Bill Gates is an icon of innovation. Not only did he build up Microsoft to be one of the most innovative companies in the world, he has recently focused his efforts on philanthropic work to address some of the future’s greatest challenges, including eradicating diseases, poverty and climate change.
In a recent extensive TED interview (watch it at the top of this article), he explains a new challenge for innovation: reducing the Green Premium.
The green premium is the higher cost which products focused on sustainability (to have the product without CO2 emissions) have compared to their traditional counterparts. This cost must then be passed on to the consumer as a higher price.
Examples are that at the moment, electric cars cost more than comparable gasoline cars, and lab-grown hamburgers cost more than hamburgers grown from beef cattle.
However, he explains the secret to overcoming the green premium: Innovation in better technologies, and then being able to scale those technologies so that economies of scale drive prices down.
One of the best examples of this happening recently is in energy generation, where solar power has fallen more than 89% in cost and it is now actually cheaper to get power through solar power than coal.
One aspect which needs to be considered though is how these changes in prices over time affect the buying decisions of technologies at a national level. Norway, as a very rich country with a proportionally small population, can choose to invest in infrastructure projects like building out the charging network for electric cars as a government focus initiative, because the basic infrastructure needs of their population have been invested in over the past several hundred years.
At the other end of the spectrum, some countries which will be developing the fastest over the coming decades, like India and many populous countries in Africa, still need to invest more in other fundamental infrastructure like roads, rail and electricity generation to supply the basic needs of the population. These infrastructure investments rely heavily on concrete, steel and transportation, all of which are currently still release huge amounts of CO2 in the production process. And so in order to meet the needs of their people, the government will be much more price sensitive and will calculate if it is worth getting more infrastructure at a lower unit price using older, more polluting but scaled technologies, rather than getting less for their investment budget by paying for products with a green premium.
This shows why innovation here is necessary to not just make better products, or more sustainable products for a niche market, but actually to make them so that they are in fact the most logical choice out of all of the available options.
And eventually, this means they need to be the mass-market, most affordable choice.
Fortunately, we have shown that we can innovate our way to scale with solar and wind, and there is demand to drive further innovation with other sustainable challenges as well.
Check out the video for a great conversation on exactly which industries are ripe for these innovations.
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