The cleantech revolution starts here

The Paris climate change summit will trigger a new wave of cleantech investment. The breakthroughs it brings will drive economic growth and create new jobs and prosperity.

When 195 nations reached their historic agreement to curb carbon emissions at theParis summit in December, they not only brought new hope that the world could contain the effects of climate change, they also signalled the start of a new technology revolution.

The Paris deal, which aims to limit the global temperature rise to 2°C, or 1.5°C if possible, heralds a new age of cleantech. Like previous technology revolutions, it will have major implications for the world of business and finance and the wider economy.

As world leaders were still negotiating the deal, elsewhere in Paris Microsoft founder Bill Gates was announcing news of the largest ever clean energy fund, the multi-billion dollar Breakthrough Energy Coalition. Meanwhile Indian Prime Minister Narendra Modi and French President François Hollande were launching the International Solar Alliance to raise US$1 trillion to fund solar power in hot countries.

According to Dr Martina Linnenluecke and Professor Tom Smith of UQ Business School, the Paris summit fired the starting pistol, and the race to replace fossil fuels has now begun in earnest. Dr Linnenluecke, a sustainability expert and author of the best-selling book, The Climate Resilient Organization, says: “Hundreds of thousands of patents for clean technologies have been registered, but investors have been waiting for the right time to start the commercialisation. They will treat the Paris summit as a signal that now is the time to invest.

“This historic agreement will lead to the next technological breakthrough. Cleantech will be the ninth breakthrough in the history of modern markets. From the railways to the internet, each breakthrough has driven worldwide economic growth and cleantech will be no different. The cleantech revolution will drive economies and create wealth for individuals and businesses alike.”

To anticipate how events might unfold, Dr Linnenluecke suggests we look to the eight previous revolutions - railways, electricity, automobiles, radio, microelectronics, personal computers, biotechnology and the internet.

“In all these cases the existing technology was replaced by something that was not there before and there was a very dramatic change in a relatively short period of time,” she says. “Initially uptake of the new technology can be slow and it is surrounded by uncertainty. There are always some sceptics who don’t believe it will catch on - in the early days of the internet, there were claims that it would not lead anywhere.

“As these early obstacles are overcome and the new technology starts to become established, uptake becomes very rapid. Amidst the collapse of an old system, there is also excitement about the new technology and there are periods of creative destruction as renewal takes place.”

According to Professor Smith, the Frank Finn Professor of Finance, this creative destruction is likely to take the form of an investment bubble similar to that in the dotcom market in 2000.
“There will be a huge number of firms and it will seem like you can make money easily. As the market rises, people may question the valuations just as they did with dotcoms but in a market like this, you can’t bid against it. Then there will be a period of creative destruction where the bubble bursts and the bottom falls out of the market. As with the dotcoms, great companies will emerge but they will not necessarily be the same ones that everyone was investing in at the start.”

Barclays analysts predict a US$30 trillion boom in new technology and renewables investment between now and 2040. But with so many different technologies - ranging from solar and wind energy to bio-energy, geothermal and numerous energy efficiency applications – it is clear that not every one can succeed. Dr Linnenluecke and Professor Smith are managing a project funded by the Australian Research Council to identify the most likely winners.

The uncertainty will mean that investors have to make some difficult decisions, about which technologies to back and the right time to invest. “For some, the best time to invest will be early in the market, but this comes with a higher risk because they can’t be sure that the technology they are backing will be the breakthrough technology of the future,” says Dr Linnenluecke.

There is also the issue of how shares in fossil fuel companies will be affected – particularly if limits are imposed on carbon extraction and companies are forced to write down the value of their reserves.

But regardless of which technologies win through, the question is, will businesses and domestic customers be willing to make the switch - or will they need government incentives to persuade them?

Professor Smith believes the next phase of development will be driven by private money. “We are now at the point where markets can take on the costs of clean technology. Costs have gone down to the extent that for those thinking of setting up a new power plant, there is little difference in price between coal or solar power, and in locations where transmission lines are not already in place, then solar power is a no brainer. For this reason we can expect that developing countries will be quick to make the technology leap to alternative energy, just as they were quick to adopt mobile phones in the absence of landlines.

“Consumers will also start to adopt clean technology. People like the idea of Tesla batteries. As technology advances, prices will come down dramatically just as they have done with computers, which in turn will help cleantech to become mainstream.“

According to Professor Smith, Europe has led the way in encouraging uptake of clean technology, although the US probably has the most patents. While Australia was initially slow to invest, it is quickly catching up.

“The EU has always been one of first movers while Australia has been more reluctant – perhaps because we had lots of cheap coal power, it was more attractive to delay investment. As policies weren’t so favourable for cleantech, we are probably not as prepared as some other countries.

“However Australia does have a lot of cleantech patents, and in fact government expenditure on research and development has increased dramatically in recent years to the point where it is now almost on a par with European nations such as Germany. It will be interesting to see if countries like Australia can catch up and even overtake the EU.”

He says countries that can compete will feel the economic benefits. “Technological revolutions have driven growth in the economy from the 1880s through to now. As cleantech is more labour intensive than mining, in which much of the work is done by large plant, it will also create more jobs. The cleantech revolution will not only be good for the planet, but will create employment and wealth which is good for everyone.”

Last updated:
27 February 2019