There’s been a lot of hand-wringing over whether the world will get its act together enough to prevent catastrophic warming. There’s certainly a case to be made there — we’ve spent the last several decades kicking the can down the road at every opportunity.
Well, here we are again, with the can again before us and the end of the road fast approaching.
Lucky for me, I tend to be an optimist. I still think we’re in for a world of pain, and we’ll probably have to rely on some exotic technologies like fusion power and direct air capture to pull ourselves back from the brink. But in my opinion, when the chips are down, humanity tends to pull through.
That is why I think many of the gloom-and-doom scenarios regarding climate tech investments tend to be overly bearish. Take the International Energy Agency’s (IEA) forecasts, which for years habitually underestimated the growth of solar power. The agency has since added better models to its toolkit, but it and others still make predictions that go on to be proven overly pessimistic.
In reality, renewable energy and other climate tech is likely to follow an adoption curve that’s similar to other industries. It might even follow an accelerated version given how broad and deep the impacts and benefits of climate tech are likely to be — and the very real prospect of Armageddon if we do nothing.
To see how climate tech stands to outperform today’s forecasts, you only have to look as far back as 1970, when the computing revolution was beginning.
Exponential trends
The overarching trend of investment in the computing and telecommunications space over 50 years has been exponential. But that simplistic analysis papers over the significant growth that happened in the early years. It also fails to pick up on key technological advances that sparked wider adoption.
In 1970, companies spent about $16.5 billion on computers, software, telecommunications equipment and so on, according to the U.S. Bureau of Economic Analysis. For the next few years, they invested a few billion more each year. But then, around 1976, things started to pick up. Zooming out a bit, expenditures followed an almost perfectly exponential pattern from 1970 to 1985. Much of that growth was driven by the adoption of communication equipment (phones, fax machines) and computers.
The growth curve leveled off in the middle ’80s before ramping up again in the early ’90s — the heyday of the personal computer revolution and the birth of the internet. The dot-com bust squashed hardware growth once more, but barring a brief interruption in 2009, it has continued a steady upward pattern for the last 20 years.
For 30 years, growth in computing and communications hardware resembled a series of hockey sticks instead of a single straight line.
On the software side, it’s been almost all hockey sticks. Companies didn’t really begin investing in earnest until the late ’70s. Growth slowed a bit in the early ’90s, but then the internet arrived, and the investment curve bent sharply upward until the dot-com bubble burst.
That wasn’t nearly the end for software. After a few down years, the rest of the 2000s were defined by steady growth. Following the Great Recession, exponential growth once again took over. While not nearly as steep as the late ’90s, growth hasn’t slowed yet. If anything, it might still be picking up thanks to the adoption of SaaS.
Neither hardware nor software saw uninterrupted exponential growth, and their historical slowdowns were each harrowing in the moment. But total expenditures never declined more than 10%, and each new growth curve started significantly higher than the previous one.
As a result, the total dollars invested today are orders of magnitude higher than 50 years ago. Total investment, when adjusted for inflation, rose more than sixfold to nearly $1 trillion last year from $122 billion in 1970.
Bigger than anticipated
It’s not unusual for new technologies to experience this sort of exponential growth, both in terms of adoption and investment. It’s likely that climate tech will follow a similar path.
Whether you think we’re embarking on a period of slower or faster growth probably depends on where you think we are on the curve. Some might argue that the clean tech bubble of the late 2000s and early 2010s was the starting point, putting us about 10 to 15 years in. That may be true, but the sums back then were much smaller than the checks we’re seeing today — more akin to early adopters testing the waters.
It’s more likely that the curve reset itself in the mid-2010s. That means we’re still in the early days of a new round of exponential growth (for real — unlike what’s happening over in crypto). If that’s the case, we’re only about five to seven years into a period of exponential growth that will unfold over the next 20 to 30 years.
If we use computing and software as a guide, we should expect to see a nearly fivefold increase in the capital committed in the next 30 years. BNEF said that the world spent and invested $920 billion last year on the energy transition, meaning the world could be spending $4.5 trillion per year by 2050 (not adjusting for inflation).
That’s probably a conservative estimate. Governments are committing significant resources to speed the transition, and they’re going well beyond what was spent on computing and software. Growth rates could go even higher if other promising technologies like fusion or direct air capture deliver on their promises.
Picking on the IEA again: It expects renewable energy capacity will double between 2021 and 2026. That’s not quite exponential growth. And since wind and solar costs are falling — meaning each new gigawatt will cost less to install than the last — that forecast suggests the IEA thinks the investment curve will bend downward, not up, bucking historical trends in other industries.
It’s possible that history won’t repeat itself, but there’s ample evidence to think it will. Investor interest in climate tech has surged in recent years, and the Inflation Reduction Act (IRA) is adding fuel to the fire — maybe a lot since some think the IRA may have a bigger impact than anticipated.
Then there’s the necessity of it all. If we don’t figure this out soon, we’ll be paying for it later. There’s nothing like a deadline to sharpen your focus.
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