To H or not to H
Last year, the sales of fax machines grew 6 percent in Japan. Fax machines are more than a vestige of the past in Japan, and small businesses continue to use them to process orders. The real difficulty of relying on such a system became evident when hospitals struggled to process paperwork when the coronavirus hit, with administrative processes based on paper and fax requiring up to three days for a Covid case to be reported to the public.
Similarly, payment systems in the US are antiquated compared to real-time payment systems in other economies. Many American businesses continue to rely on checks, and electronic payments take days to process. One of the major reasons is that banks continue to rely on legacy systems rather than undertaking the investment required to upgrade computer systems.
These are examples of technology lock-in. When a technological standard is chosen, networks and systems are created to meet that particular standard, making it difficult for the economy to move to a newer technology. Electricity systems globally have been created to transmit and distribute fossil fuel-based power, which is slow to ramp up and down and generates a predictable level of electricity. The variability of renewable energy is not in itself a problem, but the fact that existing systems were not designed to absorb such intermittency makes the incorporation of higher levels of renewables seem more expensive.
Technology lock-in is also one of the reasons that the discussion on climate change creates distinguishes between existing fossil fuel plants and new ones. Both are bad. But the creation of new plants today will have repercussions 40 years from now, and the socioeconomic cost of decommissioning a new plant is likely to be greater.
Earlier this year, the European Commission announced a strategy to develop green hydrogen, i.e. carrying out electrolysis using renewable energy, with a view to decarbonizing several sectors of its economy. Hydrogen could play a crucial role in decarbonizing industries like steel and cement, which are among the largest sources of emissions in the industrial sector. Hydrogen cells for electric vehicles have been considered for sometime, although their launch in the consumer segment has been held back, with the technology attracting as many critics as supporters. Many electric vehicles relied on Lithium ion batteries because of the belief that hydrogen cells were too expensive or impractical, so much so that the geopolitics of continued reliance on Lithium have been an integral part of discussions on greening transport systems. Hydrogen cells present certain intrinsic advantages, such as higher efficiency, higher range, reduced weight, and lower emissions. In fact, with CORSIA upcoming requirements, the airline industry is also beginning to consider hydrogen more seriously.
There are two points to be made about technology lock-in – firstly, there is no universal answer. While all technologies considered must be low emission options, it is unlikely that one (and only one) technology will be universally preferable in all applications. The amount of electricity needed, climatic conditions, need for predictability in the given application, lifecycle of the equipment, replacement cost, and waste are all factors to be considered in making such a choice. For example, it is entirely plausible that the direct use of renewable electricity is preferable to green hydrogen in some cases. Evangelizing one technology to the point of crippling the development of another (low carbon) technology is not constructive. Secondly, while scale economies exist and are important to leverage where possible, all or nothing is rarely a practicable approach toward technology transition, and countries need to reflect on the overall technology mix they will adopt to meet their energy needs.
The coming years will be crucial – not just for the phaseout of fax machines or archaic payment systems, but for the research and choices that governments and businesses make in technology selection, and the implications they could have for emissions pathways and economic transitions, as well as the impacts they will have on workers, communities, and the environment.