The transformation into a sustainable society is one of the toughest challenges facing humanity. Even with a consensus regarding the need to decrease and prevent the negative impact on the environment, many strategic considerations remain. Choosing strategies (what should be done?) as well as tactics (how should it be done?) wisely, may significantly improve success rates. Doing the right thing has though been shown, even with the best intentions, to be very difficult. The challenge is exceptionally complex and encompasses very intricate considerations and judgements. There is a need to categorize and illustrate possible routes in a simplified way to facilitate evaluation and communication.
Analyzing potential and investments made within cleantech, two major categories surface: sustainable technologies that are presently not profitable or competitive on their own merits and incremental improvements decreasing the negative impact of well established technologies. This first category comprises more radical new sustainable technologies, such as solar and wave, potentially disrupting existing industries. Second category products and services usually, in addition to decreased negative environmental impact, offer customers direct savings and a short payback on made investments. These are services such as energy efficiency services and insulation materials. Irrespectively of category, the aim should be to develop both present and new technologies into becoming sustainable and profitable. The overall target should be to reach a situation where sustainable subsidy independent technologies are outcompeting non-sustainable alternatives. That this is not only needed, but also possible, is a fair hypothesis as resource efficient technologies should be economically sound.
Support the right movements
The question remaining is what to do to reach this ideal state in the most efficient way, and with as limited setbacks as possible. Choosing an optimal approach and strategy regarding the use of allocated resources (investments, subsidies etc.) is very difficult given the complex nature and all dependant parameters in play. There is a need for instruments helping decision makers to compare alternatives to find the optimal path forward. Efforts chosen should support and create a movement towards competitive sustainable solutions. Either supporting sustainable technologies with the potential to become competitive or decreasing the negative impact of non-sustainable solutions. Decreasing the negative impact of existing technologies can buy valuable time to develop sustainable alternatives. This may sound as an obvious guiding policy, but what does it imply?
Making sustainable technologies profitable demands further technical development. Temporary regulation and subsidies may speed up this movement but can be questioned as long term solutions. Efficient use of subsidies incentivizes further development towards subsidy independent competitive technologies. The negative environmental impact of profitable technologies is incrementally decreased trough technical achievements. In both cases further technical development is essential but there is a huge difference from a funding perspective regarding technologies that are far from being profitable and those that are on the verge of becoming profitable, or already are. The first case concerns funding of research and development aiming for technology breakthroughs that eventually may become commercially feasible and in the second case supporting commercialization and expansion of developed proven technologies.
Moving into the profitable area
With a working model sustainable technologies are gradually moving into the profitability area and profitable technology into becoming sustainable. A working system will also filter out non sustainable and non competitive alternatives. Venture capital can be instrumental in this evolutionary process, however given its limitations, focus will continue to be on profitable or close to profitable technologies. Relying on VC to a too high extent will therefore give an unbalanced approach mainly favoring incremental improvements.
The challenge is a balancing act, being able to walk the ridge while aiming for the top – a sustainable society. There should be a balance between sustainable and profitable solutions, a balance between radical and incremental innovation. Out of balance, the development will slow down. Pushing and subsidizing non-profitable sustainable solutions too strongly may result in an inefficient use of resources and may lead to economic decline. On the other hand, mainly focusing on incremental but profitable improvements of established non-sustainable technologies may result in a too slow development towards a sustainable society. Falling off the ridge, either side, may show very costly, significantly slowing down the progress towards a sustainable society. Some mountaineers sadly enough never make it to the top. Let’s see to that we do not become one of them.
/Martin Vendel
KTH Executive School
To read more, here is a publication.
