The twenty-first century will not be like the twentieth. Most obviously, the economy of the future will be low-carbon, less reliant on fossil fuels, more efficient and highly digitised. It will need to put less pressure on natural resources, in particular the renewable kind, such as forests, fisheries and ecosystems that are prone to irreversible collapse.\u00a0<\/p>\n\n\n\n
This affords great opportunities for investment in new clean and resource-efficient sectors, including energy, transport, agriculture, manufacturing and construction. But it also presents a growing risk of disruption and devaluation in existing carbon- and resource-intensive sectors and activities in the very same sectors.\u00a0<\/p>\n\n\n\n
Meeting climate targets will mean getting more out of the resources we have. This requires a process of innovation to increase resource productivity and improve demand responsiveness to match the availability of changing supply (thereby circumventing the need to invest in additional capacity). The alternative of reduced final consumption and investment \u2013 or \u2018degrowth\u2019 \u2013 is neither politically appealing,\u00a0nor economically and technologically necessary<\/a>, provided that there is a clear and credible attempt to steer innovation.<\/p>\n\n\n\n If we are to meet climate targets consistent with limiting temperatures to 2\u00b0 above pre-industrial times,\u00a0a third of global oil reserves<\/a>, half of gas reserves and 80% of current coal reserves will have to remain in the ground or, if they are burned, the emissions will have to be captured and stored.\u00a0<\/p>\n\n\n\n Downstream infrastructure, such as ports, pipelines, refineries and power generation,\u00a0also risks being stranded<\/a>\u00a0or rendered obsolete before the end of its working lifetime. So too do fossil fuel-dependent heavy industrial processes. As these risks proliferate, they can quickly devalue the\u00a0physical<\/a>, human and intangible\u00a0assets<\/a>\u00a0of slow-moving companies and regions. Financial service businesses that are heavily invested in fossil fuel-entangled assets will also be hit, with\u00a0concerns<\/a>\u00a0around systemic risk and\u00a0sovereign risk<\/a>,\u00a0if large financial institutions or governments become insolvent.\u00a0<\/p>\n\n\n\n The clean transition will inevitably touch everyone. Since the\u00a0Industrial Revolution<\/a>, the world\u2019s economy has been powered by fossil fuels. Yet the costs of this structural transition may turn out to be manageable. There are already signs that efforts to avert climate catastrophe, aligned with self-interest and opportunity,\u00a0are\u00a0driving innovation<\/a>\u00a0and prompting a systemic shift to superior \u2018we should have done this anyway\u2019 behaviour.\u00a0<\/p>\n\n\n\n Ten years ago, renewables and electric vehicles were seen as expensive luxuries. Since then,\u00a0the price of solar photovoltaic energy<\/a>\u00a0has dropped by 83<\/a>% since 2010, and the cost of wind by 40% (Figure 1). The sun doesn\u2019t always shine and the wind doesn\u2019t always blow \u2013 intermittency requires storage capacity. But here too the news is good: the cost of\u00a0lithium-ion batteries<\/a>\u00a0has also fallen eight-fold over this period.\u00a0<\/p>\n\n\n\nClean innovation is spurring economies of scale in production and discovery\u00a0<\/h3>\n\n\n\n
Figure 1: Costs of electricity (constant 2019 US$ per kWh)<\/span><\/h4>\n\n\n