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Can Moore’s Law drive sustainability?

<p>An observation that transformed the technology industry may also be on the verge of turning the world&rsquo;s fledgling environmental markets into the next big business opportunity</p>

A simple observation that was made more than 40 years ago about growth in transistor density went on to become an organizing principle for the entire technology industry, creating expectations that drove investment which yielded innovation and rapid yet stable growth.

Just as “Moore’s Law” created a virtuous cycle for the technology industry, so can efforts to address climate change by building a low-carbon economy offer perhaps the greatest business opportunity since the transistor. This too will require a transformation of the industry guided by an organizing principle — creating market expectations through price signals, which drive investment and bring about innovation.

The fundamental challenge of the 21st century is clear: how to meet exponentially growing demand for resources on a finite planet. Consider the great risks and extraordinary opportunities in store for the global economy over the next 40 years: an additional three billion people will adopt middle-class standards of living with commensurate demands on raw materials, energy, water, food and other commodities. Moreover, global GDP is expected to triple; critical non-renewable resources will become harder to extract, more expensive and more tightly controlled; and addressing climate change and curbing carbon emissions will be integral to any prospect for sustainable economic growth.

We have no choice but to pursue sustainability. As José Maria Figueres, former President of Costa Rica, said: “There is no Planet B.” In the 1990s, Figueres implemented a carbon tax that helped save Costa Rica’s rainforests and turned the country into a global destination for eco-tourism. Now as president of the Carbon War Room, he has become an outspoken leader on the subject of sustainability in business.

His comment gets to the heart of the daunting challenges facing business leaders in the 21st century: How does the global economy meet the consumer aspirations of the world’s growing population without bankrupting natural resources and cooking the planet. Figueres is among a growing number of business and political leaders calling for a global economic transformation. However, is such a transformation possible in the timeframe of 40 to 50 years? And if so, how would it happen?

Transforming a Global Economy

Information technology has changed the global economy in ways that would have been unimaginable just 30 or even 20 years ago. Semiconductors have been driving this transformation, and there is a dynamic in the semiconductor industry — and the tech sector generally — that is little noticed and poorly understood. Most view the explosive growth of digital technology as a unique phenomenon driven by the physics of silicon. Yet, in terms of how the industry organized itself, tech broke the rules and changed common practices, and this may have had a greater influence on its explosive growth than did the technology itself.

In the 1960s and 1970s the burgeoning semiconductor industry was a self-organizing system of many diverse yet interdependent parts coming together. These included entrepreneurs and scientists, start-up companies and corporations, academia and government, natural resources and human engineering, venture capitalists and bankers. The common aim was expanding the availability and application of digital technology — with the potential for great economic opportunity. Although self-organized, the industry was subject to tenets and principles that helped guide it — including the rules of supply and demand imposed by the market.

In a 1965 article in Electronics magazine, Gordon Moore, who went on to co-found Intel, wrote that the number of transistors that could be mounted economically on a standard computer chip would double every year (by 1975 he updated it to a doubling every two years). In the article, he envisaged a future where: “Integrated circuits will lead to such wonders as home computers, or at least terminals connected to a central computer, automatic controls for automobiles, and personal portable communications equipment.” What Moore was envisioning in 1965 wasn’t just ahead of its time, it was way out there. Yet by 1975, his thinking about the pace of change was viewed by the wider industry as authoritative and proved so accurate it became known as Moore’s Law.

Moore’s Law was powerful because it offered investors the opportunity to participate in tremendous growth, and provided market participants with predictability. Instead of working separately and carefully guarding their secrets, competitors began co-operating and sharing information on how to keep Moore’s Law going.

Inadvertently, Moore had created a virtuous cycle — a widely accepted expectation that drove investment and yielded innovation. This cycle has been repeating biannually for over 40 years, transforming the global economy and the lives of billions of people.

Moore’s Law has held true for so long because of its own effect on the industry. As a clear, credible and widely accepted metric, it created an expectation that the continuous doubling of transistor density would generate huge financial opportunities. Engineers and entrepreneurs organized themselves to realize these gains, attracting large and consistent capital investment, which in turn spurred innovation. As the cost of these successful technologies dropped, this created even higher expectation, driving more investment and bringing further cost reductions. Failure to keep up with Moore’s Law meant failing to stay competitive. Moore’s Law was a powerful discipline.

The Next Transformation

The next great transformation of the global economy has already begun. Out of necessity, sustainability is emerging as the most significant trend in business over the next 40 years. Sustainability is the effort to align business aims with 21st century environmental, social and economic challenges around climate, energy, water, agriculture and development. It is moving beyond the realm of conscientious corporate action to the area of value creation, global competitiveness and corporate viability. A successful sustainability strategy in the 21st century isn’t only about being responsible, it is about being positioned for even greater economic opportunity. A failing strategy in sustainability isn’t just bad manners, but represents an existential threat to the competitiveness of the business enterprise.

To achieve transformation requires organization around clear credible and authoritative expectations for the future – ones that will spur steady investment and foster constancy of purpose, co-operation and continuous innovation, much as Moore’s Law enabled for the tech sector.

The Role of Environmental Markets

Transformation of the global economy will be a great challenge, especially as it is powered in fundamentally the same way as it was over 100 years ago. Fossil fuels have magnified both the power and the impact of human industry. Taking carbon, which has been sequestered in the earth for 40 million years, and pumping it into the atmosphere is affecting the stability of the earth’s climate and challenging basic thinking about the earth and the global economy. Industry tends to see the earth as a resource to be tapped and shaped to serve the human economy. Now science tells us — especially in regards to carbon — this is threatening catastrophe. A new way of thinking seems to be needed — where the economy is seen as a part of the earth to be aligned with and shaped by how the earth works as a system. The challenge for the new economics is in creating powerful, credible and authoritative expectations about this new alignment that will drive investment and lead to innovation.

This challenge has some important similarities to the tech transformation. Building a sustainable global economy will require many diverse yet interdependent parts coming together. These will include many of the same key players — entrepreneurs and scientists, start-up companies and corporations, academia and government, natural resources and human engineering, venture capitalists and bankers. The common aim will be to meet the growing planetary demand for sustainable resources — with the potential for great economic opportunity. Although self-organized, the sustainable economy will be subject to tenets and principles to guide it – including the rules of supply and demand imposed by the market, as well as other rules coming from both inside and outside the system.

Much as Moore’s Law provided a critical rule for organization of the tech sector, environmental markets will provide important signals for building a sustainable economy. These markets are already beginning to shape expectations through both proactive and reactive price signals. Proactive price signals pay for services provided to the human economy by natural systems. One example of this is found in the international agreement known as REDD (Reducing Emissions from Deforestation and forest Degradation.) Deforestation accounts for roughly 20 percent of global emissions (similar to that of global transportation). REDD creates incentives to keep forests intact given the important eco-service they provide in absorbing CO2.

Reactive price signals put a cost on the overuse and degradation of natural systems, such as excessive anthropogenic CO2 emissions creating catastrophic climate change. Putting a “reactive” price signal on carbon emissions would immediately change expectations about the future of fossil fuels. A price on carbon would also change expectations about new low-carbon energy systems such as solar and wind power, which would immediately become more competitive as carbon-free energy sources. The most critical aspect of these price signals in setting expectations is that they are credible and authoritative and that they create constancy of purpose towards transformation. If markets are weak — as carbon markets seem to be now, due largely to US absence from any binding agreement after its clean energy bill died — expectations for the future won’t trigger the kind of investment necessary to bring about the innovation needed for transformation. Moore’s Law worked because people believed what Moore was saying and feared ignoring him. Environmental markets will work if people believe in them and fear ignoring them.

Can these signals work? Can changing expectations about energy and the environment really organize industry in a way that will bring about the desired outcome of meeting the needs of growing planet sustainability? One example in the U.S. seems to indicate they can.

In 1975, the state of California began capping energy usage levels for all new refrigerators. Success in California led quickly to federal regulation, which adopted many of the state’s standards. These new expectations about energy efficiency drove investment in appliance research, design and development, which led to innovations that few could have foreseen. The average refrigerator sold in the US today is 20 percent bigger but uses 75 percent less energy than its 1970s counterpart. And, by making just this one appliance more efficient, the US saved even more energy than it generated over the last 40 years through all solar and wind capacity. That is the power of creating credible, authoritative expectations.

Becoming more efficient with energy and finding new cleaner sources are just part of the great work required in remaking the global economy around sustainability. Environmental markets will play an important role in catalyzing the expectation-investment-innovation cycle to bring about this transformation. As Gerard Kleisterlee, CEO of Phillips Electronics, a pioneer in sustainable lighting design, recently indicated, we really don’t have a choice. “Companies must realize that in the long run there will be a sustainable world with sustainable business or there will be no world and no business at all. The corporate community must learn to see sustainability not as a nice add-on…but as an essential part of doing business.”

Image of "data earth" by GrandeDuc via Shutterstock

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