AI and clean energy: Prepare for the global economy that’s emerging

There have been periods in history when such fundamental technological change has had a profound, pervasive impact on the way we live and work. The first industrial revolution triggered by the coal-powered steam engine, electricity, the oil-powered transport revolution and the computer and communication revolutions are illustrations of such disruptive technological change in modern history. Today, two such transformations are simultaneously underway: the energy transition and the digital transformation.

The fossil-fuel-based industrial economy had more or less run its course by the end of the 20th century, as it became evident that burning fossil fuels was leading to climate change, which could eventually make the earth uninhabitable. 

It took another quarter century for national governments to agree on targets to limit greenhouse gas emissions and switch to alternative technologies to arrest global warming. But action by governments to achieve those targets has proceeded at a snail’s pace, while we are already experiencing the impact of global warming in our daily lives.

Fortunately, the market and private capital have come to the rescue. As the profitability of renewables became evident, massive private investment flowed in to fast-track the transition to solar power, wind power and green hydrogen across a wide range of industries. Costs plummeted as renewable energy capacity and products were rolled out at scale to reap economies of scale. 

Also read: Where there is AI, there is data, in every industry

Reports suggest that the costs of solar power, off-shore and on-shore wind power and electric vehicle batteries have dropped by 80%, 60-70% and 80% respectively. The binding constraint now is not technology, but inadequate availability of financing in developing countries where much of the transition to renewables must be done (Sudipto Mundle, Mint, 28 April and 25 May 2023). However, the market is likely to devise instruments like guarantees and insurance to find its way around this constraint.

Though markets and private capital are leading the energy transformation, national governments are also playing a key role in supporting and subsiding private companies. Chinese companies now control more than three-fourths of the global photovoltaic cells market and well over half the global market for wind turbines, electric vehicles and e-vehicle batteries, thanks to large scale government support. 

There has been pushback from the US and EU. But US companies are also receiving billions of dollars in subsidies under the Inflation Reduction Act and the EU is contemplating its own counter-measures. Green industries are growing rapidly, thanks to intense global competition among leading companies, supported by their respective governments.

Most of the examples of disruptive technical change cited at the outset were embodied in machines designed to replicate and multiply hugely the physical capacity of human beings. But the computer revolution pioneered by Alan Turing and others led to machines that would replicate and massively multiply the mental capacity of human beings. Semi-conductor chips multiplied the capacity of these machines manifold while miniaturizing them. 

Also read: Climate action: Our energy transition need not follow preset pathways

Computers combined with the communication revolution gave us the internet, then smartphones and finally artificial intelligence (AI): large learning models that don’t just follow human commands, but autonomously replicate and hugely multiply, with Generative AI (GenAI), their capacity for some forms of human-like thinking. The advent of AI will further change the way we live and work.

Deep thinkers like Geoffrey Hinton, recognized as the ‘father of AI,’ and Israeli philosopher Yuval Harari fear that AI poses an existential threat to humankind. Others like Sam Altman, CEO of OpenAI, argue AI can be deployed to immensely enhance human knowledge and creativity across many fields.

In India, the AI experience has been quite positive so far. The Microsoft LinkedIn Work Trend Index indicates that 92% of knowledge workers in India use AI, as compared to a global average of 75%. However, much of this has to do with the application of AI and GenAI algorithms, rather than creating them. There is now intense global competition, especially between the US and China, in leading this digital transformation, since its enormous strategic and economic potential is clear.

Perhaps for the first time in history, two fundamental technological transformations are taking place together, their pace intensified by global rivalry. Barring catastrophic shocks, this will usher in a massive investment boom and decades of high growth as new technological and economic processes change the world in which we live.

Also read: Raghuram Rajan: Election results may determine India’s economic future

It is at this critical juncture of a global economic transformation that a new government will take charge to lead India for the next five years. How well we prepare to leverage both technological transformations and ride them successfully will determine whether India becomes the third largest economy by the end of this decade, as has been projected, and a developed country by the middle of the century. Hopefully, this will be the strategic agenda of India’s new government.