by Stephen Carson and Harald Edquist, Master Researcher, Macroeconomics
When the subject of the Industrial Revolution is raised, what images come to mind? You might think of the steam engine, the expansion of the railways or electrification literally illuminating the world. For many, it’s a period that also sparks visceral reactions, with thoughts of living in a city such as Manchester, Birmingham or London in the nineteenth century, with factories spewing smog and soot into the air and dumping pollutants directly into rivers and streams.
Regardless of your feelings, it’s clear that the Industrial Revolution enabled massive productivity gains and improved the standard of living for millions of people. But the gains were largely powered by the carbon-based fuels that are now destabilizing our climate.
In the time of the Industrial Revolution, machines took the place of manual workers as production moved from cottages and workshops to factories. The resulting productivity gains were from relentless improvements in efficiency—or increasing outputs from the same or fewer inputs. The same process had similar effects in agriculture, transport and electrical distribution. Underlying most of these industries was coal, and then petroleum-related fuels.
Technological progress and Jevons paradox
Productivity gains have rebound effects as higher productivity leads to lower prices and increased demand. In 1865, the economist William Stanley Jevons observed that deploying innovations which increased the efficiency of coal-use did not result in less coal being consumed. As less coal was needed per unit of work, the demand for coal increased—a phenomenon known as Jevons paradox. He argued that contrary to common intuition, technological progress could not be relied upon to reduce consumption.
This effect can be clearly seen today as improved productivity in the manufacturing of consumer electronics leads to lower prices and more demand for both consumer electronics and other products, resulting in a rebound effect: higher CO2 emissions.
ICT has contributed considerably – at least 15 percent – to world GDP growth in the last decade. We are in the midst of a digital revolution, but carbon-based fuels remain integral to the economy. ICT has the potential to break the pattern of productivity linked to fuel consumption. It can be a key source for how to reduce our dependence on fossil fuels and work proactively to fight climate change across economic, social and environmental domains.
However, the level of rebound also depends on the policy framework in effect including carbon pricing and should not be seen as an argument against productivity and efficiency per se. With policies such as subsidies on electric cars, rebound effects could be positive for the environment as more consumers shift to electric cars. Moreover, the total spending on ICT products has increased and this could lead to an inverted rebound effect as less is consumed of other products and services in a process of dematerialization.
Moving together towards a low-carbon era
Many developing countries are at levels of consumption lower than more advanced economies, and are working hard to reduce poverty and improve living conditions. As productivity gains reduce costs, it is not unreasonable to expect significant increases in consumption due to rebound effects. Meanwhile, in the more advanced economies, dematerialization is increasingly evident, implying that the more advanced an economy becomes, the fewer of the world’s resources will be used to maintain consumption if rebound effects are under control.
Developed countries will need to aid developing countries to jump into the low-carbon era, compressing or even skipping the lag between innovation and economic impact. This will be possible as technologically advanced countries work through the myriad of improvements to general-purpose technologies, allowing the developing world to leapfrog whole generations of technology.
The current CO2 situation should be viewed as a gigantic market failure. In many countries the cost of emitting CO2 has been negligible for a long period of time. If CO2 emissions had a tangible cost attached at an earlier stage, it is probable that many more innovations would have been focused on reducing emissions. Nevertheless, it is evident that the consumption of coal, oil and gas will have to be reduced.
Staying one step ahead: How 5G can help reduce emissions
Today, we have an advantage over the inventors of the Industrial Revolution era: we know that carbon-based fuels have an important long-lived effect on climate change. The increase of CO2 emissions leading to higher average global temperatures is a threat to the stability of our societies and of the economic system, not to mention the planet itself.
Technological innovation plays an important role in addressing the challenges of global climate change. To leverage market forces in this process, policies must increasingly support regulations and treaties using bonus-malus mechanisms. Increasing subsidies on goods and services reducing greenhouse gas emissions balanced with costs tied to such emissions, are needed to secure the transition towards a decarbonized economy.
5G is likely to have large impact on productivity for the next decade. It can be viewed as a flexible innovation platform that can meet diverse user needs both for consumers and industries. Some use cases will be based on improved mobile broadband, fixed wireless and massive and critical IoT. This will likely have a direct effect on GDP.
Read the full report Technological innovation, productivity and sustainability.
Read our blog post, Making a positive impact: how tech is helping us restore planet earth.
Read more about Ericsson’s sustainability and corporate responsibility.
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