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The new economic paradigm

Jeremy Rifkin, president, TIR Consulting Group, says history’s pivotal economic shifts happen when new energy regimes converge with communications revolutions.


Infofacturing? Continentalized production? The communication-energy matrix?

Author, economic theorist and sustainability activist Jeremy Rifkin speaks passionately, often in a language all his own. But his central argument is crystal clear: The world is on the brink of a new economic paradigm that will offer extraordinary opportunities for tapping renewable energy sources at almost zero marginal cost. The drivers of the change: the Internet and a new regime of “distributed energy” captured from the sun, wind, earth and water.

Embrace this emerging regime and all its implications for more sustainable economic activity and complex social organization, urges Rifkin, who calls this fundamental shift nothing less than “the next stage in the human journey.”

President of the TIR Consulting Group, Rifkin is also the founder and chairman of the Third Industrial Revolution Business Roundtable, whose membership includes many of the world’s leading companies from the renewable energy, construction, architecture, real estate, IT, power and utilities, and transport and logistics industries.

When the Wharton- and Fletcher-educated activist speaks, governments around the world listen. Colorado-born Rifkin has advised countries from Greece to Kazakhstan on how to most effectively confront global climate change. After reading Rifkin’s latest book, Chinese Premier Li Keqiang instructed two governmental agencies to prepare China to take part in the new energy regime, which the author sees as central to what he calls “the third industrial revolution.”

Rifkin has been advising the European Union on climate change, energy policies and sustainable economic development for more than a decade. In fact, he has been exploring the issue for more than 30 years. He says that the European Union is already well on its way to creating what he calls “a post-carbon circular economy” in which the energy used in the region is produced there by capturing renewables, storing them primarily in the form of hydrogen and transporting the green electricity via the Internet. In 2007, the European Union endorsed Rifkin’s long-term economic sustainability plan, which is being implemented across its 27 member states.

Rifkin is a prolific writer, having written 19 books on this and other topics. (His 2011 book, The Third Industrial Revolution, was a New York Times bestseller; his latest book, The Zero Marginal Cost Society, was published by Palgrave Macmillan in April 2014.) He also takes his message directly to business leaders: Rifkin is a senior lecturer at the Wharton School’s Executive Education Program.

Not every country has embraced his ideas on climate and energy, however. In a recent, wide-ranging conversation with Bruno Berthon, managing director for Accenture Management Consulting’s Strategy & Sustainability group (follow Bruno on Twitter), Rifkin identified the United States, Russia and Canada as laggards in this area. What follows are excerpts from that interview.


BRUNO BERTHON: Jeremy, you’ve said we are in the midst of a great transition to a third industrial revolution, and that it shares some common features with the first and second industrial revolutions.

JEREMY RIFKIN: When you look at the pivotal economic paradigm shifts in history, they all happen when new energy regimes emerge. When new energy regimes emerge, they allow us to create much more sophisticated ways of organizing economic activity and more complex social organization. They bring more people together and integrate skills into larger commercial arrangements. The complexities of new energy regimes also require new communication revolutions that are agile enough to manage them.

We see a pattern in history: The great economic paradigm shifts happen when new communication revolutions emerge, converge and manage new energy regimes. That changes the way we organize our relationship to nature and to each other and society.

How did this happen before?

In the first industrial revolution, we had a powerful coming together of communication and energy. We went from manual printing presses to steam power printing in the early 19th century. This allowed us to produce massive volumes of print material cheaply. This was comparable to the Internet revolution in its ability to allow us to communicate on a much larger scale and at a much lower marginal cost. Then we introduced public schools in Europe and America to create a literate workforce with communication skills to manage a complex coal- and steam-powered industrial revolution.

And the second industrial revolution?

In the 20th century, we had another convergence of communications and energy. First we had centralized electricity and the telephone, and then later radio and television and the automobile and oil era, which led to a suburban build-out of infrastructure and a mass consumer society.

Where are we today?

That second industrial revolution has clearly matured; it’s really on life support. It’s in five- to six-year spasms of growth and slowdown because fossil fuel energies are now sunsetting. Their prices are high and volatile on world markets. The technologies based on those energies—like the internal combustion engine, centralized electrification—have literally exhausted their productive capacity.

And the energies being used are bad for the environment.

We are in real-time climate change, and the terrifying aspect is that it changes the water cycle, the hydrological cycle. This planet is all about water; water is the key to life. When we probe other planets, the first thing we look for is water. Our ecosystems, developed over millions of years, were based on certain patterns of water distribution.

How is this related to climate change?

For each degree that the temperature goes up on Earth, the atmosphere is now absorbing 7 percent more precipitation from the ground. This is throwing off the whole hydrological cycle of the Earth. So what we’re seeing is more dramatic water events from concentrated precipitation in the atmosphere; more protracted winter snow, especially at the end of the winters; more dramatic spring flooding; more dramatic summer droughts; more dramatic category three, four and five hurricanes; tsunamis and typhoons.

Our ecosystems are stressed now to the point where they are collapsing. There's never been a point in history like this.

More glacier melts in the mountains affecting a fifth of the population, which live in the valleys. We’re seeing seawater rise that’s affecting infrastructure on the coasts. Our ecosystems can’t catch up to this dramatic change in the hydrological cycle, and they’re stressed now to the point where they are collapsing. There’s never been a point in history like this.

What do we need to do?

We need a compelling new economic vision for the world and a new economic game plan for that vision that’s deliverable. It has to move as quickly in the developing nations as in the industrialized countries. And the bottom line: We have to be off carbon.

Is this where the third industrial revolution comes in?

We are beginning to see the convergence of a new communications revolution with a new energy regime that will fundamentally change the economic paradigm. We had a powerful communication revolution over the last 20 years: the Internet. And what’s so interesting about the Internet is the way it’s organized. I grew up on centralized communication, top-down, one-to-many, television, radio, newspapers, book publishing, magazines.

The Internet is not centralized. It’s distributed communication. It isn’t organized as top-down and command-and-control. It is collaborative in nature and, most important, it isn’t vertically integrated to create economies of scale. It’s peer-to-peer production, and it’s a lateral scale, lateral power.

But that’s only half the story, and this is where the third industrial revolution comes in. This Internet communication revolution is now beginning to manage a new energy regime: distributed energy.

What are distributed energies?

Elite energies like coal, oil, gas and uranium are only found in a few places. They require huge military and geopolitical investments, and massive capital to get them from the wellhead to the end user.

Distributed energies, on the other hand, are found everywhere. The sun shines all over the world, every day. Forty-five minutes of sunlight can power the world seven times over for an entire year. The wind blows across the Earth every day. Twenty percent of that wind could power our economy many times over for a year. Underneath the planet’s surface, we have a hot geothermal core of energy. In the rural areas, we have agricultural and forestry waste that can be converted to energy. And along the coastal regions, we have ocean tides and waves as a source of energy.

These distributed energies could provide more power than we will ever need for our species until the end of time.

But the stumbling block has always been the ability to harness and store these energies.

The European Union has made a formal commitment to a third industrial revolution that will bring together distributed Internet communication with distributed energy to create a matrix for a new infrastructure and economic paradigm. It’s taken about 12 years. I was privileged to work with them to develop the formal plan. The Third Industrial Revolution vision and economic development plan was formally endorsed by the European Parliament in 2007. The TIR plan is embedded in the European Union’s 2020, 2030 and 2050 roadmaps.

What specifically has the European Union committed to?

There are five pillars in the plan. Pillar One is a commitment to 20 percent renewable energy by 2020. That’s a mandate, not a suggestion; every country has to meet that goal.

And Pillar Two?

Pillar Two is about collecting distributed energies. Early on, we started thinking: We’ll go to Spain, Italy and Greece and put up huge solar parks and ship [the energy] in a high-voltage line to the rest of Europe. The Irish will have big offshore wind farms. Other regions will give us hydroelectricity. None of us opposed these more concentrated uses of distributed energies.

What happened?

We realized a number of years ago that you can’t manage an entire continental European economy on these regions where renewables are concentrated. So if the energies are distributed and they’re found everywhere, why not collect them everywhere? This led us to Pillar Two: Collect them wherever we have energy and infrastructure, which means primarily buildings.

So the idea is to get its energy from buildings?

We have 190 million buildings in the E.U.—homes, offices, factories. The goal is to transform the entire building infrastructure of the continent into [a network of] micro power plants—each building in Europe collecting solar off the roof, wind off the side of the building, geothermal heat from underneath the building, garbage converted to biomass inside the kitchen. The new buildings coming up are positive power: They actually suck up so much sun and wind that they can power their entire complex and send surplus electricity to the grid.

All this means we have to make existing buildings energy efficient, to retrofit them, seal them up so there’s no leaks. Then we have to put power on them.

So that’s going to take two generations, 40 years, millions of jobs, thousands of small and medium enterprises, and large contracting companies to do that work.

And beyond Europe?

Ten years from now, we’re going to have tens of millions of buildings all over the world producing their own green electricity. And 20 years from now, we’re going to have several hundred million buildings producing green electricity. The reason we know this is that we have done the calculations. Solar and wind have been on an exponential curve, just like computer chips for the last 20 years. Within 15 to 20 years, the harvesting technology for solar and small vertical wind are going to be as cheap as cell phones and desktop computers today.

That sounds like a very aggressive timetable.

As we create the energy Internet and everyone transforms their own buildings to micro power plants, the harvesting technology gets cheaper and cheaper. And then, of course, the sun off your roof is free, the wind off the side of your office building is free, the geothermal heat underneath your factory is free, the garbage converted to energy in your kitchen is free.

So just as information has become nearly zero marginal cost, creating the possibility of nearly free information, and has rocked the entertainment, publishing and newspaper industries, we’re seeing the same thing with energy in places like Germany and Denmark. It takes two to seven years on solar, a little longer for wind, to pay back the investment. But the moment you install the harvesting technologies, the energy itself is free. You just have to keep the panels clean. And the wind you’re generating, even before you pay back the investment, is nearly free.

Now we’re talking about near zero marginal cost. So I think Pillar Two is a game changer.

What about Pillar Three?

Pillar Three is the biggest challenge of the five pillars: storage. The sun isn’t always shining; the wind sometimes blows at night. You need the electricity during the day. Hydroelectricity can be compromised if you have drought. So these energies have to be stored. We’re at this stage, exploring all forms of storage—flywheels, batteries, capacitors, water pumping, air compression—anything that will store these distributed renewable energies.

Are any of these forms of storage particularly promising?

We have focused quite a bit on hydrogen. We like all storage technology, but hydrogen is the universal carrier; it’s the basic element of the universe. It stores other energies; it’s modular, so you can put it in a small apartment or in a big power and transmission utility grid. The E.U. has committed €8 billion to public-private deployment of hydrogen storage.

How does it work?

If you don’t need all the electricity that you’re generating at a given moment, you can pass the current through a tank of water and the hydrogen in the H2O separates, so you store that hydrogen. Then you can take that hydrogen from the water and you can put it in a fuel cell and generate electricity again.

Three pillars down, two to go.

Pillar Four is where the Internet communication revolution converges with the new distributed energy to create a nervous system for this new infrastructure. Europe is commited to transforming the electricity grid, the power and transmission lines, to an energy Internet, a distributed smart grid. When millions of buildings are producing small amounts of green electricity and storing it in hydrogen, you can program your app to sell your green electricity across an energy Internet from the Irish Sea all the way to the edge of Eastern Europe.

And Pillar Five?

The last pillar is transport and logistics. Electric vehicles are already on the market, and fuel cell cars, trucks and buses running on hydrogen will be in mass production between 2015 and 2017 by the six major auto companies. We’ll be able to plug in our vehicles anywhere there are buildings, get green electricity, and wherever we park, there will be plugs to connect our vehicles back to the energy Internet.

The most important thing to understand is that these five pillars are meaningless by themselves. It’s only when we phase them in at the same speed and create the synergies between them that we actually create a new technology platform for a completely new economic and business model. And this is important because we need to understand the mistakes that have been made.

What mistakes have you seen?

The Obama administration spent billions of dollars of stimulus money on a green economy, and it didn’t happen. Why? Because the money was spent on stand-alone projects—a battery factory in one state, an electric car factory in another state, a solar factory in a third state, etc. But there was no infrastructure.

Europe is learning from these errors, and that’s a painful process. Europe did very well on Pillar One, so we have millions of people generating green electricity. We have so much renewable energy now that we have regions in Europe that are 40, 50, 60 percent green electricity.

The problem is, the respective countries didn’t move on Pillar Four quick enough, the energy Internet. So we have this old transmission grid—[it’s] mechanical, centralized and leaks 20 percent of the electricity. Moreover, the power grid is trying to manage millions of small players sending their green electricity in, and it can’t manage the peak and base loads.

What about the other pillars?

Europe didn’t move quickly enough on Pillar Three—storage—either. So we are actually losing three out of four kilowatts in renewable energy because the wind blows at night but we need the electricity during the day. Or sometimes at high noon there’s so much solar and wind coming through the grid that we have negative prices for electricity.

Finally, our car companies in Europe are petrified because they spent billions on electric vehicles and now fuel cell vehicles. If the other four pillars aren’t in and there’s not an operating infrastructure, those vehicles will be orphaned out.

So the timing is crucial.

This is the point. We’re doing pilot projects, we’re siloing, and cities are, you know, thinking they’re doing a great job. But we’re not advancing to a new era.

What about countries outside the European Union? What are their “third industrial revolution” track records?

Places like Russia, the U.S. and Canada will be second-tier countries within 25 years if they stay locked into the old energies and the old infrastructure. There’s no productivity in it. It’s a dead end. You have to understand that the second industrial revolution is going to scale down as it sunsets over 25 years, while the third industrial revolution is going to scale up. That’s what’s happening. So whether you’re a country or an industry or a company or a community, the smart ones will be in two models at once.

What’s the role of individual companies? What should they be doing?

The IT, the electronics industries, construction, real estate, transport and logistics—the smart ones will be in both business models and then deliberately, but quickly, transition over 25 years from a second to a third industrial revolution and an Internet-of-things infrastructure. That’s where they’re going to find the productivity and value. So this is not an either-or, but it’s a transition from one to the other.

How will this affect business models?

3D printing is the manufacturing model for the distributed, collaborative, laterally scaled third industrial revolution. If you try to plug and play 3D printing into the second industrial revolution centralized platform, you’ll get little productivity out of it. The German 3D printers [developers] understand that they have to plug and play their operations into the third industrial revolution infrastructure. Silicon Valley hasn’t yet grasped the fact that 3D printing is inseparably linked to a TIR platform.

What’s different that the Germans understand?

3D printing is additive manufacturing—the software is forming the molten material, and layer by layer, you build up the whole product with moving parts. There’s almost no material loss; it’s additive. So right away, you have a leg up against big centralized factories that do subtractive manufacturing in which you get a big hunk of material from nature, cut it up, and throw some of it out before assembling the final product.

Sounds like an entirely new model.

Yes. I call it “infofacturing.” It’s not really manufacturing, because it’s not manual; it’s done with very little labor. So it creates the democratization of manufacturing. It allows many new players, it allows us to “continentalize production,” so that we start producing for local regional markets. Global trade doesn’t disappear, but it’s less essential. And, of course, 3D printing is part of this democratization.

How realistic is it to expect that any of this will actually happen?

My own personal belief is I don’t think we’ll get there without a change in consciousness. I think the architecture of these five pillars of infrastructure is elegant and at the same time [based on] simple common sense.

We need to shift from a geopolitical frame of reference to a biosphere consciousness very quickly. I am guardedly hopeful for this reason: Humanity is quickly becoming aware that the biosphere is the indivisible overarching community to which we all belong, and whose well-being is indispensable to assuring our own well-being as well as our survival. Once we grasp this key concept, we have the right mindset to move to the next stage in the human journey.

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