Sustainability and technological innovation are one and the same

Jonas Grafström

September 23, 2020

The history of Coca Cola’s cans illustrates the transformation of natural resource use. Coca Cola recently marketed long, narrow aluminium cans instead of the classic short and chubby shape. In the 1950s, an aluminium can weighed around 85 grams. Today, an average can weigh 14–16 grams – consequently, 4-5 more cans can be created with the same amount of aluminium. Less aluminium means cost decrease, both in transportation and in use of raw materials.

Several factors incentivise resource efficiency. Firms in competitive markets have cost incentives to adopt new technologies and organise their operations so that fewer natural resources are used. According to economist William Baumol, most companies have no choice. Competition necessitates firm to rationalising their operations and cutting costs, and other firms in the industry must follow.

Economic growth can be achieved by using more resources – but growth can also by using resources more efficiently. Technology affects emission levels and changes the quantity of goods that is obtainable with the same amount of emissions. Thus, improved technology either allows less greenhouse gas emissions with the current level of consumption, or larger consumption with unchanged emission levels.

Within all areas of business, there are potential future cost reductions. Technological development opens new processes, learning-by-doing, economies of scale spread fixed costs and raw material prices for necessary inputs all affect the final cost of a technology/process. The rapid cost reduction in, for example, wind power has primarily been achieved through optimisation of existing processes, whereas cost reductions for solar cells have occurred through research-driven technological development.

Technological change is almost uniformly regarded as a necessary, but not a sufficient condition for a transition to sustainability. The environmental impact of economic and social activities is in many ways affected by the level and direction of technological development, and climate policy tools can both limit and contribute to technological progress.

When it comes to climate policy and technological change, there is a large body of literature on the so-called Porter hypothesis and the interaction between technological development and competitiveness. The exact links are not yet clear and stricter environmental requirements have often been preceded by a certain technological development. It is sufficient here to note that legislation can have positive effects both in the form of creating incentives for technological development.

Japan’s recycling law led to Hitachi changing the design of its products. Hitachi managed to reduce the number of components in a washing machine by 16 per cent and in vacuum cleaners by 30 per cent. Second, the US introduced a regulation that forced the American company 3M to reduce the amount of chemical solvents in its products by 90 per cent by 1995.

As seen in the Swedish case, as we presented in our report, (Much) More for Less – How sustainable is Swedish economic growth?, as we get richer, we use resources more efficiently, use less energy, cause less pollution and clean up past pollution. Many are still sceptical that things get better. Unfortunately, good news is not news, because we all love a good horror story.

Questions about whether economic growth is sustainable or not are often riddled with ideological tensions. However, as we have seen, there are theoretical arguments that go both ways. The theory of negative externalities suggests that environmental degradation will be rational under some circumstances, while the new growth theory, the existence of technology development, environmental legislation, a functioning price mechanism and the creation of property rights in the environmental area would imply that economic growth can be achieved with fewer resources used. However, these theories are nothing more than just theories. Ultimately, they must be tested against reality to see if they are correct or not. As seen in our report, and in my two previous articles, we could get more for less.

Author

Written by Jonas Grafström

Dr Jonas Grafström is a researcher at the Ratio Institute in Stockholm, Sweden.

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