenty-seven member states. Chancellor Merkel of Germany would later rally the other EU states to the ambitious agenda during her rotating presidency of the EU Council in the spring of 2007.

The European Union was equally committed, however, to reaching the Lisbon Agenda goal—which European heads of state had agreed to back in March 2002—to make Europe the world’s most competitive economy. The European Union was already the leading economy in the world. As mentioned previously, the GDP of its twenty-seven member states exceeded—and still does—the GDP of our fifty United States.55 Still, there was concern that the European Union might begin to lag behind the United States, as well as China and India, Asia’s awakening giants, in the years ahead.

The European Union had staked out its claim to be the “most sustainable” economy on the planet. But could it reach its climate change targets and still achieve economic growth? This seemingly contradictory agenda was a source of continuing tension, both among the member states and even within President Barroso’s own commission.

Our companies were in the room to tell the president, “Yes, we can!” All of this brings us back to the retort, “no more pilots,” that changed the tenor of the meeting.

Daimler, whose founders, Gottlieb Daimler and Karl Benz, were the first inventors to successfully put an internal combustion engine on wheels, was determined to lead the automotive world again by putting the first mass-produced hydrogen fuel cell cars on the market. The company was well advanced in its research and development, having effectively tested fuel cell vehicles on the roads for several years. In fact, Daimler’s hydrogen-powered buses (as well as other companies’) were already carrying passengers in Hamburg, Amsterdam, London, Berlin, Madrid, and other cities as part of the CUTE (Clean Urban Transport for Europe) project, an EU initiative to replace the gas-powered internal combustion engine with a zero-emission vehicle whose only exhaust is pure water and heat.

The problem for Daimler, like the other companies sitting across the table, was one of scale-up. The entire CUTE bus order was only forty-seven buses, an order so miniscule that the cost of producing each bus was more than €1 million. CUTE, like so many programs being offered in Europe and other countries, including the United States, Japan, and China, was a pilot. Governments like pilots because they introduce sexy, green technologies that don’t require spending significant public funds to ensure scale-up and a commercial market. What Kohler was saying, in effect, is that it’s time to “fish or cut bait.” He realized that the only way to effectively move this new revolution in transport to the consumer market was to first get government buy-in on a large scale, with a sizable expenditure of public funds committed to purchasing large numbers of vehicles for public fleets—early mass adoption by governments would bring the costs of production down and create the scale-up necessary to move into the broader commercial market. Forty buses wouldn’t cut it.

Everyone else in the room had a similar story to tell. They were fed up with pilots and anxious to create an economic revolution, but felt stymied in their efforts—even despairing that their breakthrough technologies and products might sit on the shelf for decades, if not forever.

THE SILO EFFECT

There was a second, related problem that needed to be addressed if the European Union was going to tackle climate change, secure energy independence, and grow a sustainable world-class twenty-first-century economy all at the same time. The way the European Commission’s departments and agencies were set up encouraged siloed initiatives—that is, programs and projects that were autonomous, self-contained, and unconnected to efforts going on in other departments and agencies. This phenomenon is not unique to Brussels. In fact, it’s endemic in governments around the world. By failing to connect initiatives across departments and agencies, governments diminish the prospects of finding synergies and creating a more holistic approach to advancing the general well-being of society. Siloed thinking inevitably leads to isolated pilot projects.

President Barroso and his commissioners were aware of the problem and making efforts to work on joint initiatives across agencies. I was particularly impressed by the “big picture” thinking of some of the key commissioners who would come to play a critical role in fashioning the various elements of a TIR economic plan—Günter Verheugen and Margot Wallström, vice presidents of the European Commission; Andris Piebalgs, the commissioner for energy; Janez Potonik, the commissioner for science and research; Stavros Dimas, the commissioner for environment; Neelie Kroes, the commissioner for competition; and Joaquín Almunia, the commissioner for economic and monetary affairs. Still, systemic thinking is a difficult task in a bureaucratic environment where there is a strong drive to hold on to turf and protect domains. This is what leads to what I call the DG (director general) abyss—the process by which big-picture ideas, agreed to at the ministerial level and even higher at the head-of-state level, lose their heft and become increasingly smaller and more narrow in vision and scope as they descend down into the departments and agencies, finally ending up as a shadow of their former selves, languishing in the minutia of countless reports, studies, and evaluations, whose purposes become increasingly obtuse, even to those tasked with managing them.

To her great credit, Catherine Day, the secretary-general of the European Commission—who is responsible for coordinating the various initiatives of the commission’s departments and agencies—was relentless in her efforts to keep the various sustainable development efforts on track, mindful of the need to find synergies and coherency between all of the many projects being pursued. Despite her best efforts and those of the commissioners, there was an almost endemic bureaucratic drive to disassociate initiatives into autonomous enclaves.

We came into the meeting with President Barroso prepared to discuss how we might begin to address the issues of perpetual pilots and the silo effect. Several members of the group were actively involved in some of the European Union’s technology platforms—formal EU public/private research initiatives made up of representatives of key industries and sectors whose mission is to recommend new EU-wide programs to advance the European economy.

Claude Lenglet, an engineer representing Bouygues, the giant French construction company, was a lead player in the European Construction Platform. As mentioned previously, another member of our group, Pier Nabuurs, the CEO of KEMA, was serving as president of SmartGrids Europe, the EU technology platform made up of IT and power and utility companies. Both gentlemen pointed out to President Barroso that few of the thirty-six European technology platforms talked to each other or exchanged any kind of information, despite the many potential synergies that existed among them. We ran down a list of thirteen technology platforms, among the thirty-six, whose missions were critical to each other’s success and needed to be integrated if we were to establish a comprehensive approach to usher in a Third Industrial Revolution in the European Union. They included the Construction Technology Platform, the SmartGrids Platform, the various renewable energy platforms, the hydrogen and fuel cell technology platform, the European Road and Rail Transport Platforms, and the Sustainable Chemistry Platform, among others. Together, these platforms represented the technologies, industries, and sectors of an emerging TIR infrastructure. President Barroso’s response was, “Let’s put this together, get them talking, and see what emerges.” With the help of Maria da Graça Carvalho, principal adviser to the Bureau of European Policy Advisers (BEPA), we began immediately and held several meetings with the thirteen platforms in the spring of 2007 to explore potential collaboration.

Barroso was at least trying to connect some of the dots. There was a deeper reason, however, for why the European Union and governments everywhere were toying with green pilot projects and becoming bogged down in siloed initiatives, seemingly unable to move beyond them: they didn’t know what “beyond” meant. What was missing was a compelling narrative that could tell the story of a new economic revolution and explain how all of these seemingly random technological and commercial initiatives fit into a bigger game plan. The business leaders attending the Barroso meeting were there to lay out that larger vision and hoped to persuade the president that the European Union needed to seize the moment and commit the world’s largest economy to a new Third Industrial Revolution.

The groundwork had already been laid earlier that year. Getting the European Union behind a change of this magnitude—transforming the industrial infrastructure of the continental economy and creating a new economic era—required the backing of Germany, Europe’s economic engine. As fortune would have it, just months after arriving in office, the new chancellor of Germany, Angela Merkel, had asked me to come to Berlin to debate one of Germany’s leading economists, on how to create new jobs and grow the German economy in the twenty-first century. I began my remarks by asking the chancellor, “How do you grow the German economy, the EU economy, or, for that matter, the global economy, in the last stages of a great energy era and an industrial revolution built on it?” (The price of oil was already rising in world markets but wouldn’t peak at $147 per barrel until July 2008.) I went on to outline a Third Industrial Revolution vision and expressed my belief that Germany would lead the way into the new economic era.

After the debate, we shared a glass of wine and settled into a more informal discussion. I was aware that the chancellor had previously been the environmental minister in Chancellor Helmut Kohl’s government and that she was a physicist by training. She thoroughly understood the technological aspects of creating a distributed and collaborative Third Industrial Revolution and the vast commercial opportunities that could flow from it, and told me she particularly liked the idea for Germany. I asked why Germany, thinking she would discuss the economic reasons why her country—at the time, the number-one exporting nation in the world—might want to lead the charge and continue to hold its commanding edge in the global economy. Instead, she shifted focus from commerce to politics and said, “Jeremy, you need to be more knowledgeable about the history and politics of Germany. We are a federation of regions. All politics here are locally driven. The federal government is the mediator. Our role is to find consensus and promote collaboration among the regions and lead the country forward. The Third Industrial Revolution, because of its distributed and collaborative nature, fits German politics.”

The chancellor’s enthusiasm was critical, especially since, as mentioned, her government would take over the six-month rotating presidency of the European Council in January of 2007. During her presidency, the EU heads of state would have to decide on a binding deal to address energy security and climate change.

I would be remiss if I didn’t point out that Merkel’s governing coalition partner at the time, the Social Democrats, were equally enthusiastic about the Third Industrial Revolution and would come to play an important role in ensuring that the 20–20–20 benchmarks being proposed by the European Commission would be supported by the European Council. Sigmar Gabriel, Germany’s Social Democrat environmental minister, was particularly active in making sure that the environmental ministers of the other twenty-six member countries were on the same page when it came to forging an agreement on climate change targets. Germany’s Socialist foreign minister, Frank-Walter Steinmeier, made sure that the foreign ministers of the EU member states were also on board with the proposed climate change benchmarks. Although the Green Party was not part of the governing coalition, it had played a prophetic role in German politics for more than two decades, warning of the dangers of climate change and the need to transition into post-carbon renewable energies. As far as German politics goes, the stars were all perfectly aligned for Germany to make its mark during Merkel’s presidency of the European Council by gaining passage of the 20–20–20 by 2020 formula, and thus propelling the European Union to the forefront of a new, sustainable economic and environmental agenda for the world.

THE EUROPEAN PARLIAMENT ENDORSES
THE THIRD INDUSTRIAL REVOLUTION

Merkel’s presidency of the European Council heightened interest around climate change and energy independence and what kind of economic initiatives would be needed to realize the 20–20–20 by 2020 benchmarks. The prospect of a green economic model for Europe in the twenty-first century was circulating in the political corridors in Brussels and in the member states.

A group of us began holding a series of strategy meetings in Brussels and by teleconference, with an eye toward winning over the European Parliament to a Third Industrial Revolution vision and game plan for the European Union. Joe Leinen, a leader in the European Socialist Party and one of the Parliament’s most respected senior members, was chairman of the Constitutional Affairs Committee at the time and the man responsible for drafting the declaration. He was joined by Claude Turmes of the Greens, the Parliament’s passionate point man on climate change, and Angelo Consoli, a seasoned political operative who represented my office in Brussels. The formal written declaration, if passed by the Parliament, would commit the EU legislative body to a long-term Third Industrial Revolution economic sustainability plan for Europe.

Written declarations are difficult to achieve in the European Parliament. Few ever pass. Knowing we only had three months, according to the European Parliament rules and procedures, to secure the needed support to gain a majority (written declarations must be passed within ninety days), our group decided to concentrate on securing the support of party leaders and the chairpersons of key Parliamentary committees—never an easy task in a legislative body encompassing so many diverse interests and fractious political affiliations. To ensure the needed votes for passage, Leinen teamed up with five highly regarded parliamentarians, each representing the major political groupings in Parliament—Anders Wijkman of the European Peoples Party (EPP), Vittorio Prodi of the Liberal Party, Zita Gurmai of the Socialists, Claude Turmes of the Greens, and Umberto Guidoni of the Parties of the Left. Thanks to the tireless efforts of the group, and especially Mr. Consoli, we were able to secure the endorsement of Hans-Gert Pöttering, the president of the European Parliament, the titular leaders of all of Europe’s leading political parties from right to left as well as the support of important committee chairpersons including Angelika Niebler of the powerful Industry, Research and Energy Committee, Karl-Heinz Florenz, chairperson of the Environment Committee, and Guido Sacconi of the Climate Change Committee.

In May 2007, the European Parliament passed a formal declaration, committing the legislative body of the twenty-seven member states of the European Union to a Third Industrial Revolution. The Parliament’s strong support of the new economic vision sent a clear signal to the rest of the world that Europe was embarking on a new economic journey.56

In the closing weeks of the German presidency of the European Council, the German government asked me to present a keynote address to the twenty-seven environmental ministers of the EU member states in Essen, Germany, laying out the new Third Industrial Revolution economic game plan that would accompany the 20–20–20 by 2020 mandate brokered by the chancellor. I told the ministers that what the European Union needed was not a climate change plan or energy plan but, rather, a sustainable economic development plan that would bring Europe, and hopefully the world, to a zero-emissions post-carbon era by 2050 and, by so doing, address the fundamental challenge of both global warming and energy security. Many of the environmental ministers had already come to that realization, while a few others were still siloed in strict environmental policies that were only marginally attached to broader economic initiatives.

THE CHECKLIST

All five of the pillars described above make up the infrastructure for a new economic system—one that can take us into a green future.

Making the change from a carbon-based fossil fuel energy regime to a renewable energy regime: check! Reconfiguring the building stock of the world, transforming every dwelling into a mini power plant that can collect renewable energies on site: check! Installing hydrogen and other storage technology in every building, and across the entire infrastructure of society, to store intermittent renewable energy and ensure a continuous, reliable supply of green electricity to meet demand: check! Using Internet communication technology to convert the electricity grid into an intelligent utility network so that millions of people can send green electricity generated near and on their buildings back to the grid to share with others in open-source commons, not unlike the way information is generated and shared on the Internet: check! Transitioning the global transportation fleet—cars, buses, trucks, trains—to electric plug-in and fuel cell vehicles powered by renewable energies generated at millions of building sites and creating charging stations across countries and continents where people can buy and sell electricity on the distributed electricity grid: check!

When these five pillars come together, they make up an indivisible technological platform—an emergent system whose properties and functions are qualitatively different from the sum of its parts. In other words, the synergies between the pillars create a new economic paradigm that can transform the world.

Europe is further along than the United States, Japan, China, and other nations in the transition to a Third Industrial Revolution. Still, I don’t want to leave the impression that the European Union is at a full gallop. Quite the contrary is true. It’s just finding its legs. There is a growing awareness within the business community, in the civil society, and in the political corridors of governments of the nature of the journey Europe has set out for itself. Yet, not everyone is prepared or even ready to take the trip. But, at least there is intent and a sense of mission in the air—although there is no guarantee that the European Union will even stay on course. It could conceivably run out of steam or even backtrack. If that were to happen, I’m not sure which other nations might step to the gate and take the world into the next era.

THERE IS NO INEVITABILITY to the human sojourn. History is riddled with examples of great societies that collapsed, promising social experiments that withered, and visions of the future that never saw the light of day. This time, however, the situation is different. The stakes are higher. The possibility of utter extinction is not something the human race ever had to consider before the past half century. The prospect of proliferation of weapons of mass destruction, coupled now with the looming climate crisis, has tipped the odds dangerously in favor of an endgame, not only for civilization as we know it, but for our very species.

The Third Industrial Revolution is not a panacea that will instantly cure the ills of society or a utopia that will bring us to the Promised Land. It is, however, a no-frills, pragmatic economic plan that might carry us through to a sustainable post-carbon era. If there is a plan B, I have yet to hear it.