IEA (2021), 5 ways Big Tech could have big impacts on clean energy transitions, IEA, Paris https://www.iea.org/commentaries/5-ways-big-tech-could-have-big-impacts-on-clean-energy-transitions
Two widely watched barometers shot up in parallel this past decade: the value of big tech companies on international stock markets and CO2 concentrations in the atmosphere. There is little direct relation between these two phenomena – energy use by leading tech firms is relatively minor compared with their economic, financial and even social footprint. Yet, it is precisely because of that massive financial footprint, combined with their enormous cultural and scientific influence, that these companies have such a potentially huge role to play in tackling the climate challenge.
Big tech companies have for the most part already committed to achieving zero emissions from their own activities. Given the companies’ role as often-emulated “trend setters”, these targets set an important example for the rest of the economy. But it is their work in digitalisation, artificial intelligence and information systems that could be potential game-changers in creating the smarter, more flexible energy systems needed to get to net-zero emissions.
The rise of the big tech firms is undeniably one of the most characteristic financial developments of the past decade. By the end of 2020, the top three tech giants had a stock market capitalisation of USD 5.5 trillion, twice as much as all the German and Brazilian firms listed in Frankfurt and São Paulo combined. The concentration of financial value in the top three tech firms is now twice as high as what Standard Oil, AT&T and US Steel represented at the time of the Rockefellers and Carnegies.
Big Tech’s energy use and emissions are significant in absolute terms, but not in relation to the scale of their operations. For example, data centres account for around 1% of global electricity use, significantly behind industrial motors or air conditioning as a driver of global electricity demand.
The energy and emissions profile of tech companies obviously varies greatly according to their business model. Some large tech companies are almost completely digital and electrified. Others have massive carbon-intensive hardware manufacturing supply chains or logistics and delivery systems spanning the globe. Many of these manufacturing and logistics operations are often outsourced, and reported under Scope 3 emissions.
Scope 1 (direct) and 2 (electricity, market-based) emissions from the big five tech companies collectively accounted for around 13 million tonnes of CO2 equivalent in 2019, or around 0.04% of global energy-related greenhouse gas emissions. Including Scope 3 emissions – which include business travel, employee commuting, manufacturing, and construction – the total reaches around 0.3% of global emissions. Therefore, the decarbonisation of all these companies’ activities and even their supply chains might result in a relatively minor direct impact on global CO2 emissions. These direct impacts are also likely to be dwarfed by the huge enabling potential of digital solutions applied to energy systems and beyond. While this article focuses on the potential applications of digital technologies that could reduce emissions, some applications may well hinder clean energy transitions if they enable more carbon-intensive energy production or use.
Nevertheless, these companies have adopted increasingly stringent and ambitious corporate policies on addressing emissions. In addition to the general social and political concerns, this appears to be partly driven by human resource considerations: there is intense competition for technically well‑qualified young professionals, who increasingly demand that their employers take responsible positions on important social and environmental issues including climate change. There were notable examples of tech company employees publicly demanding stronger climate actions from their employer, including avoiding the use of machine learning where it supports the extraction of fossil fuels.
This article will focus on the US-based large tech companies because the big Chinese tech companies, despite their technical prowess, are unfortunately still lagging behind in their climate and energy strategies.
The big tech companies have pioneered corporate power purchase agreements (PPAs) for renewable energy. In 2020, the big five tech companies procured 7.2 gigawatts (GW) of renewable capacity, accounting for almost 30% of all corporate renewable PPAs, or around 3.5% of all global renewable capacity additions. Among the US-based big tech companies, it has become standard to have commitments to procure the same quantity of electricity from renewable sources as their annual consumption.
Evaluating the impact of these renewable procurements is not straightforward. Given that the financial strength of a large tech company easily exceeds most nation states, a long-term contract with any of them provides strong investment security and enables project financing at attractive conditions. In some cases, this financing was reinforced by direct equity investment from the company. This played a beneficial role in scaling up renewable investment. There is also evidence that prospective investments from big tech companies have influenced policy decisions in a pro-renewables direction, for example, by leading to moves to improve network access.
In many cases the contracts are only financial. The data centre is physically supplied with electricity by the local utility, and the renewable production is sold on the market, with the company topping up the price difference for the renewable project, similar to a financial swap. This is a good project-finance practice, but it also provides an opportunity to locate projects where they have the biggest impact by replacing high-carbon generation. Curiously, this flexibility has not always been used to its full extent.
Despite the global reach of these companies, their renewable purchases and investments have tended to be concentrated in the countries where their servers are located – the United States and Northwestern Europe. However this raises the important question of additionality: would the increase in renewables have taken place in the absence of the tech companies’ commitments? There are even examples of a big tech company contracting from committed projects, when it was already almost certain that the project would be completed anyway. In the United States, wind and solar projects benefit from federal tax credits, so arguably it is US taxpayers who should be thanked for them. In Europe, the main target countries happen to be ones where a combination of strong policies and successful grid integration lead to an exceptionally strong investor appetite for renewable projects. In an environment ultra low interest rates, renewables in these countries already enjoy a very low cost of capital. In other words, if a big tech company does not finance a particular wind farm, someone else probably will.
These companies could make even greater use of their financial strength to underwrite renewable investments where they are needed most: in developing and emerging economies where coal is still seen as essential for energy security and renewable investments are hindered by capital scarcity. Data demand will grow rapidly in emerging economies over the coming decades, requiring new data centres in these regions to serve growing demand. This is an opportunity that could be built into new climate pledges by companies.
Yet the biggest opportunity for tech companies is to leverage their power to bring fundamental changes throughout the energy system, beyond just their own supply. There are five areas where the combination of their skills, scale and commitment could become transformative.
Wind and solar PV are driving the growth of low-carbon electricity supply, even if the large majority of energy consumption remains the direct use of fossil fuels in vehicles or factories. Hence, there is a general consensus that shifting to greater use of electricity across the economy coupled with the scaling up of wind and solar is a key pillar of transitioning to clean energy. But there is a problem: wind and solar power vary with the weather. Societies rely on uninterrupted electricity supplies – the digital economy even more than its “bricks and mortar” counterpart.
Tech companies could play a major role in helping to smooth out electricity use. As things stand, big tech companies are increasingly seeking to advance their zero-carbon commitments by investing in hydrogen and battery storage on top of wind and solar to ensure their data centres are supplied 24/7 by clean electricity. This is useful, but system operators need to balance interconnected systems, not individual corporate users. Big tech companies could play an even bigger role in decarbonising the grid by adopting more flexible operations such as shifting workloads to match renewable generation or acting as a demand response resource. In addition, advanced digital technologies could help decarbonise the broader grid in a few ways:
- There is a massive, and largely untapped flexibility potential on the demand side: Various electric appliances can adjust their consumption by reacting to changes in weather and renewable production. Unfortunately, it requires a huge number of individual appliances to make small adjustments. Therefore, demand responses from connected devices will need to be aggregated and automated. This is especially important for electrified transport: uncontrolled charging of electric cars often coincides with peak periods when the marginal electricity source is gas or even coal. Even if they wished to do so, car owners are unlikely to have the information they need to adjust their charging. Parked electric cars would need to communicate with the system operator, sharing network capacity with each other and adjusting their charging to renewable patterns. In the energy system we envisage, it is almost certain that a smart phone app or even a smart speaker would have to do that for its owner.
- Digitalisation can complement physical network capacity: The increased use of electricity requires the expansion of transmission and distribution networks, but building new lines is difficult in many countries. The systematic application of the Internet of Things on electricity networks could enable operators to more precisely understand conditions and electricity flows on the lines, allowing them to expand transmission capacity without increasing the physical footprint. Moreover, data intensive, AI-based techniques can lead to more precise forecasting of wind and solar production and thus enable a higher share of renewables without jeopardising energy security.
- When renewable penetration reaches high levels, additional technological solutions such as smart inverters will be needed to maintain grid stability. Those grid-forming inverters will need very rapid data exchange and controls while maintaining robust cybersecurity standards.
Advanced digitalisation is essential to optimise asset utilisation and enhance flexibility, and the big tech companies are already active in this field. Some of them have conducted in-house research on renewable forecasting and made acquisitions and invested venture capital into demand response and other smart energy technologies. However, unrealised opportunities remain: compared with the resources and commitment that these companies have dedicated to the expansion of their core activities, their smart energy investments have remained small and often lack strategic focus. Most of the innovation in the digital-energy nexus is driven either by start-ups or by the digital activities of conventional electricity network operators.
Given the widespread policy concerns about the impact of big tech companies on competition, it is good that the digital energy field is so open to new entrants. Nevertheless, a more proactive stance by the tech giants would be welcome. In the case of flexible, co‑ordinated electric car charging, the technology itself is already there, but implementation is being held up by transaction costs and a lack of co‑ordination among key stakeholders. The ability of the big tech companies to apply smart solutions at scale, promote harmonised standards, and reduce transaction costs could play a major role. Electricity was the transformative technology of the second industrial revolution a century ago, and it can be a transformative field for today’s tech giants as well.
Wind and solar PV will no doubt do a lot of the heavy lifting, but they will need help from other clean energy technologies for a successful net zero transition. It is simply not possible to replace every joule of fossil energy with the equivalent joule of a low‑carbon source in a copy-paste fashion. The energy transition will have to involve speeding up energy efficiency across the board. Some of this is not high tech: old-school building insulation projects are still very relevant. Nevertheless, digital technologies can greatly accelerate energy efficiency’s progress.
Big tech companies have important experience and skills to build upon. As part of the effort to reduce their direct carbon footprint, they have taken a hard look at their own operations. Recent years have witnessed a remarkable decoupling between data use, internet traffic and electricity use, thanks to efficiency improvements in computing and infrastructure as well as a shift to greater shares of cloud and hyperscale data centres. However, with hyperscale data centre energy use by big tech companies growing rapidly, even stronger efficiency improvements are needed to limit energy demand growth over the next decade.
This experience can be leveraged outside data centres as well. A major challenge for building energy efficiency is that retrofitting old buildings is time-consuming and difficult to scale up. There are promising examples of using machine learning to overcome this. Examples ranging from a 200-year-old European opera house to a luxury resort in California show that connected devices, use of sensors, real-time measurements, and fine-tuned controls can deliver major energy savings.
In the transport sector, digital solutions to optimise truck operations and logistics could reduce energy use and emissions from road freight by a quarter. Given that heavy duty, long-distance trucking still relies on the diesel engine, this is an important contribution. Major e-business operations have pioneered the use of optimised logistics, which can be provided as a third party service as well.
While electrification and raising the share of wind and solar generation is going to be the overarching theme of transitioning to net zero, the overall energy system remains complex, with substantial emissions in hard-to-decarbonise, non-electrified sectors. The big tech companies can play a major role there as well.
First of all, while their technology is digital, they can have surprisingly large physical operations: the carbon footprint of a smartphone starts with heavy machinery in a copper mine. In the summer of 2020, while the passenger aviation industry was collapsing due to the Covid shock, e-business maintained a robust flow of cargo airplanes from Chinese producers to European and American consumers.
Big tech companies have only recently started to seek out low-carbon alternatives for their products. The development of materials made using innovative low carbon technologies suffered a decade of under-investment as both the energy industry and venture capital firms struggled to create viable business models for scaling up. The big tech companies are well positioned to step in: low-carbon plastics might be prohibitively expensive as undifferentiated commodity products, but their cost is a rounding error in the value of a tablet. Big tech companies can play a leading role in bridging the “valley of death” for such products by drawing on their high value‑added applications, their balance sheets and their risk-taking abilities. The most promising examples have a two-pronged approach: the company provides venture capital funding for the R&D and scale up, and also acts as the anchor consumer for the new low‑carbon product. This has been applied for low‑carbon aluminium processes for smartphone manufacturing and electric trucks to be used for e-business deliveries.
Some of the tech giants are now extending their climate commitments to their past emissions. In addition to carbon offsets, attention is shifting towards direct air capture technology, which has seen recent examples of venture capital investments by Big Tech. Given the emissions locked into existing energy infrastructure and the inertia of the energy system, it is highly likely that large-scale use of direct air capture will be needed. Big tech companies can play an instrumental role in helping the development and early deployment of direct air capture and other carbon capture, utilisation and storage (CCUS) technologies. They can also catalyse the scaling up of other key clean energy technologies including green hydrogen, long-duration energy storage, advanced nuclear and geothermal.
Historically, new energy technologies have needed decades to mature and achieve a transformative impact. Albert Einstein received the Nobel Prize in Physics in 1921 for his work on the photoelectric effect, the theoretical foundation of solar power. The first practical solar panels didn’t appear until the 1960s in space exploration, and only now is solar PV starting to transform the electricity sector. Unfortunately, the technologies on the market now can take us only halfway to a net zero energy system, and we don’t have a century to wait to bridge the technological gaps. The development and mass deployment of new energy technologies will have to accelerate at an unprecedented speed to reach net-zero emissions globally by 2050.
One of the most transformative roles Big Tech could play is to accelerate the innovation process itself. There are already promising attempts to use AI in simulating new catalysts for more efficient chemical processes and developing new nano materials for higher capacity batteries. Self-driving vehicles are a high-profile application of machine-learning research, but their environmental impact strongly depends on how they will be used. Sustainability should be integrated into research on this field. Low-carbon industrial technologies, chemistry for low-carbon aviation fuel, and new approaches to nuclear energy would all benefit from the systematic application of machine learning.
Big tech companies, with their unique combination of financial strength and deep understanding of machine-learning processes, are well positioned to lead a new series of technological breakthroughs. Beating the greatest human grandmasters in chess or Go is an impressive achievement, but the next ambition should be overcoming the greatest technological challenge humanity faces. Some of the leading lights of Silicon Valley are already moving in this direction, either through internal research or through setting up dedicated venture capital investments. These could be scaled up and expanded.
Big tech companies’ products are deeply embedded in everyday life, reshaping consumption habits and social interactions. These products can also help consumers become more proactive in adopting behaviours that result in lower emissions, even without sacrificing their lifestyles. People are unlikely to give up on their modern comforts. Still, IEA analysis for a pathway towards reaching net-zero emissions by 2050 in the World Energy Outlook 2020 suggests that around 2 billion tonnes of emission reductions can be achieved in 2030 by simple social and behavioural changes such as flying less, setting air conditioners to slightly higher temperatures or leaving the car in the garage and walking or cycling short distances.
Big tech consumer products could greatly facilitate these behavioural changes by making them comfortable and even cool. Smartphone apps could include carbon calculators to inform consumers on the “cost” of going by foot, bike, public transport or car. They can facilitate the integration of shared mobility with conventional mass transit systems. At home, smart systems can control energy use without sacrificing comfort. There is a growing willingness among consumers to consider sustainability in their decisions. This trend can be instrumental to create a viable business model for clean innovation in consumer products. Big data could enable a much more precise tracking of consumer product supply chains, providing reliable information to make informed consumer choices.
More broadly, big tech companies have a growing role and therefore a growing responsibility in providing information for society in general. They should ensure that search functions and social media do not perpetuate bad science or dangerous falsehoods. Tackling climate change requires a thoughtful, well‑designed public policy response guided by experts, with the support of a well-informed public.
Climate change is the defining challenge of this generation. Reaching a net zero economy will require all-encompassing efforts across governments, consumers and private companies. Digital technologies are not a silver bullet for tackling climate change, but strong climate policies and corporate action can help guide the application of digital technologies in the right places to accelerate clean energy progress.
Today’s tech giants are some of the most successful and most innovative enterprises in history. They transformed major industries and the lives of billions. They are well positioned to help bridge technology gaps and provide the information needed to find solutions to our challenges. With their unmatched investment capability and innovation potential, big tech companies can emerge as indispensable members of a grand coalition for global clean energy transitions.
5 ways Big Tech could have big impacts on clean energy transitions
Laszlo Varro, Former Chief Economist
George Kamiya, Energy Policy Analyst Commentary — 25 March 2021