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Luohan Academy Report

Digital Circular Economy for Net Zero

April 2022

List of authors

Luohan Community

In-house

Patrick Bolton

Barbara and David Zalaznick Professor of Business

Columbia University

Long Chen

President

Sangwoo Choi

Peter Lacy

Global Sustainability Services Lead &

Chief Responsibility Officer

Accenture

Economist

Wei Liu

Senior Sustainability Scientist

Michael Spence

Nobel laureate in Economics, 2001

Philip H. Knight Professor Emeritus of Management

Graduate School of Business, Stanford University

Qi Sun

Senior Economist

Ming Xu

Professor, School for Environment and Sustainability

University of Michigan

Bo Tang

Residential Scholar

_________________________________

We thank Alissa Kleinnijenhuis, William Oman, and Romain Svartzman for their critical and constructive reviews of

the report. We thank David Rejeski, Bengt Holmström, Erik Brynjolfsson, Izabella Teixeira, Bin Zhu, and all

participants in the 6th Frontier Dialogue of Luohan Academy on “A Digital Pathway to Net-Zero: Transforming

Business and Lifestyle” in July 2021, and in the World Economic Forum Sustainable Development Impact Summit

session on “Circular Economy Solutions for Net Zero Through Digital Innovation” in Sept. 2021, for their thoughtful

insights and comments on the topic and early drafts of the report. We also thank Thomas Walton for language editing

and helpful advice, and Qianhai Ren, Ruoqiu Sheng, and Tianping Wu for assistance with figures and graphs.

Table of contents

Executive Summary .................................................................................................................. 5

Chapter 1. Current Net Zero and Decoupling Challenges ...................................................... 10

Digitalization ............................................................................................................................... 13

Circular Economy ......................................................................................................................... 15

Chapter 2. Integrating Digitalization and a Circular Economy ............................................... 17

2-1. Digitalization as an enabler of Decoupling .............................................................................. 18

Benefits of Digitalization .................................................................................................................................... 18

Energy ............................................................................................................................................................ 21

Transportation ............................................................................................................................................... 24

Buildings ........................................................................................................................................................ 25

Other Sectors and Industries ......................................................................................................................... 26

Rebound effects (Jevon’s Paradox): Energy usage/CO2 emissions from ICT .................................................... 27

Data Centers .................................................................................................................................................. 28

Communication Network Operators ............................................................................................................. 30

User Devices .................................................................................................................................................. 32

Cryptocurrency .............................................................................................................................................. 32

Rebound effects on other sectors ...................................................................................................................... 33

How to fully capture the benefits of digitalization ............................................................................................ 35

2-2. A circular economy will put us on the path to Net Zero........................................................... 36

Circular design is a key enabler for the Circular Business Model ....................................................................... 38

Digital technology -- another key enabler for the penetration of the circular economy ................................... 38

2-3. Governance and the transition to a Digital Circular Economy .................................................. 40

From Circular Business Models to Digital Circular Economy.............................................................................. 40

Governance challenges ...................................................................................................................................... 42

Chapter 3. Innovation Trends and Emerging Initiatives ........................................................ 43

3-1. Socio Technical Systems and the Multi-Level Perspective (MLP) ............................................. 44

3-2. Technology innovations and the Digital Circular Economy Regime .......................................... 47

Digitally enabled personal carbon accounting ................................................................................................... 48

UK government’s early attempt to adopt Personal Carbon Accounting ....................................................... 50

CitiCap - Citizen's cap-and-trade co-created in Finland ................................................................................ 51

AMap -MaaS (Mobility as a service) project in Beijing .................................................................................. 51

Ant Forest ...................................................................................................................................................... 52

Ride-share Platforms .......................................................................................................................................... 54

House-share Platforms ....................................................................................................................................... 59

Digitization and the Proliferation of Re-commerce Platforms ........................................................................... 62

Cloud computing ................................................................................................................................................ 64

Cloud computing as a circular business model ............................................................................................. 64

Cloud computing for sustainability – A socio-technical transition analysis .................................................. 66

Industry – market consolidation ................................................................................................................... 66

Science and technology ................................................................................................................................. 67

Market and user preferences ........................................................................................................................ 68

3-3. Synthesis............................................................................................................................... 69

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2LuohanAcademyReportDigitalCircularEconomyforNetZeroApril2022ListofauthorsLuohanCommunityIn-housePatrickBoltonBarbaraandDavidZalaznickProfessorofBusinessColumbiaUniversityLongChenPresidentSangwooChoiPeterLacyGlobalSustainabilityServicesLead&ChiefResponsibilityOfficerAccentureEconomistWeiLiuSeniorSustainabilityScientistMichaelSpenceNobellaureateinEconomics,2001PhilipH.KnightProfessorEmeritusofManagementGraduateSchoolofBusiness,StanfordUniversityQiSunSeniorEconomistMingXuProfessor,SchoolforEnvironmentandSustainabilityUniversityofMichiganBoTangResidentialScholar_________________________________WethankAlissaKleinnijenhuis,WilliamOman,andRomainSvartzmanfortheircriticalandconstructivereviewsofthereport.WethankDavidRejeski,BengtHolmström,ErikBrynjolfsson,IzabellaTeixeira,BinZhu,andallparticipantsinthe6thFrontierDialogueofLuohanAcademyon“ADigitalPathwaytoNet-Zero:TransformingBusinessandLifestyle”inJuly2021,andintheWorldEconomicForumSustainableDevelopmentImpactSummitsessionon“CircularEconomySolutionsforNetZeroThroughDigitalInnovation”inSept.2021,fortheirthoughtfulinsightsandcommentsonthetopicandearlydraftsofthereport.WealsothankThomasWaltonforlanguageeditingandhelpfuladvice,andQianhaiRen,RuoqiuSheng,andTianpingWuforassistancewithfiguresandgraphs.3TableofcontentsExecutiveSummary..................................................................................................................5Chapter1.CurrentNetZeroandDecouplingChallenges......................................................10Digitalization...............................................................................................................................13CircularEconomy.........................................................................................................................15Chapter2.IntegratingDigitalizationandaCircularEconomy...............................................172-1.DigitalizationasanenablerofDecoupling..............................................................................18BenefitsofDigitalization....................................................................................................................................18Energy............................................................................................................................................................21Transportation...............................................................................................................................................24Buildings........................................................................................................................................................25OtherSectorsandIndustries.........................................................................................................................26Reboundeffects(Jevon’sParadox):Energyusage/CO2emissionsfromICT....................................................27DataCenters..................................................................................................................................................28CommunicationNetworkOperators.............................................................................................................30UserDevices..................................................................................................................................................32Cryptocurrency..............................................................................................................................................32Reboundeffectsonothersectors......................................................................................................................33Howtofullycapturethebenefitsofdigitalization............................................................................................352-2.AcirculareconomywillputusonthepathtoNetZero...........................................................36CirculardesignisakeyenablerfortheCircularBusinessModel.......................................................................38Digitaltechnology--anotherkeyenablerforthepenetrationofthecirculareconomy...................................382-3.GovernanceandthetransitiontoaDigitalCircularEconomy..................................................40FromCircularBusinessModelstoDigitalCircularEconomy..............................................................................40Governancechallenges......................................................................................................................................42Chapter3.InnovationTrendsandEmergingInitiatives........................................................433-1.SocioTechnicalSystemsandtheMulti-LevelPerspective(MLP).............................................443-2.TechnologyinnovationsandtheDigitalCircularEconomyRegime..........................................47Digitallyenabledpersonalcarbonaccounting...................................................................................................48UKgovernment’searlyattempttoadoptPersonalCarbonAccounting.......................................................50CitiCap-Citizen'scap-and-tradeco-createdinFinland................................................................................51AMap-MaaS(Mobilityasaservice)projectinBeijing..................................................................................51AntForest......................................................................................................................................................52Ride-sharePlatforms..........................................................................................................................................54House-sharePlatforms.......................................................................................................................................59DigitizationandtheProliferationofRe-commercePlatforms...........................................................................62Cloudcomputing................................................................................................................................................64Cloudcomputingasacircularbusinessmodel.............................................................................................64Cloudcomputingforsustainability–Asocio-technicaltransitionanalysis..................................................66Industry–marketconsolidation...................................................................................................................66Scienceandtechnology.................................................................................................................................67Marketanduserpreferences........................................................................................................................683-3.Synthesis...............................................................................................................................694Chapter4:ProspectsandPerils:AnAgendaforNewResearchandActions..........................714.1Digitalization,dataownership,anddataprivacy:Howtobuildtrust........................................714.2TheCorporateRoleinGettingtoNetZero:FromShareholderEconomytoaStakeholderEconomy......................................................................................................................................734.3GlobalCooperation:BuildingtrustbetweencountriesinaGlobalDigitalCirculareconomy......77References...........................................................................................................................80FiguresFigure1.ThreepillarsofDigitalCircularEconomy........................................................................................................6Figure2.Threechannelsofcarbonreductionbydigitalization.....................................................................................6Figure3.Circularvalueloop—thefivebusinessmodels................................................................................................8Figure4.CorrelationbetweenrealGDPpercapitaandGHGemissionsfrom1960to2018......................................12Figure5.Energypricebysource..................................................................................................................................23Figure6.ElectricityProductionbySourcein2021,World...........................................................................................23Figure7.Globaltrendsininternettraffic,datacentersworkloadsandenergyuse,2010-2022................................29Figure8.Globaldatacenterenergydemandbydatacentertype(TWh)...................................................................29Figure9.Currentandemergingtechnologies.............................................................................................................39Figure10.Multi-levelPerspectiveonSocio-TechnicalTransitions..............................................................................46Figure11.DigitalCircularEconomyandfivecases.....................................................................................................48Figure12.Comparisonofemissionsbetweenride-hailinganddisplacedtrips...........................................................56Figure13.Estimatedcarbonemissionsreductionbyadoptingcloud-basedcomputing.............................................68Figure14.DigitalCircularEconomyandwhole-systemtransitions.............................................................................705ExecutiveSummaryTheclimatecrisisrequiresthateconomiesaroundtheworldachievecarbonNetZeroby2050.However,averageannualGHGemissionsduringthe2010shavecontinuedtoincrease(albeitatadeceleratingrate)relativetoglobalemissionsinthefirstdecadeofthe21stcentury(IPCCAR6).Mostoftheemphasisinclimatepolicyhasbeenonacceleratingthetransitionawayfromfossilfuelenergysupply,onreducingcarbonemissionsfromproduction,andondecarbonizinginvestmentandfinancialmarkets.Incomparison,relativelylittleemphasishasbeenputontheconsumptionside.1ThisreportbeginswiththeanalysisoftwopossiblewaystogettoNetZero:digitalization(Chapter2.1)andaCircularEconomy(Chapter2.2),bothofwhichhaverecentlyemergedasessentialifwearetoreduceGHGemissionsasefficientlyandeffectivelyaspossible.ThisreportfurtherarguesthatthekeytoachievingNetZeroisinpromotingbothdigitalizationandCircularEconomy(CE)underaneweconomicsystem(Chapter2.3)thatisalignedwithNetZerogoals,andthatischangingourconsumptionpatternstoattainsustainability.Ofcourse,suchprofoundchangescannotsimplyhingeupon“goodwill”.TobeabletoattaintheNetZerogoaltheentiresocio-economicenvironment--incentives,culture,andsocialnormsmustalsobetransformed.WeproposeaconceptcalledtheDigitalCircularEconomy(DCE)towhichsocietyshouldmovetogettoNetZero.Weillustratehowsuchatransformationcruciallydependsondigitaltechnology,ofcourse,butalsoonadequatesystemsofsocio-economicgovernancethatinduceboththemostefficientandeffectiveformsofdigitalizationandCEthroughfivecasestudiesofrecentbusinessandtechnologyinnovations(Chapter3).1TherecentIPCCreport(AR6:MitigationofClimateChange)forthefirsttimehighlightstheimportanceofchangingindividualbehaviorandconsumptiontoachieveNetZero.“Demand-sidemeasuresandnewwaysofend-useserviceprovisioncanreduceglobalGHGemissionsinendusesectorsby40-70%by2050comparedtobaselinescenarios,…”(SPM-44C.10)6Figure1.ThreepillarsofDigitalCircularEconomyChapter2.1summarizesthepromisesofdigitalizationinsectorssuchasenergy,transportation,buildings,andsmartmanufacturing.Digitalizationincreasesenergyefficiencythroughvirtualization,datamonitoring,collection,andoptimization,andbyconnectingpeopleandfirmsthatotherwisewouldhavenothavebeenconnected.Enhancedefficiencyallowsthesameactivitytobecompletedwithlessenergy,whichcanbetranslatedintofewercarbonemissions.Figure2.ThreechannelsofcarbonreductionbydigitalizationSource:DatafromGlobale-SustainabilityInitiative(2015).SMARTer20307However,despiteitshugepotentialforcarbonemissionreductions,thedigitalizationofeconomicactivitieshasnotyethadamaterialimpactonclimatechangemitigation.Therearealsoconcernsthatuncontrolleddigitalizationwillfurtherincreaseenergydemand(andultimatelyincreasecarbonemissions)becauseincreasedenergyefficiencycomeswithreboundeffectsinwhichthelowercostoflessfuelintensiveproductsresultsinhigherproductdemand,offsettingsomeoralloftheperunitreductionsinenergyconsumption.Isdigitalizationinherentlyunabletosolvetheclimatecrisis?Ordoweneedabettersystemtominimizesuchreboundeffectsandtakefulladvantageofdigitalization’spotential?Inthisreport,wearguethatdigitalizationindeedhasahugepotentialtoreducecarbonemissionsonthesupplyside,butthatitsfullpotentialcanberealizedonlywhenguidedintherightdirectiononthedemandside.Otherwise,laissez-fairedigitalizationwillprobablynothelpsufficientlytoachievethegoalofnet-zeroemissionsby2050.Toattainthatgoaltheentiresocio-economicenvironment,culture,andsocialnormsmustbedramaticallytransformed.ThepotentialofdigitalizationandthenecessityofsocialtransformationhavebecomemorethanclearbythehugeshockcausedbytheCOVIDpandemic.Thankstowidespreaddigitalization,ithasbeenpossibletoavoidtheworstsocioeconomicconsequencesfromthenecessarylockdownsandsocialdistancingto“flattenthecurve”ofthepandemic.Asaresult,economicoutputdidnotshrinkasmuchashadbeenfeared--2020wasthefirsttimeinoveradecadewhenGHGemissionsdeclined(byaround7%,twiceasmuchasthereductioninglobalGDP).2Wealsoproposethatthecirculareconomyisacomplementaryandnecessaryconceptualframeworkinwhichtounderstandhowourcurrentconsumptionandproductionhabitscanbetransformedandmadesustainablethroughtheapplicationofdigitization.Acirculareconomy(CE)isonethatis“restorativeandregenerativebydesign,andthataimstokeepproducts,components,andmaterialsattheirhighestutilizationpotentialandvalueatalltimes,both2Seehttps://earth.stanford.edu/news/covid-lockdown-causes-record-drop-carbon-emissions-2020#gs.x7f7qoforGHGreduction.SeeGlobalEconomicProspectsbyWorldBankforGDPreduction.8throughtheirtechnicalandbiologicalcycles.Thisneweconomicmodelseekstoultimatelydecoupleglobaleconomicdevelopmentfromfiniteresourceutilization(Ellen-MacArthur2015).”InChapter2.2,wedescribefivecircularbusinessmodelsthatcancapturethevalueofthecirculareconomyacrossatypicalvaluechain.Threecenteronproduction:1)CircularInputs:theuseofrenewableenergy,bio-basedorpotentiallycompletelyrecyclablematerials;2)ProductUseExtension:extendingproductusethroughrepair,reprocessing,upgradeandresale;and,3)ResourceRecovery:therecoveryofusableresourcesorenergyfromwasteorby-products.Theothertwocircularbusinessmodelsareaimedattransformingtherelationshipbetweentheproductandconsumers:A)SharingPlatforms:thatfocusonincreasingusageratesofproductsorservicesthroughcollaborativemodelsforusage,access,orownership;andB)ProductasaService:wheretheproducerretainsownershiptoincreaseproductivity.Figure3.Circularvalueloop—thefivebusinessmodelsSource:Lacyetal.(2020)TheCircularEconomyHandbookThecirculareconomy,however,hasitsownlimitations:itneedstobeimplementedonalargescaleifitistohaveasignificantimpactonglobalcarbonemissionsreduction.Currently,thepenetrationlevelofcircularityisstillverylow.AccordingtoCircularityGapReport2020,1009billiontonsofmaterialsentertheglobaleconomyeveryyear,amongwhichonly8.6%arecycledbackintotheeconomy.Still,thepotentialisthereforCEtoachievethedesiredeconomiesofscalethroughtheuseofdigitaltechnology.CombiningthebenefitsofbothdigitalizationandCE,weproposeanintegratedconceptualframeworkwecalltheDigitalcirculareconomy(DCE)inChapter2.3.Itismuchmorethanjustasummationoftwoseparatecomponents.eachactivelyimpingesontheother,therebyminimizing,oreveneliminatingthelimitationsofeachwhenstandingalone.Ontheonehand,theefficiencyenhancementsfromdigitalizationcanbetranslatedintoefficacygainsinCE.Ontheotherhand,CEcanachievemeaningfulcarbonemissionreductionbyfacilitatingscalethroughdigitalization.Justasimportantly,theactiveinteractionofD(igitalization)andC(ircular)E(conomy)ispossibleonlywithinaneconomicsystemoverseenbywillingstakeholdersandpurposefulgovernance.WecallthissystemtheDigitalCircularEconomy(DCE).Ourcurrentsocio-economicsystemmustbetransformedtohelptheinnovativetechnologiesandbusinessmodelsmakemaximumcontributionstothegoalofNetZero.ItshouldprovidepeoplewithrequisiteincentivestoadopttheDCEintheirdailylives.Thesolutiontotheclimatecrisisdependsindispensablyontechnology(digitization),resources(circularity),andeconomy(organizedwithmultiplestakeholderssteeringinthesamedirectionofNetZerogoal).Allthreeelements(D,C,andE)constitutecriticalpillarsoftheDCE.MissinganyoneofthethreemakesitimpossibletoachieveNetZerowithinthetimewehavelefttosavetheplanetwithoutmakinghugesacrificesinlivingstandards.InChapter3,wedescribefivecasestudiestoillustratehowthethreepillarsofDCEcanworktogethertopromotethetransitiontoaNetZerosociety,withemphasisontheroleofthe“economy”.Herethemeaningoftheword“economy”includesallthesocio-economicinstitutionsandrelationshipsthatgovernbehavior:market,infrastructure,publicpolicy,socialnorms,culture,andsoforth.Ourcasestudiesshowthatevensuccessfulbusinessmodelssuchasride-sharing(Uber,Lyft,andDidi),house-sharing(Airbnb),andre-commerce(Craigslistand10IdleFish)canfailtocontributetocarbonNetZerowithoutapropersetof“economic”systemsthatgovernpeople’sconsumptionbehavior.ThisagaintellsusthatthetransitiontotheDCErequiresnotonlyadigitaltechnologicalrevolutionandinnovativecircularbusinessmodel,butalsoatransformationintheentiresocio-economicenvironmentthatshapeshowpeopleandcommunitiesengagewiththenewdigitalcirculartechnologiesandbusinessmodels.Chapter1.CurrentNetZeroandDecouplingChallengesClimatechangeisthegreatestcrisisfacinghumanity:theurgencyinconfrontingtheworldisgrowingdaybyday.ThemostrecentIntergovernmentalPanelonClimateChange(IPCC)reportindicatesthatgreenhousegasemissions(GHG)fromhumanactivitieshavebeenresponsibleforabout1.1°Cofglobalwarmingsince1850-1900.3Theeffectsofrisingtemperaturesarealreadyvisibleeverywhere,frommeltingglaciers,torisingsealevels,tothegrowingintensityofheatwavesanddroughts,coastalflooding,andmoreandmoreintenseweathereventswithmoreconcentratedandextremerainfall.4Therehaveneverbeenmorefrequentandmoreintenseclimatecatastrophesthaninthelastdecade.5Thephysicaleffectsofclimatechangewillonlyincreaseandintensifyinthecomingyearsanddecadesastheplanetcontinuestowarm.Anditisthelessdevelopedregionsoftheworldthataregoingtobehithardest.6Anyhopeoflimitingglobalwarmingtonomorethan1.5°CrequiresamajorglobalchangeintherateofgrowthinGHGemissions.AccordingtothelatestIPCCreport,toattainthisgoalthetotalglobalamountofadditionalcarbonemissionsasof2020shouldnotexceed300GtofCO2.7AccordingtotheInternationalEnergyAgency(IEA)2021report,globalemissionslastyearamountedto31.5GtofCO2.8Thismeansthatifglobalemissionscontinueatthesamerateas3IPCC(2021)“ClimateChange2021:ThePhysicalScienceBasis’’4IPCC(2021)“ClimateChange2021:ThePhysicalScienceBasis’’5IPCC(2021)“ClimateChange2021:ThePhysicalScienceBasis’’6BBCNEWS“Climatechange:Low-incomecountries‘cant’tkeepup’withimpacts”:https://www.bbc.com/news/world-580800837IPCC(2021)“ClimateChange2021:ThePhysicalScienceBasis’’8IEA(2021)“GlobalEnergyReview2021”11lastyear,thentheentirecarbonbudgettheworldhasleftwillbeexhaustedinthenexteightandahalfyears.Whetheritwillbepossibletolimitwarmingtonomorethan1.5°C(oreven2°C),humanitycanchangethefuturetrajectoryoftheclimatethroughitsactions.AndtoavoidthecatastrophicimpactsofclimatechangetheworldmustreduceGHGemissionsinasustainedwayoverthenext20-30years.Thiswillrequireprofoundtechnologicalandeconomicchange.Themainsourceofenergytoday—fossilfuels—needstobereplacedbyrenewableandothernon-fossilenergy.9Thewaygoodsandservicesareproducedanddistributedmust,asaresult,undergofundamentalchanges.Thewaysocietyisorganizedaroundthenewmodesandhabitsofenergyuseandproductionmustbedeeplyreshaped.ThepathwaytoNetZeroisnarrowingbytheday:successdependsonauniversalambitiousdrivetoeliminateorcapturecarbonemissionsbyallplayers--governments,corporations,financialinstitutionsandnon-governmentalorganizations–notjustproducersandconsumers.Tobeabletomaintainourcurrentlivingstandardsgoingforward,indeed,tobeabletocontinuetoimprovelivingconditionsforthepoor,willrequireacomprehensivedecouplingofeconomicdevelopmentandtheemissionsofgreenhousegases.Isthisatallpossible?UntilrecentlyhigherGDPgrowthcouldonlybeachievedthroughhigherGHGemissions,asisshowninFigure1.Around35countrieshavebeenabletoinitiateadecouplingprocess,butevenforthesecountriestotalGHGemissionshavecontinuedtogrowwhiletheirratioofemissionstoGDPhasstartedtodecline.10Thetransitiontoadecarbonizedeconomyinevitablyinvolvesacostintermsoflostprofitsandfewergoodssoldinthenearterm.Otherwise,companieswouldhavealreadywholeheartedlyembracedthetransitiontoNetZero.Infact,theenergytransitionwillinvolvehugeabatementcostsandmassiveinvestmentsinrenewableandothernon-fossilenergy.11Ontheotherhand,continuingonabusiness-as-usual9Outof59.1Gtofemissionsembodiedineachresourcegroupin2019,fossilfuelsaccountfor38.4Gt:Seepage20ofCircularityGapReport(2021).10Barthetal.(2019)DecouplingDebunkedmentionssevenreasonswhydecouplingisnotrealistic;SeeKallisetal.2018forareviewoftheliteratureon“degrowth”.11GillinghamandStock(2018)summarizesandestimatesGHGabatementcostsoverthepastdecade.12pathisnotarealisticalternative.Therewillbemountingeconomicandhumanlossesiftheclimatecontinuestowarmunabated.12Figure4.CorrelationbetweenrealGDPpercapitaandGHGemissionsfrom1960to2018Source:GDPfromWorldBank;GHGemissionsfromClimateWatchData(WorldResourcesInstitute)Theselattercostsmaywellbemuchhigherthantheabatementcostsandinvestmentsrequiredtoslowdownclimatechange.13Hence,fromapurelyeconomicperspective(letalonetheenvironmentalimplications)thecaseforclimatechangemitigationisincreasinglycompellingastherisingphysicalcostsofclimatechangebecomemoreandmoreapparent.14What’smore,investmentsingreenenergy,theveryprocessoftransitioningtheeconomyawayfromfossilfuels,themselvesgeneratebeneficialeconomicactivity,especiallyifenvironmentalbenefitsare12AccordingtoSwissReInstitute(2021),bymid-century,theworldstandstolosearound10%oftotaleconomicvaluefromclimatechangeiftheglobaltemperaturefollowsthecurrenttrajectorywithoutachievingthetargetsetbytheParisAgreement.13AccordingtoNationalOceanicandAtmosphericAdministration(NOAA),weatherandclimatedisastersin2021havekilled538peopleintheU.S.andcostover$100billion.Moreover,IPCC(2021)pointsouthuman-inducedclimatechangetobethemaindriverofrecentincreaseinthefrequencyofextremeweather.14AccordingtoUNOfficeforDisasterRiskReduction(UNISDR),thelasttwentyyearshaveexperiencedariseof151%indirecteconomiclossescausedbyclimate-relateddisasters.13includedinitsmeasure.15Theyaresourcesofsustainableeconomicgrowth.16Sucheconomicgrowthwillstillbeneededtoalleviateextremepoverty,andtoincreasehumanwellbeingindevelopingcountries.17TheextentofthetradeoffbetweenGDPgrowthandreductionsinGHGemissionsislargelyunknown,assomuchdependsontechnologicalchangeandonefficiencygainsinthereorganizationofsocietyandtheeconomy.Anotherrelatedunknownistheextentofthesocialshiftawayfrompursuitsofpurelymaterialwell-beingtomoreintangiblesourcesofhappiness,whichincludeamongothersagreaterappreciationofwhatnaturecanoffer.IncreasinglyGDP,whichonlymeasuresmaterialconsumption,willbecomealessandlessaccuratemeasureofeconomicprogress.AsthereportonreformingthewayeconomicwelfareismeasuredbyStiglitz,SenandFitoussi(2010)emphasizes:“afocusonthematerialaspectsofGDPmaybeespeciallyinappropriateastheworldfacesthecrisisofglobalwarming.”[pagexxiiinMis-measuringourlives:whyGDPdoesn’taddup,2010]Theremaywellbefarlessofatradeoffbetweeneconomicprogressandthepreservationofournaturalhabitat,ifeconomicprogressisbettermeasuredandifeconomicprogresstakesamoresustainableform,withminimalimpactontheenvironment.18DigitalizationAstheclimateimpactofeconomicgrowthworsenedoverthepastthreedecadesanotherfundamentaleconomictransformationwasunderway,thedigitalrevolutionandtheriseofthe15AccordingtoInternationalRenewableEnergyAgency(IRENA)andtheInternationalLabourOrganization(ILO),therewere12millionjobsinrenewableenergyanditssupplychains,amongwhichathirdoftheminsolarpowersector.Surprisingly,thenumberofjobsgrewfrom2019evenunderthepandemic.AccordingtoCleanJobsAmerica2021byE2,nearly3.3millionAmericansworkincleanenergy,whichisthreetimeshigherthanthenumberoffossilfuelworkers.16AccordingtoInternationalRenewableEnergyAgency(2016),doublingtheshareofrenewablesintheglobalenergymixby2030wouldincreaseglobalGDPbyUSD1.3trillion,andincreasedirectandindirectemploymentto24.4million.Mostoftheeffectsaredrivenbytheincreasedinvestmentinrenewableenergyinfrastructureanddevelopments.17“Climatejusticedemandsthat,withthelittlecarbonspacewestillhave,developingcountriesshouldhaveenoughroomtogrow”-India’sPrimeMinisterNarendraModiin201518RegardingIndexesforcirculareconomy,seePlatformforAcceleratingtheCircularEconomy(2021)“CircularIndicatorsForGovernments”;SeeKubiszewskietal.(2013)forcomparisonbetweenGDPandotheralternativemeasuressuchasHDI,GenuineProgressIndicator(GPI),EcologicalFootprintetc.14digitaleconomy.19Thisongoingtransformation,farfromexacerbatingtheclimatecrisis,offersmanyopportunitiesforfurthereconomicandsocialprogresswithminimaladverseimpactsonclimatechange.20Themigrationofphysicaleconomicandsocialactivitytodigitalplatformsgenerallyinvolvesasignificantreductioninenergyconsumptionandcarbonemissions.Thisdigitalsubstitutioneffectaloneentailsamajorreductioninemissionintensityandanessentialimprovementinthetradeoffbetweeneconomicprogressandthepreservationoftheplanet.21Anddigitaltechnologyoffersseveralprospectsforcombattingclimatechangeevenwhileadvancingeconomicdevelopment.22Itisnocoincidencethatbigtechcompaniesareleadingthewayinreducing,oreveneliminating,theirnetGHGemissions.Theiroperationsandbusinessmodelsbenefitfromin-depthuseofdigitaltechnology,especiallywiththearrivalandexpansionofcloudcomputing,whichallowsthemtoreducetheircarbonemissionintensitytoaminimum.23Theirservicescanbedeliveredworldwideonline,atonce,essentiallyeliminatingthehighenergyuseoccasionedbyphysicaltravelandtransportation.24Moreover,mostoftheirenergyandelectricityneedscanbemet,astheyincreasinglyare,throughrenewableenergy.25Andbybuildingexcesscapacityinrenewableenergyproduction,orinvestingincarboncaptureandsequestration,thebigtechcompanieshavebeenabletomakeambitiouscommitmentstonetzero.26Theyaretodayamongthemostvaluedcompanies,farexceedingthevaluationsofoilmajorsandminingcompanies(themostvaluablecompaniesnotsolongago),whoareresponsibleforthelargestfractionofcarbon19UNConferenceonTradeandDevelopment(2021)“DigitalEconomyReport”documentstheglobaldevelopmentofdigitaleconomyindetail.Italsodiscussesdigitalinequality.BEA(2021)coversthetrendofU.S.digitaleconomy.20WebrieflyintroducebenefitsofdigitalizationinChapter2-1.Formoredetailedstudies,seeGeS“SMARTer2030”(2015),PwC“HowAIcanenableaSustainableFuture”(2019),IEA“DigitalizationandEnergy”(2017)21Faber(2021)fortheeffectofvirtualconference;seeFigure3inIDC(2016)“GreenIT:VirtualizationDeliversEnergyandCarbonEmissionsReductions”fortheeffectofusingVMware.22WeintroducethebenefitofdigitalizationinChapter2-1.23Cloudcomputingisingeneralmoreenergyefficientthanlocalindividualdatacentersbecausebigcompaniesmanagingcloudserverusuallyhavebettertechnologythansmallfirms.SeeMasanetetal.(2020).WeanalyzecloudcomputingmoreindetailinChapter3-2.24Faber(2021)estimatesthatvirtualconferencesof207participantsemittedaround1.3tonsofCO2,whichis1/66oftheemissionsthatwouldhavebeenproducedbyaphysicalconference.25Seehttps://www.wired.com/story/amazon-google-microsoft-green-clouds-and-hyperscale-data-centers/forinformationaboutthecurrentstatusandfutureplansofGoogle,Amazon,andMicrosoftcloudintermsofusingrenewableenergy.26“10TechCompaniesSettingBigGoalstoReduceClimateChange”https://www.ces.tech/Articles/2021/May/10-Tech-Companies-Setting-Big-Goals-to-Reduce-Clim.aspx15emissions.27Whatismore,thefinancialvalueofthebigtechcompaniesisonlyafractionofthewelfarebenefitstheyprovide,astheirservicesareoftenpricedhighlycompetitively.28Besidestheseimportantbenefitsfromdigitalsubstitutionofvirtualforphysicaleconomicactivity,digitaltechnologycanofferperhapsanevengreaterpromise,helpingtotransformconsumptionhabits,therebyminimizingthecarbonfootprintoftheaverageconsumptionbasket.29Mostoftheemphasisinclimatepolicyhasbeenonacceleratingthetransitioninthesupplyofenergyawayfromfossilfuels,onreducingthecarbonemissionsfromproduction,andondecarbonizinginvestmentandfinancialmarkets.Incomparison,relativelylittleemphasishasbeenputonthedemandside,ondecarbonizingconsumptioninthedirectionofadigitalcirculareconomy.Yet,thereissubstantialpromiseinengagingwithconsumers,aspublicopiniononclimatechangeinmanypartsoftheworldoftenleadspublicgovernanceandcorporatecommitment.30CircularEconomyHowever,animportantchallengeformostconsumersisthattheyhaveverylittleinformationtofindandwiselyuselowercarbonalternativesintheircurrentconsumptionchoices.31Digitaltechnologycanprovidetoolsandinformationthatempowerconsumerstodiscoverthesealternativesandtakepracticalandsimplestepstoreducetheircarbonfootprint.32Thesetools27ExceptAramco,nooilandminingcompaniesareinthelistof10largestcompaniesbymarketcapitalizationin2021.https://www.statista.com/statistics/263264/top-companies-in-the-world-by-market-capitalization/28Evenmorethanthat,alargenumberofdigitalgoodsareprovidedforfree.SeeBrynjolfssonetal.(2020)forrelevantargument.29Thekeyistochangethesocialnorm,andtoalterindividualbehaviorsthroughsomemarket-basedcorrectivemechanism.(Noteforfurtherresearches:Alibabaisredesigningitse-commercebusinessinthisdirection.Wemayhavesomeempiricalevidencesonhowtodesignamechanismtoalterconsumptionhabits,usingthelaunchof``greenproducts’’onTmallasaneventstudy.)30Andersonetal.(2017)forpositiverelationbetweenpublicopinionandtheintroductionofrenewableenergypolicyinEuropeanstates;SeeBurstein(2003);Forbesarticle“GoingGreen–What’sGoodForThePlanetIsGoodForBusiness”31BusinessofSustainabilityIndex,GreenPrint:aroundtwo-thirdofAmericanconsumersarewillingtopaymoreforeco-friendlyproductsbut74%ofthemdonotknowhowtoidentifythem.https://www.businesswire.com/news/home/20210322005061/en/GreenPrint-Survey-Finds-Consumers-Want-to-Buy-Eco-Friendly-Products-but-Don%E2%80%99t-Know-How-to-Identify-Them32Oneusefultoolispersonalcarbonaccounting.Withthehelpofdigitaltechnology,individualcarbonfootprintscanbemeasuredandrecordedinanaccount.Withthisaccount,eachindividualwillbeawareofhis/herpersonalcarbonemission,andcanmanagehis/heraccountbyadjustingbehaviors.Further,thecarbonaccountcanbeservedasfinancial/savingaccount.Therewouldbeatradingsystemthatallowingindividualstotradetheircarboncreditandconvertitintocashorothergreen16rangefrompreciseandsystematicmeasurementofthecarbonfootprintofthegoodstheyconsumetoenhancingthepotentialofthecirculareconomy.33Itisbecomingincreasinglyclearthattobeabletomaintaincurrentlivingstandardsineconomicallyadvancedcountriesandtofulfillglobaldevelopmentgoals,whilepreventingtheplanetfromfurther,potentiallycatastrophicwarming,thecurrentlinear“purchase-and-dispose”modelofconsumptionneedstobereplacedbyacircular“purchase-and-recycle”model.34Inanutshell,thecirculareconomyneedstogrowandbecomeafundamentalcomponentoftheworldeconomy.35Byfullyexploitingthepotentialofthecirculareconomythenationsoftheworldwillbeabletominimizethetradeoffbetweeneconomicwell-beingandpreservationoftheplanet.Tofullyexploitthepotentialofthecirculareconomywillrequirenotonlynewdigitaltechnologytoolsbutalsochangesinconsumptionhabitsandsocioeconomicsystemsthatbetterintegratetheuseofthenewdigitaltechnologytoolsintoourdailylifestyles.Astheliteratureonsocio-technicaltransitionhasfound(e.g.Geelsetal.2004,2016,2017),technologicalchangeandtheadoptionofnewtoolsiscloselyconnectedtochangingsocialconventionsandnormsofbehavior.Thegreatertheawarenessinsocietyabouttheclimatecrisis,thegreaterthewillingnessofconsumerstochangetheirconsumptionhabits,andthemoresuchchangesinbehaviorarerewardedandvaluedbysociety,thegreaterwillbethepotentialofdigitaltechnologyforsupportingtheexpansionofasustainablecirculareconomy.36Assomesocio-technicalanalyseshaveshown,itis,forexample,difficulttopredicttheadoptionoflow-carbontransporttechnologieswithoutabetterunderstandingoftheshiftingsocialnormstowardssuchpracticesascarsharing,greaterrelianceonpublictransportation,andchangesinculturalattitudesproductsandservices.(Noteforfurtherresearches:Alibabaiscurrentlyworkingonsuchpersonalcarbonaccount,andwemaybeabletocollectsomeinterestingdatainthenearfuture).33Forexample,digitalplatformsofsecond-handgoodssuchasCraigslist(U.S)andIdleFish(China)makepurchasingsecondhandgoodsmoreconvenient.Personalcarbonaccountingplatformsallowpeopletoeasilytracktheircarbonemissionfromdailyactivities.WeanalyzebothoftheminChapter3ofthisreport.34SeeintroductionsofEllenMcArthurFoundationreport(2015)andLacyetal.(2020).35AccordingtoCircularityGapReport2020and2021,ourcurrenteconomyis8.6%circular.ToachievetheclimatemitigationtargetsetbyParisAgreement,another8.6%ofcircularityisneeded,whichwouldshrinkglobalGHGemissionsby29%andcutvirginresourceuseby28%.36JoshiandRahman(2015)reviews53researchesfrom2000to2014thatstudyvariousfactorsaffectingconsumer’sgreenpurchasebehavior.Theyshowthatknowledgeisthemoststudiedvariable(18outof53).Amongtheeighteenstudies,fifteenfindthatknowledgeofenvironmentalissuepositivelyaffectsconsumer’sintentionoractualdecisionofbuyinggreenproducts.17towardspersonaltransportation(Mattioli,Roberts,SteinbergerandBrown,2020).37Changingsocialnormswillnotonlyaffecthowpeopletravel;enhancedandsupportedbydigitaltechnologytheycanbringaboutwide-rangingchangesinlifestyles,thathelppreserveeconomicwell-beingwhileprotectingtheenvironment.Thisreportisorganizedasfollows.Chapter2discussesthebenefitsandrisksofdigitalizationinreducingcarbonemissions.Asageneral-purposetechnology,digitalizationisakeyenablertoachievethenet-zerogoal.However,utilizingdigitaltechnologyisnoguaranteeofsignificantcarbonemissionreductionsgiventherisksofreboundeffects.WefurtherarguethatCEistherightsystemunderwhichdigitalizationcanbringitsfullpotentialtoreducecarbonemissions.Moreover,withthehelpofdigitalization,CEitselfisacriticalsourceofdecouplingeconomicgrowthfromcarbonemissions.ToillustratethepotentialofDCE,weanalyzefivecasesofinnovativedigitaltechnologyinChapter3whichdemonstratetheimportanceofcombiningdigitaltechnologywithchangesinthesocio-economicsystemtoachievethedesiredenvironmentalimpact.Chapter4concludesthereportbysuggestingfutureagendasforresearchandpolicyimplementation.Chapter2.IntegratingDigitalizationandaCircularEconomyInthischapterweidentifytheareaswheredigitalizationholdsthegreatestpromiseintransitioningtowardsalowcarboneconomy,aswellastheareaswheredigitaltechnologyhasbeenassociatedwithrapidlyrisingenergyuse.Asistobeexpectedwithanytechnologicalrevolution,thereisgenerallybothabrightandadarksideinwhatithastooffer.Whenitcomestoclimatechangemitigation,andthenecessaryreductioninfuturecarbonemissions,itisimportanttomakesurethattheuseofdigitaltechnologyischanneledtowardsthebrightside,37Inchapter3-2,weanalyzehowtheeffectofridesharingplatformsonemissionreductiondependsonsocialnormsandconsumerbehavior.18andthatthedarksideofenergy-intensivepracticesandcounterproductivereboundeffectsiskepttoaminimum.2-1.DigitalizationasanenablerofDecouplingBenefitsofDigitalizationDigitalizationhasoftenbeendescribedasthefourthindustrialrevolution.ThisrepresentationhasneverbeenmoreaptthanduringtheCOVIDpandemic,whenthankstowidespreaddigitalizationithasbeenpossibletoavoidtheworstsocialandeconomicconsequencesfromthenecessarylockdownsandsocialdistancingto“flattenthecurve”ofthepandemic.Beyondanyone’sexpectations,muchsocialandeconomicactivitywasmigratedalmostseamlesslyonline.Workfromhome,orevenworkfromanywhere,replacedworkattheoffice.MucheducationwassuccessfullyperformedonlinethankstoZoomandotheronlinecommunicationplatforms.Asaresult,economicactivitydidnotshrinknearlyasmuchaswasfeared,andatthesametime2020wasthefirsttimewhenglobalcarbonemissionsdeclinedsignificantly(around7%38).Iftherewaseveranydoubtaboutthepotentialofdigitalizationinfosteringmoreclimatefriendlyeconomicactivityithasbeenroundlydispelledbytheepisodeofthepandemic.Asageneral-purposetechnologydigitalizationhashadandwillcontinuetohaveanenormousimpactwellbeyondtheinformationandcommunicationtechnology(ICT)sector.Digitalizationwillopenupmoreandmoreopportunitiestoincreaseenergyefficiencies,enhancingalltheimportantadjustmentsthatwillhavetobemadealongthepathtonetzero.Forinstance,digitaltechnologywillbeessentialifwearetofullyharnessthecapacityofrechargeablebatteriesavailableonbillionsofdevicesconnectedtothegridandinternet,38Seehttps://earth.stanford.edu/news/covid-lockdown-causes-record-drop-carbon-emissions-2020#gs.x7f7qo.Ontheotherhand,accordingtoGlobalEconomicProspects(2022),theglobaleconomyin2020wasestimatedtohavecontractedaround3.4%comparedto2019.19enablingustobettermanagetheabilityofthepowergridtomanageshort-termfluctuationsinthedemandandsupplyofelectricity.Wehighlightthreeprimarychannelsthroughwhichdigitalizationcanbringefficiencygains:replacingphysicalprocessesusingvirtualization;optimizationthroughdatamonitoring,collectionandoptimization;andincreasingcoordinationthroughconnectivity.Virtualizationhasalreadypenetratedintomanypartsofourlives,directlyimpactingcarbonemissions.Themostobviousexampleisvirtualconferencesandmeetings.DuetovirtualmeetingapplicationssuchasZoom,peoplegeneratelowercarbonemissions,reducingtravel,reducingtheneedforheatingandcoolingofconferencevenues,andtheneedtobuildmoreofthemastimegoeson.The“digitaltwin”isyetanotherexampleofvirtualization,allowingmanufacturingfirmstotesttheirproductsinadigitallysimulatedworld.Asdigitaltechnologydevelops,producttestsconductedbycomputersimulationarebecomingbetterandbettersubstitutesforphysicaltestsandeventhedesignofproducts,oftenresultinginmajorreductionsincarbonemissions.Anotherchannelforcarbonreductionthroughdigitalizationliesinthemonitoring,collection,andanalysisofdata.Dataiscalledthefuelofdigitaleconomy.39GlobaldatacenterIP(“InternetProtocol”)trafficin2018hasincreasedeleventimessince2010.40ThegrowthrateisprojectedtoincreaseevenmoreconsideringthegrowingpenetrationoftheInternetofthings(IoT)inthefuture.41Comparedtovirtualization,theimpactofdata-relatedtechnologiesoncarbonemissionisconsideredtobelessdirectandlessconstrainedtospecificindustries.Thisimpliesthatsuchdata-orientedtechnologiescanbeappliedtoeverwiderindustrysectors,andthattheirinfluencewillbeincreasinglyspreadthroughoutsociety.Forinstance,datacollectedfromourdailyliveswillhelpusminimizecarbonemissionsthroughawidearrayofoptimizingalgorithms.39https://www.forbes.com/sites/cognitiveworld/2019/02/06/data-the-fuel-powering-ai-digital-transformation/?sh=44b37ba1578b40Masanetetal.(2020)41https://www.cisco.com/c/dam/m/en_us/solutions/service-provider/vni-forecast-highlights/pdf/Global_2021_Forecast_Highlights.pdf20“Bigdata”andmachinelearningtechniquesarealreadyextensivelyusedinmanyindustriestooptimizeproductionprocesses.Thesametechniquescanbeappliedtominimizecarbonemissions.Theimpactwillbeamplifiedoncehouseholdsincorporatethosetechniquesintotheirdailylivestominimizecarbonemissions.Inadditiontooptimization,abettersystemofcollectingdataallowsustokeepbettertrackofemissionsfromtheentirelifecyclesofproducts.Currentmethodsoflifecycleassessment(LCA)arelimitedintheirabilitytokeeptrackofalltheemissionsembodiedinaproduct,alimitationthatismainlydeterminedbytheavailabilityofdata.Wecanhaveabetterlifecycleassessmentusingmoredetaileddataaboutwherethematerialscomefrom,howtheproductsareused,andhowandwheretheyaredestroyed.Withamorepreciseanddetailedmeasurementofcarbonemission,bothpublicpoliciesandprivateinitiativeswillbecomemoreandmoreefficientandeffectiveinreducingcarbonemissions.Lastbutnotleast,digitalizationpromotesconnectivity.TheInternethasalreadybroughtpeopletogetherfromallaroundtheworld,allowingthemtoengageinanincreasingnumberandvarietyofactivitiesandcontracts.WithouthelpoftheInternet,suchactivitieswouldsimplynothavebeeneconomicallyfeasible.Astechnologydevelops,theboundaryofconnectionextendsbeyondbetweenpeople,tobetweenpeopleandmachine,andeventobetweenmachineandmachine.Thistrendofcloserconnectionbetweenmachinesisamajorfeatureof“Industry4.0,theincreasinguseofnetworked,web-enabledandautomatedtechnologiesinoursociety.”42Connectivityisimportantbecauseitallowssystemstobescalable.Asmentionedintheintroduction,climatechangeisachallengethatdemandseffortsfromeverysectorofoursociety.ItcannotberestrictedtoafewagentsandlocalesDigitalizationcanprovidesthenecessaryscaleforwidespread,all-encompassingsolutionsdesignedtoreduceglobalGHGemissions.Forexample,digitalplatformssuchasAirbnb,Uber,andIdleFishenablepeopletosharetheiridleassetswithafargreaternumberofpeoplethanjustneighborsinthesametownsandcities.Connectionofhouseholdelectricityusagetosmartmeterscanformthebasisforbuildingacomprehensive,widespreadelectricitygenerationsystemcompletewithsmartdemandsystems.42https://www.wfb-bremen.de/en/page/bremen-invest/what-does-industry-40-mean-short-definition21Suchdigitallyenabledconnectivitycanbeappliedtoanysectorandsystemtorealizeitsfullpotentialtoreducecarbonemissions.Althoughweconceptuallydefinethebenefitsofdigitalizationwithinthreecategories,theyareusuallyinterconnected,andworktogethertorealizetheirfullpotential.Forexample,virtualizationhelpspeoplemeettogethermoreeasilyandfrequently,whichincreasesconnectivity.TheInternetofthingsconnectedtoourdailylivespromptsmoredatatobecollected,andmoredatacanleadtomoreconnectivity.Fortherestofthechapter,weprovideexamplesofhowdigitalizationcanincreaseefficiencyandreducecarbonemissionswithindifferentsectorsthroughthecombinationofthethreechannels.Next,webrieflydiscusspotentialadversereboundeffectsofdigitalization,whichareconsideredtobemajorobstaclestomaximizingtheirabilitytoreducecarbonemissions.43EnergyEnergy-relatedemissionsaccountforabouttwothirdsofglobalgreenhousegas(GHG)emissions.44Anynet-zerosolution,therefore,shouldinvolveinnovativeandviableplanstoreducecarbonemissionsintheenergysector.AsmentionedinIRENA(2020),therearemainlytwochannelsthroughwhichdigitalizationcanreducecarbonemissionsfromtheenergysector.First,digitalizationcanincreaseenergyefficiencyusingsmartgridsandreal-timedataanalysis.Combinedwithdatasetscollectedfromtheinternetofthings(IoTs)inbothhouseholdsandindustry,smartgridscanprovidepersonalizedsolutionstominimizeelectricityusageinreal-time.Moreover,bigdataanalysisprovidesbetterpredictionsofelectricityconsumptionpatterns,whichthencanbeusedtosmoothoutdailyelectricityconsumptionusingsmartdemandresponsesystems.Mismatchbetweensupplyanddemandfrequentlyoccursunderthecurrentsystem,whichrequiresabundantreservepowergenerationtobeonstandby.Smartdemandsystemsallowdemandtobemetwithcurrentsupplycapacitywiththeleastadditionalreservepowergenerationonstandby.AccordingtotheIEA(2017),smartdemandresponsescanprovide43SeeFigure2forthesummary.44https://ourworldindata.org/emissions-by-sector22185GWofsystemflexibility.ThisincreasedflexibilitycanreduceUSD270billioninnewelectricityinfrastructure.45Secondly,digitalizationcanboostthegrowthofrenewableenergygenerationanddistribution.46Today,fossilfuels(coal+oil+gas)stillaccountforaround66%ofelectricitygenerationsources,andthenumbergoesevenhigherwhenconsideringdirectusageoffossilfuels.Consideringthetremendousimpactoffossilfuelsontheenvironment,transitioningtorenewableenergysystemsisnotanoption,butanecessity.Thegoodnewsisthatthemarketshareofsolarandwindinelectricitygenerationgrew15%annuallyonaveragefrom2015to2020.Thecostofwindandsolarelectricitygenerationdroppedsomuchthatnearly62%ofnewlyintroducedrenewablepowerin2020wasevencheaperthanthecheapestfossilfuelsources.47However,theabsoluteshareofelectricitygeneratedbysolarandwindcombinedstilltotalonlyaround10%.48Oneoftheobstaclestofurthergrowthofsolarandwindpower-basedgenerationisrelatedtoitssupplyvariability.Unlikecoalandnaturalgas,thesupplyofsolarandwindpowerisheavilyconstrainedbynatureandweather.Asaresult,underthelimitationsoftoday’selectricitystoragetechnology,heavydependenceonvariablerenewableenergysourceswouldcausetoofrequentmismatchbetweensupplyanddemand,whichseriouslydeterioratestheirenergyefficiency.Demandsmoothingenabledbysmartdemandresponsesanalyzescustomers’energyconsumptionpatternsandoptimallyencouragesthemtoshifttheirdemandtothehoursduringwhichrenewableenergysourcesproduceenoughelectricity.49Thiscanmitigatethemismatchproblemandmaximizethevalueofsolarandwindpower.AsimulationstudybytheRockyMountainInstituteshowsthatapplyingdemandflexibilitysolutionstotheTexaspowersystemincreasesthevalueofrenewableenergybyover30%comparedtoasystemwithinflexibledemand.5045IEA(2017)“DigitalizationandEnergy”,p.9146https://ourworldindata.org/grapher/electricity-prod-source-stacked47https://www.irena.org/newsroom/pressreleases/2021/Jun/Majority-of-New-Renewables-Undercut-Cheapest-Fossil-Fuel-on-Cost48wind(~7%),solar(~3%),hydro(~19%),otherrenewables(~7%)https://ourworldindata.org/grapher/electricity-prod-source-stacked49Possiblebehaviorsincludechargingelectricvehicleduringdaytimeandrunningenergy-intensiveprocesseslikedataprocessingandwaterpumpingduringthetimesofdaywhenrenewableenergysourcescanproduceenoughelectricity.https://www.forbes.com/sites/energyinnovation/2017/03/13/how-a-smart-grid-relies-on-customer-demand-response-to-manage-wind-and-solar/?sh=2ca2e1c3146150https://rmi.org/demand-flexibility-can-grow-market-renewable-energy/23Improvedprofitabilitywouldencouragebothgovernmentsandcompaniestoincreasetheirsharesofsolarandwindpower-basedelectricitygeneration.Figure5.EnergypricebysourceSource:coalpricefromBloombergNEF;therestofthemfromInternationalRenewableEnergyAgencyFigure6.ElectricityProductionbySourcein2021,WorldSource:OurWorldinData24TransportationTransportationwasresponsiblefor24%ofglobalcarbonemissionsin2020,ofwhichnearlythree-quarterswascausedbyroadvehicles.51Despitecontinuingimprovementsinenergyefficiencyandintheadoptionrateofelectricvehicles(EVs),emissionsfromroadvehicleshasstayedconstantoverthelastfewyears.AnIEA(2020)reportattributesthislackofprogresslargelyto1)achangeinpreferencetowardlargerandheaviervehicles,2)thegrowingsizeoftheglobalmiddleclass,and3)theincreaseinecommerceandfastdeliveries.52Digitalization,combinedwithadequatepolicies,hasahugepotentialtoreducecarbonemissionsfromthisapparentlyhard-to-abatesector.53Threetechnologiesoftenmentionedareridesharing,trafficcontrolandoptimization,andsmartlogistics.54GeSI(2015)estimatesthatthetotalemissionssavingsfromthesethreesolutionscanamountto2.6GtCO2eby2030inthebestscenario.First,ridesharingcansignificantlyreducevehiclemilestravelled(VMT).RidehailingplatformssuchasUber,Lyft,andDidiarealreadyheavilyusedinmanyofthebigcitiesintheworld.However,recentstudiesshowthattheintroductionofUberorLyfthasincreasedVMTinsomeofthebigcitiesintheU.S.55Toreversethistrendanddirectittowardalow-carbonpath,peopleshouldusemorepooledservicesanduseride-sharingservicesmoreasacomplementtopublictransit.Increasedreal-timeavailabilityofdatacanprovidebetterconnectionsbetweenpeoplewithdestinationstothesamelocationsanddirections,betweendriversandpassengers,andbetweenpublictransitsystemsandprivatevehicles.Combinedwithadequatepolicies,data-enabledconnectionscanenhancethedecarbonizationofride-hailingplatforms.Datacollectedfrommultiplesensorssetupinvehiclescanalsobeusedtooptimizetrafficcontrolandtominimizecarbonemissions.Theimpactwillbeamplifiedespeciallywhentheusageof51https://www.iea.org/topics/transportTrackingTransport202052https://www.iea.org/topics/transportTrackingTransport202053https://www.climateaction.org/webinars/the-role-of-heavy-industry-in-the-net-zero-energy-transition54GeS(2015)“SMARTer2030”.WediscussridesharingcaseinChapter3-2.55MorediscussionanddetailscanbefoundinChapter3-2ofthisreport.25suchbigdataiscombinedwithautonomousvehicles.FullydevelopedAIdrivingsystemswouldcontrolvehiclesmuchmorepreciselythanahumandriver.Theycanalsobeprogrammedtocutemissionsduringdrivingsuchaseco-driving,platooning,andefficientrouting.56Despiteallthesepromisingbenefits,therearestillconcernsoverpotentialreboundeffectsfromadoptingautonomousvehicles;theincreasedconvenienceofautonomousvehiclesmayincreasedemandforprivatevehicles,whichwouldthenleadtoincreasedcarbonemissions.Asaresult,theneteffectofautonomousvehiclesisfarfromsettled,andtheresultwillintheenddependondemand-sideresponsestothetechnology.Forexample,Wadudetal.(2016)estimatesthatautonomousvehiclesmightplausiblyreduceroadvehiclecarbonemissionsbynearlyhalf,ornearlydoublethem,dependingonwhichdemandresponsesitelicits.Lastly,logisticcompaniescanalsoleveragebigdatacollectedfromsensorsandadoptefficiencyenhancerssuchasfleetmanagementandrouteoptimization.DigitalfreightmatchingplatformssuchasConvoy,PostBidShip,andUberFreightprovidematchingservicesbetweensmalltruckingcompaniesandfreights,whichnotonlyincreasespaceutilization,butalsodecreaseemptyruns.57Allofthesecontributetoreducingcarbonemissions.BuildingsDirectandindirectemissionsfrombuildingusageandconstructionamountedto10GtCO2ein2019,whichaccountsforaround38%ofallenergy-relatedCO2emissions.58Emissionsfrombuildingsectorshasbeengrowingsince2016despitecontinuousprogressinenergyefficiency.Themaindriverofnetemissiongrowthisincreaseddemandforbuildingenergyservicessuchasheating,cooling,lighting,appliancesandconnecteddevices.59Heating,cooling,andlightinggenerallyaccountformorethan60%oftotalfinalenergydemandinbuildings,andtheseareexactlywheremostofthesavingswouldcomefromtheuseofdigitaltechnology.6056SeeWadudetal.(2016)fordetaileddiscussofenvironmentaleffectofautonomousvehicles.57https://www.supplychain247.com/article/the_rise_of_digital_freight_matching58IEATrackingBuildings2020https://www.iea.org/reports/tracking-buildings-202059IEATrackingBuildings2020https://www.iea.org/reports/tracking-buildings-202060IEA(2017)“DigitalizationandEnergy“26AsmoredataarecollectedthroughtheIoTsusedinbuildings,61peoplewillhavebetterestimatesoftheircurrentenergyusageandcarbonemissions.Furthermore,bigdataanalysisandAImodelscanprovidepersonalizedsolutionstominimizecarbonemissions.AccordingtoGeSI(2015),fulladoptionofsmartbuildingsandthewidespreadadoptionofsmartmeterscanreduceglobalGHGemissionsby2.0GtCO2eby2030.Aswiththeenergyandtransportationsectors,dataiscriticaltorealizethebenefitsofdigitalizationandthereductionsincarbonemissionsinthebuildingsector.YetatthesameconcernsabouttheprivacyandsecurityofpersonaldataisoneofthemajorhurdlesthatpreventpeoplefromactivelyadoptingIoTssuchassmartmeters,whichareessentialforitscollection.Datafrombuildingusage,especiallyresidencebuildings,maycontaindetailedprivateinformationthatcanbeusedtoinferthepatternsofeachhousehold’slifestyle.62AccordingtoPanwaretal.(2019),“securityandprivacyaretwoprimeconcernsinsmarthomenetworks.”63Governmentpoliciesandcompanypracticesshouldsetatransparentstandardfordataprivacytoresolvetheseconcerns,boostingtheadoptionofsmarthomesystems.OtherSectorsandIndustriesIoTandmachine-to-machineconnectivitylieatthecoreofthedigitizationofindustryandsociety,whatwecalled“Industry4.0”atthebeginningofthischapter.Thisconceptofconnectivityisnotjustconfinedtodataanalyticsandcloudcomputing.DigitalizationinIndustry4.0impliesmoreactiveinteractionsbetweenmachinesusingreal-timedataandfullautomatization.Broadlyspeaking,automationincreasesresource-useefficiency,andunlessthesavingsarespentoncarbonintensiveactivities,thisincreasedefficiencywillreducecarbonemissions.GeSI(2015)estimatesthatsmartmanufacturingalonehasthepotentialtoreduceglobalcarbonemissions61https://www.businesswire.com/news/home/20200929005109/en/Guidehouse-Insights-Report-Finds-Global-IoT-for-Smart-Buildings-Revenue-Is-Expected-to-Experience-a-14-Compound-Annual-Growth-Rate-from-2020-202962AmazonAlexa’sprivacyissue：https://www.theguardian.com/technology/2019/oct/09/alexa-are-you-invading-my-privacy-the-dark-side-of-our-voice-assistants63Panwaretal.(2019)27by2.7GtCO2e.Whenconsideringautomationinindustriesotherthanmanufacturing,theamountofcarbonemissionsreductionscanbemuchlarger.Anotheravenuethathasahighpotentialforcarbonemissionsreductionsisvirtualization.VirtualProductSimulators(VPS)developedbyFujitsuallowcompaniestotesttheirproductdevelopmentplanswithminimalamountsofphysicalwaste.64Virtualmeetingsandconferencesalsohavehighpotentialtoreducecarbonemissions.Faber(2021)estimatesthatvirtualconferencesof207participantsemittedaround1.3tonsofCO2,whichis1/66thoftheemissionsthatwouldhavebeenproducedbyaphysicalconference!65Themajorityofthesavingcomesfromtheemissionsfromflights,andfromheatingandcoolingconferencevenues.Alltheseareexamplesofthebrightsideofthedigitalrevolution.Iftheseweretheonlychangesthatdigitalizationhastooffer,weshouldbeseeingagreaterandgreaterdecouplingofeconomicactivityandcarbonemissions,astheshareofthedigitaleconomygrows.Buttheevidenceonfordecouplinghasnotbeensoclear-cut,suggestingthatthereisalsoadarksidetodigitalizationthatwecannotignore.Theproblemisthatsomeenhancementsthatdigitalizationhastooffercanalsoinviteincreaseduseoflowercostdigitaltechnologies,whichgeneratemoreenergyconsumptionasthedemandfortheiruseincreases.Thisphenomenonisreferredtoasthereboundeffect(alsoknownasJevon’sParadox).Weturnnexttoadiscussionofthiseffect.Reboundeffects(Jevon’sParadox):Energyusage/CO2emissionsfromICTSeveralstudieshaveestimatedthecontributionofinformationtechnologyutilizationtoGHGemissionsatbetween1.8%and2.8%,basedon2015data.66Thiswouldseemtobeareasonablylowestimateasofthatpointintime.Buttherearestillconcernsthatassocietybecomesmore64https://www.fujitsu.com/global/about/resources/news/press-releases/2010/0615-01.html65Faber(2021):Aframeworktoestimateemissionsfromvirtualconferences,InternationalJournalofEnvironmentalStudies66MalmodinandLunden(2018);BelkhirandElmellgi(2018);AndraeandEdler(2015).FreitagandBerners-Lee(2021)claimsthepreviousauthorsunderestimatedtheemissionsofICTandadjustedto2.1-3.9%.28andmoredigitalized,andasbigdataprocessingexpandsthroughouttheeconomy,thecarbonfootprintofICTislikelytorisesignificantly.Weknowthatinformationandcommunicationstechnology(ICT)energyconsumptionisconcentratedindatacenters,networkoperations,userdevices,andcryptocurrencies.Inwhichoftheseactivitiesisenergyconsumptionmostwasteful?Andinwhichoftheseactivitiesarereboundeffectsmostpronounced?DataCentersAsmoreandmoredatabecomeavailableindigitalform,asmoreandmoredataarestored,andasmoreandmoredataprocessinggeneratenewdata,thereislikelytobesubstantialgrowthinenergyconsumptionintheuseandmaintenanceofdatacenters.Buthowmuchthisenergyconsumptionwillrisewiththeexpansionofdatacentershasbeensubjecttospeculation.Someresearchershadpredictedthatenergyconsumptionwouldincreasesignificantlyalongwiththerapidgrowthofdatatrafficundertheassumptionthatdatatrafficisakeydriverofenergyconsumptionofadatacenter.67However,theseprecautionshaveturnedouttobeunfounded.AccordingtoanIEAreport(2020),theelectricityconsumptionofdatacentersamountsto200TWh,or0.8%~1%ofglobalfinalelectricitydemand.68Interestingly,theenergydemandofthissectorhasremainedstablesince2010eventhoughdatatraffichasincreasedtwelvefold.Thishasbeenmadepossiblebythreemajoradvancesinenergyefficiency.First,theenergyefficiencyofdatacenterserversandstoragedriveshasimprovedsubstantially.Second,moredatacentersareusingservervirtualizationsoftwaresuchas“hypervisor,”whichallowsasingleservertorunmultipleapplications.69Lastly,theincreasingmarketshareofcloudandhyperscaledatacentershelpstoincreasetheaverageenergyefficiencyofthedatacenter.67BelkhirandElmeligi(2018);AndraeandEdler(2015);Bawden(2016).68Thiscanbeconvertedto141MtCO2ewhenapplyingtheconvertingratio(1kWh:0.701kgCO2e)setbyEPA.69https://www.energystar.gov/products/low_carbon_it_campaign/12_ways_save_energy_data_center/server_virtualization29Figure7.Globaltrendsininternettraffic,datacentersworkloadsandenergyuse,2010-2022Note:Index2010=1Source:InternationalEnergyAgencyFigure8.Globaldatacenterenergydemandbydatacentertype(TWh)Source:InternationalEnergyAgencyHigh-capacitydatacenterstypicallyhaveaverylowpowerusageeffectiveness(PUE),whichisameasureofenergyefficiency.Forexample,GoogleclaimstheaveragePUEofitsdatacentersto30be1.2,whichismuchlowerthanPUE2.0ofconventionaldatacenters.70Inadditiontotechnologicalprogress,bigtechcompaniessuchasAmazon,Google,Facebook,andMicrosoftinvestsubstantialsumsinrenewableenergytomitigatetheirenvironmentalimpactsandtoprotecttheirdatacentersfromenergypricevolatility.71Thosefirmsbuyrenewableenergiesdirectlyfromrenewableenergydevelopingcompaniesvialong-termpowerpurchaseagreements(PPA),andthetotalamountpurchasedbythosefirmsaccountsforabouthalfofglobalcorporaterenewableenergyprocurementinthepastfiveyears.72Thoselong-termPPAdealsnotonlygreendatacenters’energyusage:theyalsohelptoprovidefinancialstabilitytorenewableenergydevelopersandgenerationcompanies.73Despitethehugeprogressmadeoverthepasttenyears,wecannotignorethepotentialrisksofexplosiveenergyconsumptionbydatacentersinthefuture,especiallythosecausedbyrapiddevelopmentofAItechnologyandtheinternetofthings(IoTs).74Topreventrisingenergyuseofdatacentersinthefuture,moreinvestmentsinnext-generationcomputing,storage,andcoolingsystemsarerequired.Atthesametime,moreenergyuseofdatacentersshouldbesourcedfromrenewableenergy.(Masanetetal.2020).CommunicationNetworkOperatorsICTtelecommunicationnetworksrefertofixedandmobiletelecommunicationnetworks,andtotheirrelatedactivities.Toavoiddoublecounting,datacentersandend-userdevicesareusuallyexcludedfromthiscategory.Afixed-linenetworkconnectsendusers,bymeansofacable(e.g.fiberopticandcoppercables),allowingthemtomakephonecallsorconnecttotheInternet.Mobilecommunicationnetworks,ontheotherhand,refertoacollectionoffacilitiesconnectingend-usermobiledevicesthroughradiosignalstransmittedbyalargenumberofcellulartowers70https://www.nature.com/articles/d41586-018-06610-y71IEA(2021)“DatacentersandDatatransmissionnetworks”72BloombergNEF(2021),2H2021CorporateEnergyMarketOutlook.73https://www.reutersevents.com/renewables/pv-insider/data-center-demand-juggernaut-creates-new-solar-wind-openings74https://www.technologyreview.com/2019/06/06/239031/training-a-single-ai-model-can-emit-as-much-carbon-as-five-cars-in-their-lifetimes/31(e.g.3G,4G,and5G).Togetherwithdatacentersandend-userdevices,communicationnetworkscontributeasignificantportiontoGHGemissionsfromtheICTsector.Comparedtodatacenters,itisusuallyhardertoacquirepubliclyavailabledatasetswithdetailednetworkfacilitiessincetheinformationisconsideredproprietary.AccordingtoMalmodinandLuden(2018b),whohaveusedthemostdetaileddata,theestimatedemissionsofcarbonfromnetworkoperatorsin2015was169MtCO2e,accountingforaround0.53%(0.34%)oftheenergyrelated(total)carbonemissions.Althoughtheabsoluteamountmightnotseemsubstantialatpresent,theincreasingtrendofdatatrafficledbyvideostreaming,smartphones,andtheinternetofthings(IoTs)doraiseconcernsoverfutureincreasesintheemissionsgeneratedwithinthissector.Analystswiththegreatestconcernsworrythattheemissionswillfollowthesamepathastheexponentialpathofdatatraffic,posingaseriousthreatunderabusiness-as-usualscenario.75Thosewhofocusmoreontherapidprogressofdataprocessingtechnologyaremoreoptimistic.Theythinkthattechnologicalprogressinenergyefficiencytogetherwithincreasedrelianceonrenewablefuelswilloffsetmostoftheadversereboundeffectsfromincreasingflowsofdatatraffic,allowingtheemissionspathofcommunicationnetworkstofollowthelineartrendinthenumberofmobilesubscribers,nottheexponentialtrendinthegrowthofdatatraffic.MalmodinandLuden(2018b),forexample,notethatcarbonemissionshaveincreasedonlyabout17%since2010,whiledatatraffichasgrownby280%onaverage.What’smore:theythinkanabsolutedecouplingmightwelltakeplaceastheglobalsmartphonemarketbecomessaturatedandthegrowthofsmartphonesubscribersabates.7675SeeAndraeandEdler(2015);BelkhirandElmeligi(2018).76Morethan80percentoftheworld’spopulationnowownsasmartphone.(https://www.statista.com/statistics/330695/number-of-smartphone-users-worldwide/)32UserDevicesAmajorchangeinthedemandforITdevicesoverthepasttwodecadeshasbeenashiftfromimmobiledevices,desktops,PCs,andTVs,whosesaleshaveplateaued,tomobiledevices,especiallysmartphonethathavebecomeincreasinglypopular77andthatprovidemostoftheusesoftheimmobiledevicesatafractionofthelifetimeenergyconsumptionandcarbonemissions.78Astheusageofsmartphonecontinuestooutstripthatofimmobiledevices,wecanexpecttheoverallcarbonintensityofinformationtechnologytodecline.However,whetheroverallcarbonemissionsfromITdeviceswilldeclinewilldependonthenatureandextentofthereboundeffect–onhowfastthedemandfordigitizedinformationincreases.AnotherpotentialsourceofcarbonemissionistheInternetofthings(IoT).AccordingtoCisco’sAnnualInternetReport(2020)IoThasbecomeaprevalentsysteminwhichpeople,processes,data,andthingsconnecttotheInternetandtoeachother.Globally,machine-to-machine(M2M)connectionswillhavegrown2.4-fold,from6.1billionin2018to14.7billionby2023,atwhichtimetherewillbe“1.8M-2Mconnectionsforeachmemberoftheglobalpopulation.”79TheconsensusforecastamongresearchersisthatIoTwillcontinuetoexpanddramatically.HowmuchthisgrowthinIoTwilltranslateintonetcarbonemissiongrowth,however,isnotknownastheenergyefficiencyimprovementsthatIoTwillhelpbringabouthavenotasyetbeenaccuratelyestimated.CryptocurrencyIfthereisoneareaofthedigitaleconomythatisresponsibleforthegreatestadverseimpactonclimatechangeitiscryptocurrencywithitsvoraciousconsumptionofenergy.Itisnoteasytomeasurepreciselytheenergyconsumptionofcryptocurrencymining,butweknowthatthescarcityvalueofmajorcryptocurrencies(Bitcoin)isbuiltonitsextremelyhighrateofenergy77SeeFigure7inMalmodinandLunden(2018).78SeeFigure10inMalmodinandLunden(2018)79https://www.cisco.com/c/en/us/solutions/collateral/executive-perspectives/annual-internet-report/white-paper-c11-741490.html#Executivesummary33consumption.Thisisanextraordinarilywastefulwayofbuildingtrustinthesoundnessofthecurrency.AccordingtoIEA,theenergyconsumptionofBitcoinminingisestimatedtobebetween20and80TWh(terawatthours).80InanotherindependentstudybyStolletal.(2019)estimatestheenergyconsumptionofBitcoinminingtobe45.8TWhin2018,inthemiddleoftheIEArange.Stolletal.(2019)convertedtheenergyconsumptionintocarbonemission,whichamountsto22.0MtCO2e–22.9MtCO2e.81SinceBitcoinminingisestimatedtoaccountforaroundtwothirdsoftotalenergyconsumptionincoinmining,thetotalCO2emissionsfromcryptocurrenciesisestimatedtobe33MtCO2e-34.35MtCO2e.82AccordingtoHuangetal.(2021),electricityusagefromcoinminingrepresentsapproximately0.5%ofalltheelectricityconsumedglobally,orroughlythesameamountofelectricityconsumptioninWashingtonState,morethantheelectricityconsumptioninFinland,andseventimesmorethantheelectricityconsumptionbyGoogle.83Allthisenergyisconsumedfornootherpurposethantoraisethecostofcoinmining,therebycreatingascarcityvalue.Limitingcoinsupplycanbeachievedinotherwaysthatdonotrequirenearthelevelofenergyconsumption.ConstrainingtheexpansiononthisdarksideofinformationtechnologyiscriticalifwearetoharnessthefullbenefitsofthedigitaleconomytoachieveNetZero.ReboundeffectsonothersectorsWiththeglaringexceptionofcryptocurrency,thenetenergysavingsfromthedigitalizationofeconomictransactionandsocialinteractioncanbesubstantial.Buthowmuchmightthesegainsbeundonebyattendantindirectreboundeffectsofdigitalizationasitfostersanoverallincreaseintradeandcommerce?Tobesure,whiledigitalizationcanreducecarbonemissionsthroughreductionsinenergyintensity,itcanalsoboostconsumptionviarealincomeeffects,possiblyresultinginincreasedoverallcarbonemissions.8480https://www.iea.org/commentaries/bitcoin-energy-use-mined-the-gap81Stolletal.(2019)82Stolletal.(2020)83“BitcoinUsesMoreElectricityThanManyCountries.HowIsThatPossible?”,NewYorkTimesSeptember3,2021.https://www.nytimes.com/interactive/2021/09/03/climate/bitcoin-carbon-footprint-electricity.html84Realincomeeffectreferstoincreaseinone’spurchasingpowerduetodecreaseinproductprices.34Forexample,Luoetal.(2019)examinetheChinaFamilyPanelStudiesSurveywithcounty-levele-commercedatafromAlibaba.85Theyfindthate-commercedevelopmenthasbeenassociatedwithhigherconsumptiongrowth,especiallyinruralareas.Oneproblemwithsuchanexerciseisthatitisdifficulttoisolatethereboundeffects.First,onemustconsiderconsumerwelfarewhenevaluatingtheenvironmentalimpact.Second,attheaggregatelevel,consumptiontendstogrowwithdisposableincome.Thefastergrowthofonlineconsumptiontendstoreflecttheimpactontraditionalconsumption.Solongasaggregateconsumptiondoesnotgrowdisproportionallywithincome,highergrowthofonlineconsumptionwillbeassociatedwithamoreenergy-efficientformofconsumption.Acompleteanalysisofreboundeffectsshouldintheendbebasedonempiricalestimatesoftheresultingcarbonemissionreductionsfromdigitalization.However,calculatingtheneteffectonGHGemissionsisusuallymorechallengingthanestimatingthedirecteffectsonenergyconsumption.Inthefirstplace,wemustcalculateavoidedemissionsfromonlinesalesratherthantraditionalbrick-and-mortarstores.Second,thechangeinconsumptionbasketsmustbealsoconsideredsincedifferentcategoriesofconsumptiondifferinGHGemissionsintensity.Forinstance,adollarspentonadditionalelectricityandgasusuallyemitsmuchmoreGHGthanadollarspentonfoodandclothing.86Therefore,andamongotherthings,moreaccurateestimatesoftheneteffectonGHGemissionsrequiresaccountingforchangesinconsumptionbaskets.Tohighlighttheimportanceofchangesintheconsumptionbasket,supposethatanindividualsaved$200bypurchasingacellphonefromasecond-handgoodsplatforminsteadofafirst-handpurchase.Furthersupposethattheindividualspendsthesavingsondtakingplanetotravel“acrossthecountry.”Theneteffectofusingsecond-handmarketswouldbedeterminedbycomparingthecarbonsavingsfromproducingandusinganewcellphoneandthecarbonemissionsfromtakingaflight.85LuoandZhang(2019)86SeeFigure1inSorreletal.(2020)35Overall,theaboveexampledemonstratestheimportanceanddifficultyoffindingacausalrelationshipbetweentheadoptionofnewtechnologyanda(net)changeincarbonemissions.Identifyingsuchcausallinksisademandingtaskevenwithintheboundariesofaparticularsector,letalonefortheoveralleconomy.Firstofall,lackofdetaileddataonconsumptionbasketsisthemostcommonobstacletoestimatereboundeffects.Second,theimpactofdigitalizationonsocietyisverybroadandmulti-dimensional,whichmakesithardforresearcherstoidentifythelimitsoftheimpactofdigitalization.Asaresult,evenwhenequippedwithdetaileddata,itishardtofindacausalrelationbetweenefficiencygainswithinonesector(withina“partialequilibrium”analysis)andincreasesinconsumptioninothersectors(withina“generalequilibrium”analysis).Forthesereasons,mostpreviousresearchonreboundeffectshasfocusedonestimatingdirectreboundeffects.Doesthislackofevidenceallowustoconcludethatindirectreboundeffectsarenegligible?Webelievethattheriskofreboundeffects(especiallyindirecteffects)isreal.AscanbeseeninFigure1,historyuntilnowhasnotprovidedmuchevidenceofacausallinkbetweenenergyefficiencyimprovementandcarbonemissionsreductions.Onemightargueagainstsuchskepticismbyobservingthattherecentdigitalizationrevolutiondrivenbydigitalplatformsisanewphenomenonanditishardtopredictthereboundeffectsofthisnewtypeofrevolutionbasedonhistory.However,atthesametime,thereisalsonodefinitivecontraryevidencetosupporttheoptimisticviewofdigitalization.Consideringthehighpriceofclimatechangethatwemaypay,areasonableattitudefortheworldis,atleastfornow,tomaintainaskepticalviewoftheeffectsofdigitalizationandtotrytofindwaystominimizeitspotentialundesirableeffectsaheadoftime.HowtofullycapturethebenefitsofdigitalizationDespitetheconcernsaboutreboundeffects,wecannotignoretheimmensepotentialofdigitalizationforreducingcarbonemissions.ThelessonfromChapter2-1isthatdigitalizationin36itselfdoesnotguaranteeNetZero.87Wealsoneedaneweconomicsystemtoguidedigitalizationtowardthatdestination.Putdifferently,weneedtomakesurethatthesavingsfromtheefficiencygainsfromdigitalizationarenotspentongeneratingmorecarbonemissions.Inprinciple,thiscanbeachievedintwoways:reducingcarbonemissionsfromconsumption(bothdirectlyandindirectlyembodied)andreducingemissionsaltogetherbyresortingtocleanenergy.InthenextsectionwearguethatthecirculareconomyisthedirectiontowardwhichdigitalizationshouldbeguidedifwearetoachieveNetZero.CEisaneweconomicsysteminwhichthevalueofproductusageismaximizedwhilethewastefromeconomicactivityisminimized.Whenembeddedinacirculareconomydigitalizationcanrealizeitsfullpotentialtoreducecarbonemissions.Atthesametime,digitalizationhelpsthecirculareconomyachievescaleandtherebyhaveasignificantimpactoncarbonemissionsreductions.CEboostedbyD(for“digitalization”)isapromisingwaywecanhopetobeabletodecoupleeconomicgrowthfromcarbonemissions.CombiningDandCE,wearguethatDCE(for“digitalcirculareconomy”)isanecessarytransformationtoaworldofNetZero.2-2.AcirculareconomywillputusonthepathtoNetZeroThecirculareconomyisnothingshortofamassivetransformationfromthetraditional“linear”“take,make,waste”approachofdoingbusinesstoacircularmodelinwhichproductsandresourcesarekeptinuseforaslongasphysicallypossibleatwhichtimecomponentsandmaterialsarerecycled--loopedback--intothesysteminzero-wastevaluechains.Ineffect,theconceptofwasteiseliminated,fundamentallyalteringthewaygoodsandservicesareproducedandconsumed.87SeethelastparagraphinFreitagetal.(2020).37Ahealthier,thrivingecosystemensues,continuouslycirculatingvaluethroughouttheeconomyandsocietywhileincreasingresourceuseefficiencyandproductivity.88AccordingtotheEllenMacArthurFoundation,switchingtoacirculareconomycouldbringa48%reductioninCO2emissionsby203089whilestrengtheningtheresiliencyoftheclimatetowithstandnear-termchanges.Adoptingacirculareconomymeansacknowledgingthatwecannotreachnetzerobyfocusingsolelyontheenergysector.Wecandistinguishamongfivedifferentcircularbusinessmodelsthatcancapturethevalueofthecirculareconomyacrossatypicalvaluechain.Threecenteronproduction:CircularInputs,theuseofrenewableenergy,bio-basedorpotentiallycompletelyrecyclablematerials;ProductUseExtension,extendingproductusethroughrepair,reprocessing,upgradeandresale,andResourceRecovery,therecoveryofusableresourcesorenergyfromwasteorby-products.90TheothertwoCircularBusinessModelsfocusonconsumptionandtherelationshipbetweentheproductandtheconsumer.SharingPlatformsfocusesonincreasingusageratesofproductsorservicesthroughcollaborativemodelsforusage,accessorownership.AndProductasaServicecentersontheofferofaproductuse,wheretheproducerretainsownershiptoincreaseproductivity(Figure3).91TheSharingPlatformsmodelhasbeengrowingrecently,thankstotheadvancementoftheplatformeconomy.OneofAlibaba’splatforms,IdleFish,thebiggestonlinecommunityforsecondhandsalesinChina,hasachieved24.912milliontonsofcarbon-emissionreductionandcontributed6,278tonsofforestcarbonsinkin2019.Itillustrateshowdigitalizationcanenablecircularbusinessmodelstogrowwhilereducingthereboundeffectsfromdigitalization.88Lacyetal.(2020),TheCircularEconomyHandbook.89EllenMacArthurFoundation:https://unfccc.int/sites/default/files/resource/Circular%20economy%203.pdf90Lacyetal.(2020),TheCircularEconomyHandbook.91Lacyetal.(2020),TheCircularEconomyHandbook.38Thewaythemodelsareembracedvaries,dependingongeography,industry,businesssizeandstructure,andproducttype.Thereisabenefitinleveragingeachofthemodelstogainrealscaleandimpactwithinthecirculareconomy,andthemodelscanworktogethertohelpcounteractreboundeffects.Thewholecanbemuchgreaterthanthesumofitsparts:gettingallfivetoworkintandemcancreatethegreatestimpact—generatingmaximumvaluefortheenvironment--aswellasfortheeconomy.CirculardesignisakeyenablerfortheCircularBusinessModelTherearemanywaystocapturethefullpotentialoftheCircularBusinessModel,includingconsumerandcommunityengagement,reverselogistics,disruptivetechnologies,innovativeecosystems,andcreativedesigns.Embeddingcircularityupfrontatthedesignstageenableslongeruse-cyclesandgreaterend-of-userecovery.Thiscanreshapeconsumerhabits,shiftingtheirpreferencesinamuchmoresustainabledirection.Forexample,circulardesignprinciples,suchasredesigningforlessmaterialusecancost-effectivelyextenduseofaproduct,anddesigningforendofuse(e.g.,makingaproductbiodegradable)caneliminatewaste.Ifcompaniesapplymorecirculardesigntotheirproductsorservices,itcanhelptochangepeople’sconsumptionpatterns—suchasencouragingpurchaseofaproductwithreusablepackagingthatissentbacktothemanufacturertobeputbackintouse.Digitaltechnology--anotherkeyenablerforthepenetrationofthecirculareconomyLet’slookatanotherkeyenablerforthecirculareconomy:disruptivetechnology.Thefivecircularbusinessmodelsareenabledbyarangeof“FourthIndustrialRevolution(4IR)”disruptivetechnologiesthatareblurringthelinesbetweenthephysical,digitalandbiologicalworlds,usheringintransformationalchangeacrossglobalvaluechains.Thisincludesadvancesinartificialintelligence(AI),robotics,theInternetofThings(IoT),3Dprinting,nanotechnologyandmore.4IR39technologiesaregamechangers–makingitpossible,forthefirsttimeinhumanhistory,todecoupleproductionandgrowthfromtheconsumptionofnaturalresources.Theyshareincommoncriticalcapabilitiesthatenablethemtoachievegreaterefficiencyandlesswaste,todriveinnovationbyallowingnewplayerstodisruptexistingmarketsandtochallengeestablishedcompaniestopivottogreenerbusinessmodelsandmarkets.Thesetechnologiesalsoincreaseinformationtransparency.Datacanbegatheredandanalyzedquicklytogaininsightsthatgiveheightenedvisibilityintothebusiness,enablegreaterconnectivity(betweenmachines,customersanddecisionmakers),andflexibility(makingmodificationstoadevice,functionorprocessmucheasier).Detaileddatacanalsohelpustrackourusageofmaterialsthroughouttheirwholelifecycletoimprovetheirenergyefficiency,aswellastheefficiencywithwhichotherresourcesareused.92Figure9.CurrentandemergingtechnologiesSource:Accenture92TheEUCommissionpresentedinMarch2022apackageofEuropeanGreenDealproposalstomakesustainableproductsthenormintheEU.OneofthekeyproposalstorequireallregulatedproductshaveDigitalProductPassports.”Thiswillmakeiteasiertorepairorrecycleproductsandfaciilitatetrackingsubstancesofconcernalongthesupplychain.”Seehttps://ec.europa.eu/commission/presscorner/detail/en/IP_22_201340Digitaltechnologiesaretechnologiesbasedontheapplicationofthecomputer,electronicsandcommunicationsciences.Theytapintothegrowingvolumeofinformationandconnectednessofphysicalresources.Digitaltechnologiesarefrequentlydeployedincircularpractices,withtheIoTandmachinelearningleadingtheway.93IoTtechnologiesconsistofwirelessdeviceswithembeddedsensorsthatmakeitpossibletoconnectassetsandproductsandexchangedatageneratedinasensornetwork.AnIoTdevicecouldbeacar,arefrigeratororapieceofindustrialequipment—allofwhichhavepotentialtobemonitoredandcontrolledremotely.Machinelearning(ML)usesiterativeself-learningalgorithmsthatallowrapidprototypingandtestingthathelporganizationsdesigncircularproducts,components,andmaterials.Andbydeployingpredictiveanalyticsformoreprecisedemand-planningortoanalyzeusagepatternstooptimizeassetmanagement,MLalsomakesitpossibletocutwaste,resourceuse,andemissions.Inmanyways,today’sdigitalrevolutionandthecirculareconomygohandinhand.Digitaltechnologiesareanamplifierforscalingandmakingcircularbusinessmodelsmoreeffectiveandefficient.Whencompaniesexpandthescaleofdigitalization,theyfindnewpossibilitiestotapintothecircularbusinessmodelsandoptimizescarceresources.Whencircularityshapeshowproductsandservicesaredesigned,itmakespossiblenearlylimitlessconsumption,sincegrowthisnolongernearlysoconstrainedbyresourceavailabilityorenvironmentalimpact.2-3.GovernanceandthetransitiontoaDigitalCircularEconomyFromCircularBusinessModelstoDigitalCircularEconomy93Lacyetal.(2020),TheCircularEconomyHandbook.41Thespeedwithwhichdigitallyenabledbusinessesaretappingintothepossibilitiesofthecirculareconomyisastounding,andit’snotjustfamiliarnameslikeAirbnbandUber.InEastAsia,Mercari,aJapaneseshoppingappthatenablespeopletoselltheirunwantedclothessecurely,raisedaround$14millionin2014alone,only18monthsafteritslaunch.BlockPools,meanwhile,aSingapore-basedprivatesocialnetworkthatallowsneighborstolendandborrow,buyandsellthingsfromoneanotherisnowusedbythousands.Examplesliketheseabound.AccordingtoAccenture,thecirculareconomyrepresentsaglobalopportunityworth$4.5trillionby2030,byredefiningtheconceptofwasteasavaluableresource.94Digitalizationandcircularbusinessmodelsreinforceeachotherthroughnewformsofeconomicorganizationtocreatevalue.Digitalplatformscreatevaluebyreducingtransactioncostsinconnectingagentsandfacilitatingexchange.Reducedcostsnotonlyincreasethevolumeofexistingtransactionsbutalsocreatenewtransactionsthatwerenotpossiblebefore.Suchincreasedconnectivityisessentialtothecreationofafull-fledgedcirculareconomybecauseinsuchaneconomyaproduct’svalueisnotconstrainedtotheownershipofasingleperson.Instead,thevalueofaproductismaximizedasitexpeditiouslymovestotheplacewhereitismostneeded.Astherangeofconnectionsbroadens,theunderlyingvalueofagoodorserviceincreases.Moreandmorepeopleareprovidedwithmoreandmoreincentivestojointhesystemcreatedbythedigitalplatform.Tobesure,replacingourcurrentlinearmodelwithacircularmodelofproduction,consumptionandtheentireeconomicsystemwillbeamonumentaltask.Butbytakingthecirculareconomyasourblueprint,enabledbydigitaltechnology,itispossibletoreplaceandscalethecircularinnovationstoaDigitalCircularEconomy(DCE)thatwemusthaveifwearetoconfrontitsmosturgentchallenges.DCEisnotconstrainedtoindividualcircularbusinessmodels.Itincludesawholesetofbusinessmodelsbasedondigitalizationandtheentireeconomicsystemandsocietyinwhicheconomicagentsareincentivizedtowardcircularwaysofproductionandconsumption.Asagentsandcommunitiesbecomeincreasinglymotivatedtojoindigitalplatformsandto94Lacyetal.(2020),TheCircularEconomyHandbook.42contributetocircularusageofresources,aninterdependent,well-organizeddigitalcircular“economy”iscreatedratherthanjustacollectionofnumerousindependentdigitalcircular“businessmodels”workingineverywhichwayanddirection.Heretheword“economy”includesallsocial,cultural,technical,andgovernancedimensionsthatshapethebehaviorsandincentivesofindividuals,theircommunities,aswellasthecircularbusinessmodelsthemselves.Atransitiontoadigitalcirculareconomycannotbeattainedmerelythroughtheriseofinnovativedigitalcirculartechnologies.Whatisneededisasystemicsocioeconomictransformationthatfacilitatethecreationofafull-fledgedcirculareconomy.GovernancechallengesThedauntingchallengesofNetZeroandtheassociatedsocio-environmentalcrisesworldwidecompelustogobeyondtheconventionalgovernancemodelbasedontheseparationofpolicymakingbygovernmentsfrombusinessandsocialconduct.First,whilepoliciesfocusingondirectmitigationofGHGemissions,suchascarbontaxes,bordercarbonadjustments,aswellasmandatorycarbondisclosurerequirementsarenecessaryandimportant,theyneedtobecomplementedbyothercommunity-basedsustainabilitygoalsthatreducetheharmfuleffectsofhumanactivityontheenvironment.Thisrequiresdeepcoordinationamongmultiplestakeholderswithinandacrossmultiplesectors,communities,andgovernmentdepartments.Moreover,theglobalnatureoftheGHGemissionsexternalitymeansthatNetZerocanonlybeachievedasaglobalgoalthatcoversallcountriesandpeople.Thetransitionawayfromthecurrentfossil-fuel-basedeconomicregimewillrequirebothashifttowardalow-to-zeroemissionssocio-technicalsystem,throughsubsidiesforrenewableenergies,involvingthephase-outoffirstcoalandthenoilandnaturalgas,whileencouragingdisruptivetechnologiessuchaselectricvehiclesfortransportationandcarboncapture,utilization,andstorage(CCUS).DCE’spotentialwillbefulfilledthroughasocio-technicaltransitionthatdeploysdigitaltechnologytoenhancecirculareconomypractices,andanevenbiggersystemtransformationofwhichDCEisacriticalcomponent.MoreisrequiredthanjusttheadditionofDtoCE.Integrating43DwithCEisadynamicprocesswhereintechnologyandeconomicbehavioractivelyimpingeononeanother.Thisisonlypossibleunderanappropriategovernancesystemthatincludesandisintendedtobenefitallstakeholders.Wereferto“governance”hereasallthedecision-makingprocessesandsocioeconomicinteractions,throughregulatory,fiscal,taxandothergovernmentalpolicies,evolvingsocialnorms,andcommunityengagement(withinbothformalandinformalassociations)atthelocal,regional,andnationallevel.Government,markets,communities,andallsocialnetworksmustparticipateinpromotingmoresustainableformsofbehaviorinthenewDigitalCircularEconomy.Inotherwords,ourcurrentsocio-techno-environmentalsystemmustundergomajortransformationsifwearetounleashthefullpotentialofinnovativedigitaltechnologiesandCEbusinessmodels.Thenewsystemmustprovideeveryonewitheconomicandnon-economicincentivestofullyparticipateintheDCE--inwork,atplay,andineveryotheraspectoftheirdailylives.Thiscanhappenonlythroughacombinationofinnovativegovernmentpolicies,marketmechanisms,andstakeholderparticipatoryapproachesacrossregions,sectorsandsocialhierarchies.Insummary,whilstgloballevelgovernanceframeworksforclimateandsustainabilityareneeded,thedynamicsanddiversenatureofthedistributionaleffectsofthesechallengesatregionalandlocallevelsnecessitatesmultifacetedformsofgovernance(Ostrom2005,Jordanetal.2018).DCE,especially,demandstheinclusionoflocalandsub-nationalscalesofgovernancethataremoresensitivetoculturaldifferencesandtolocalandregionalvariationsinresourceendowmentandtechnologicalreadiness.Chapter3.InnovationTrendsandEmergingInitiativesInthischapterwepresentfivecasestudiesoftechnologicalinnovationstoillustrateconcretelyhowtheDCEmightworkandtosuggestpathwaysonhowtoexpediteitstransition.ThesefivecaseshavebeenselectedinordertoillustratehowthethreepillarsoftheDCE(digitalization,circularbusinessmodel,andeconomy)mightbeconstructed.Digitalizationand44circularbusinessesprovidetheessentialbuildingblocks,withfurther,much-neededsupportbysocio-economicgovernancethathelpsaligntheirincentiveswithwhat’sneededtoattainaworldofNetZero.Afterdescribingeachcase,weidentifyanddiscusssomeofthemajorobstaclesinthewayoftransitioningtoaDCE.Weemployaconceptofa“socio-technical”systeminwhichthemeaningandpurposeoftechnologicalinnovationareshaped.Thetransitiontoadigitalcirculareconomyrequiresasystemicshiftbecauseitnotonlyinvolvesadigitaltechnologicalrevolution,butalsoatransformationoftheentiresocio-economicenvironmentthatshapeshowpeopleandcommunitiesengagewithoneanotherandwiththenewdigitaltechnologies.Thesocio-technicalperspectiveprovidesuswithaholisticviewofasocialtransitionthatintegratesbothtechnologicalandsocialdimensions.Itviewssocietyasasocio-technicalsystem,inwhich“aclusterofelements,includingtechnology,regulations,taxincentives,userpractices,markets,culturalconsiderations,infrastructure,maintenancenetworksandsupplynetworks.Technologyplaysanimportantroleinfulfillingsocietalfunctions,butitsfunctionsdependuponitsrelationshiptotheotherelements.”953-1.SocioTechnicalSystemsandtheMulti-LevelPerspective(MLP)Aparticularlyusefulcontributiontosocio-technicalanalysisforourpurposesisthemulti-levelperspective(MLP)ofGeelsetal.(2004).TheirMLPdistinguishesamongthreebroadlayers:i)nicheinnovation,ii)socio-technicalsystemandregime,andiii)socio-technicallandscape.Intheiranalysis,transitiontoanewsocio-technicalsysteminvolvesfirstatechnicalinnovation,secondatransformationofmodesofsocialinteractionasthenewtechnologyisembraced--threedifferentformsofadaptationdependingonthespecificsocial-technicalcontext,and,critically,theinterplayamongthethreelayers.Suchaframeworkisusefultoevaluatethedegreeofintegrationbetweencircularity,technology,andmulti-stakeholdereconomy.Forexample,niche95Geelsetal.(2004)45innovationcouldbeanewdigitalplatformtoenhancesecond-handcommerce.Theimpactofthisinnovationwillbethroughnewmodesofsocialinteractionandexchange,agradualtransformationofthesocio-technicalsystemandthemoreintangiblesocio-technicalregime.Finally,thesocio-technicallandscapeisthecontextthatshapestheadoptionofthiscircularcommerceinnovation;thatis,itisallthe“broadercontextualdevelopmentsthatinfluencethesocio-technicalregimeandoverwhichregimeactorshavelittleornoinfluence.”96ThefigurebelowrepresentsthemainchannelsofMLP.MLPdividesatransitionintofourdistinctphases.Inthefirstphase,nicheinnovationoccursonthefringeoftheincumbentregime.Atthisstage,theinnovationisuncertain,fragile,andexperimentingwithdifferentdesignoptions.Inthesecondstage,nicheinnovationstartstoformafoundationatalocalizedmarketwithitsdominantdesign.Otherassociatedexpectationsandrulesbegintostabilize.Inthethirdstageastheinnovationbeginstocompetehead-to-headwiththeincumbentregime.Theinnovationstartstohavemajorconflictswithexistingactors:economiccompetitionwithtraditionalbusinessmodels,andothermarketentrants,struggleswithnewrules,regulations,andotherpublicpolicies,anddiscursivestrugglesonhowtoframetheproblemsunderthenewregime.Ifanewtechnologysurvivesalltheseconflicts,itreplacestheestablishedregimeinthefinalphase.Itbecomesanewsocio-technicalregime,andtheaccompanyingrules,regulations,andculturebegintoformanewsocio-technicallandscape.9796FormoredetailedexplanationofSTSandMLP,seeGeelsetal.(2017).97FormoredetailedexplanationofSTSandMLP,seeGeelsetal.(2017).46Figure10.Multi-levelPerspectiveonSocio-TechnicalTransitionsSource:AdaptedfromGeelsetal.(2017)NicheinnovationEmergingsocialortechnicalinnovationsthatdifferradicallyfromtheprevailingsocio-technicalsystemandregimeSocio-technicalregimeThecurrentstructureswhicharemaintained,defendedbyincumbentactors,whoseactionsareguidedbydeeplyentrenchedrulesandinstitutions.Socio-technicallandscapeBroadercontextualdevelopmentsthatinfluencethesocio-technicalregimecomprisingcomprisebothslow-changingtrends(e.g.,demographics,ideology)andexogenousshocks(e.g.,wars,economiccrises).Inthischapter,weprovidefivecasestudiesandanalyzethemthroughthelensofMLP.Eachcaseinvolvesadigitaltechnicalinnovationwithahugepotentialtoreducecarbonemissions.Someoftheinnovationshavealreadypassedthethirdphaseoftransitionandhavefullytransitionedintoanewregimeinpartsoftheworld,whileothershavenotyetenteredthesecondphaseduetovarioustechnicalandsocietalconstraints.Ourcasestudiesdemonstratetheimportanceofsocioeconomicfactorsbyshowingthatatechnologicalinnovationcantransittoaregimegeneratingundesiredenvironmentaleffectswhenthereisalackofacomprehensiveandcoordinatedsetofpublicpoliciesforitseffectiveapplicationwithinlocalcommunities.Theimportanceofsocioeconomicfactorsisparticularlyrelevantforthe“purposive”transitiontoa47net-zerosocietycomparedwithotherhistoricaltransitionsthatremainedlargely“emergent”.98SincethepurposeofatechnologicalinnovationisnotnecessarilyalignedwithNetZero,thechangesitbringscanturnouttobeharmfulfortheenvironmentevenifthespecifictechnologyhasahugepotentialtoreducecarbonemissions.Technologyisvalue-neutralingeneral:aitisthesocio-economiccontextthatdeterminesthevalueandpurposeofeachtechnology.Therefore,tomakefulluseofdigitalizationinreducingcarbonemissions,weshouldputhugeeffortsinnotonlydevelopingcuttingedgetechnologies,butalsotransformingsocioeconomicenvironmentsthatcanpromotethe“right,”effectiveandefficientuseofthosetechnologies.Eachofthefollowingsubchapterscontainsexamplesofhowvariousnon-technologicalfactorscanaffecttheimpactsofatechnologyoncarbonemissions.Wealsodiscussseveralpolicyimplicationsandmarketinitiativesthatcanhelpdigitaltechnologyinnovationstransitinthe“rightdirection”towardsNetZero.Thisechoesthemainthemeofthisreportthatthecurrentchallengeisnotjustaproblemofenergyandtechnology,butalsoaproblemofshiftingtowardsmoresharedconsumptionhabits,andultimatelyaprobleminvolvingvarioussocietal,cultural,andgovernancefactorsthatshapeconsumptionhabitsinacommunity.3-2.TechnologyinnovationsandtheDigitalCircularEconomyRegimeWebeginbydescribinghowpersonalcarbonaccountingliesatthefoundationoftheDCEasanexampleofanincentive-basedeconomicsystemthathelpstomoveustowardsNetZero.Wethendiscussthreebusinessmodels,ridesharing,housesharing,andre-commercetoillustratehowthesenewbusinessinnovationshelpusscalethecirculareconomythroughdigitalization.Asanexampleofdigitalization,weanalyzetheinfluenceofcloudcomputingonNetZero.We98Geels(2017)p.248alsousethesecasestodemonstratethateachblockofDCE(digitalization,circularity,andeconomy)isnecessarytoensurethatthetransitionisontherightpath.WeemphasizethattoachieveNetZerorequiresnotjustdigitalizationandinnovationincircularbusiness,butalsofundamentalchangesinsocio-economicsystemsthataffectpeople’sbehaviors,governmentpolicies,andsocialnorms.Figure11.DigitalCircularEconomyandfivecasesDigitallyenabledpersonalcarbonaccountingEconomistshavedescribed“GHGemissions[as]externalities[that]representthebiggestmarketfailuretheworldhasseen.”(Stern,2008).Indeed,everyone’semissionsofgreenhousegaseseverywhereintheworldaffectseveryoneelseontheplanet.Tocorrectthismarketfailurerequirespolicyinterventionssuchascarbonpricingandtighterlimitsonallowableemissions.Therearetwotypesofcarbonpricing:adirecttaxonemissionsandanemissionstradingsystem(ETS),togetherwithacarbonoffsetmechanism,designedtominimizeadverseexternalitiesthatarenotconsideredbytransactionsbetweenproducersandconsumers(suchasmandatorycarboncapture,utilization,andstorageforcoal-firedgenerationofelectricpower,whichisnotaprice,butratherarequirementfordoingbusiness).49However,therecentenergycrisishasshownthatatanypointintimetherecanbeconflictsbetweenthegoalsofcarbonreductionandeconomicgrowth.Ontheonehand,asignificantincreaseinenergypricesisneededtoprovideincentivesformajorCO2emitterstocuttheircarbonemissionsthroughinvestmentsinthedesign,construction,andsaleofenergy-efficientgoodsandservices,thataresoessentialtothelong-termattainmentofNetZero.Ontheotherhand,increasesinenergypricesthatareessentialtoincentivizegreenconsumption,alsoraiselivingcosts,particularlyforthelowestincomegroups,whoareleastabletoabsorbthemandwholiveinthehereandnow.Howcansocietyreconciletheseconflictingobjectives?Averypromisingdirectionbuildsonadvancesindigitaltechnology,makingitpossibleforindividual-levelpersonalcarbonaccountingallowances(PCA’s)toprovideincentivesforconsumerstoreducetheiremissions.99Comparedwithemissionstradingandcarbonpricingimposedonbusinesses,personalcarbonaccountingfocusesmoreonthedemandside,relyingonthecreationofsocialandethicalnormstohelpcorrectmarketfailuresthathaveledtoexcessiveproductionofgreenhousegases.NetZeroisaglobalpolicyobjective.Ultimately,thisgoalwillhavetobeimplementedatdifferentlevelsofgranularity,fromcountries,citiesandcorporations,downtoindividualbuyersandsellers.Nearlyhalfofgreenhouse-gasemissionscomefromhouseholds,butthebulkofpublicpoliciesaimedatreducingemissionstargetcorporations,governments,andotherinstitutions.Thatmustandcanchangesoon.Personalcarbonaccountingcanprovideincentivesthatdirectlylinkindividualactions(attheverymicrolevel)withtheglobalcarbonreductiongoals.Personalcarbonemissionsarefirstthosethatarisefromthedirectuseofenergyinthehouseholdandforpersonaltransport.Second,theyincludeindirectemissionsembodiedinthegoodsandservicesthatanindividualconsumes.Thegoalofpersonalcarbonaccountingistoempowerindividualenvironmentalawarenessandgiveindividualsagencyandmotivationtodirectly99Personalcarbonaccountingsometimesalsoreferstopersonalcarbonallowanceorpersonalcarbontrading,wedonotrigorouslydistinguishtheminthisreport.Althoughtherearedifferencestoimplementtheminpractice,thegeneralgoalsarethesame.50participateinclimatemitigation.PCAalsoworksasamarket-basedcorrectivemechanism.Throughdigitalizedmarket-basedcarbonemissionsmatchingandtrading,PCAincentivizes/subsidieslowcarbonbehavior,whiledeterring/taxingcarbon-intensiveactivitiesatanindividuallevel.Furthermore,awell-designedPCAcanreducereboundeffectsandremedyadverseimpactsonthepoor.Herewediscussfourcaseswithinasocio-technicalperspectivethatonewayoranotherrelatestoaPCA:(a)anunsuccessfulinnovationintheUKinadoptingPCA;(b)theCitiCAPprojectinthecityofLahtiinFinland(phase1);(c)theAMap-MobilityasaService(MaaS)projectinBeijing(phase2);and(d)theAntForestprojectofAlipay(earlyphase3).UKgovernment’searlyattempttoadoptPersonalCarbonAccountingInthe2000s,whentheUKgovernmentexploredtheadoptionofaPCAschemetoreducecarbonemissionsbyhouseholds,theideawasrejectedowingtofourreasons:(1)lowsocialacceptability,(2)lowpoliticalpriorityinacrowdedpolicyagenda,(3)technologicalbarriersandhighimplementationcosts,(4)adversedistributionalimpacts.Intheearly2010s,PCAsweredefinedas“abigideathatnevertookoff”and“apolicyaheadofitstime.”100Fromasocio-technicalperspectivethisideawasnotasuccessfulnicheinnovation.However,inthe2020sdramaticsocialandtechnicalchangeshavemadePCAschemesmuchmoreappealing.Atthepoliticallevel,amajorityofdevelopedcountrieshavenowsigneduptoNetZerotargets.Atthetechnologicallevel,barriershavebeenreducedsubstantiallywithalltherecentadvancesinITC,AI,machinelearningandlarge-scaledigitalplatforms.Digitallyenabledpersonalcarbonaccountingisaninitiativecomingatjusttherighttime,allowingPCAtobescaledwellbeyondtheinitialstageofnicheinnovation.100FusoNerinietal.(2021).51CitiCap-Citizen'scap-and-tradeco-createdinFinlandTheCitiCAPprojectisapilotprogramlaunchedinthecityofLahtiinFinland.Itallowspeopletoearncarboncreditsbyusingenvironmentallyfriendlytransit.Accumulatedbalancesincarboncreditscanthenbetradedandusedfordiscountsoncityservicesandproducts.TheCitiCAPProjectaimstochangethebehaviorsandattitudesofcitizenstowardsmobility.Thegoalistopromoteashiftawayfromcarbonintensiveindividualizedprivatecarusagetosustainableride-sharingmobility.Thelackofmass-transitoptionsinLahti,andinmanyothermedium-sizedEuropeancities,spurredtheneedtocreatesmartmobilitysolutionstoreducetransportCO2emissions.Approximately32%oftotalCO2emissionsarecausedbythetransportsectorwithinthecityofLahti.TheCitiCAPProjectfocusesonco-creatingandimplementingaPersonalCarbonTrading(PCT)schemeformobilitytoreducetransportationemissions.Thisisthefirstcity-widepilotofPCTperformedwithintheEU.ThroughthePCTschemecitizenscanreceivebenefits,suchasdiscountedbusticketsorbicyclerepairservices,inexchangeforsmartmobilitychoices.Inpractice,thepersonalcarbonfootprintformobilitywillbecalculatedwithanewmobileapplicationbasedonatransportmodedetectionsolution.TheCitiCAPProjectisasuccessfulnicheinnovationthathasbeenintroducedinasmallcityofFinland.However,theprojectisstilluncertain,experimental,andfragile.ItisuncertainwhethertheCitiCAPProjectcanbereplicatedinotherEUcities.Also,thesustainabilityoftheprojectisnotasyetclear.Rightnow,theprojectisnotcommercializedandismainlysupportedbytheEuropeanRegionalDevelopmentFund(ERDF).AMap-MaaS(Mobilityasaservice)projectinBeijingLikeLahti’sCitiCAPproject,AMap’sMaaSprojectinBeijingseekstoaltertheattitudesandbehaviorsofcitizens,andpromotingashiftfromprivatecarusagetosustainablemobility.Ithasseveralinnovativeanduniquefeatures.(1)AMap,likeGooglemap,providesreal-timenavigation52services.AMapalsoworksasaridehailingplatform.Asaresult,AMapitselfconnectsmillionsofprivatecarusersandriders.Itcanleveragetheseeconomiesofscale.(2)Theprojectintegratespublictransportationdata(suchasdataonsubway,busandtrainridership)withprivatetrafficdata,offeringacompletepictureofalltypesofmobility.Itisaprivate-publicpartnership.(3)ThepersonalcarboncreditsaccumulatedinAMaparelinkedtoanexternalcarbonallowancetradingexchange.CertifiedusercarbonreductionswillbetradedintheChinaBeijingEnvironmentalExchange(CBEEX).AMap’sMaaSprojectismorematurethantheCitiCAPproject.Itinvolvesamuchlargeruserbaseandithasamoresophisticatedandsustainablebusinessmodel.BecauseAMapinnovationdevelopsatrajectoryofitsown,withadominantdesignnowemergingandwithexpectationsandassociatedrulesbeginningtostabilize,weclassifytheAMapprojectasaphase2transition.However,givenitscomplexityandlargescaleofusers,theprojectrequiresclosecooperationbetweentheprivateplatformandthelocalgovernment.Whilemuchofthesystemexperiencecanbeexportedtoothercities,exactlyhowitcanbeadaptedtoeachparticularcityremainsanopenquestion.Accordingly,theprojecthasnotyetreachedthethirdphaseofasocio-technicalregime.AntForestTheAlipayAntForestproject,winnerofUNEP’S“ChampionsoftheEnvironmentAward”(https://www.unep.org/championsofearth/laureates/2019/ant-forest),launchedontheAlipay’smobileapp,rewardsitsuserswith“greenenergypoints”eachtimetheyundertakelow-carbonactivities,suchasbikingtowork,goingpaperless,andbuyingsustainableproducts.Thesegreenenergypointsgrowintoavirtualtreeontheuser’sapp,whichAlipaymatchesbyplantingarealtreeorprotectingaconservationarea,inpartnershipwithlocalNGOs.AntForestbenefitsfromtheenormousinstalleduserbaseofChina’sAlipaymobilepaymentsapp,usedbymorethanabillionpeople.53AntForestfurtherencouragesusebyindividualsthrough“gamification”.Users“grow”theirearnedpointsintovirtualtreesontheapp.Theycansharegreenenergywithfriendsandseehowtheirvirtualforestscomparewithothers.Foreveryvirtualtreegrown,AntForestdonates–andplants–arealone.Thissocialgamificationhasrealimpactgiventhatpeopletendtoadheretoprevailingsocialnormsandareinfluencedbycomparisonwithothers.Thus,thebusinessdesignofAntForestutilizessocialnetworkeffectsandpeerinteractionstofacilitatethefastdiffusionofAntForestamongmillionsofAlipayusers.ThesuccessofAntForestprojectrelaysontwothings:(1)theinclusivenessofdigitaltechnologyallowinglargescaleparticipationintheprogramand(2)theuniquebusinessdesignthatincentivizesindividualbehaviortowardstheenvironmentalgoal.TheAntForestprojectisclosetoanearly“phase3”ofthesocial-technicaltransition,whereinnovationbreaksthroughonabroadscale.Throughitsuniquedesign,AntForestalreadyhashadasignificantsocialinfluence,raisingindividuals’greenconsciousness,andmotivatingtheirdirectparticipationinclimatemitigationbylargelyreducingthe“entrybarrier”–reluctancetoengageingreenactivity.TosumupourcasesondigitallyenabledPCA,theEU-fundedCitiCAPProjectwasinitiatedbythegovernment,whichhasacap-and-tradesysteminplaceandaverycleargoalofrevolutionizingtheparticipationofcitizensinclimatechangemitigation.However,sinceit’sstillanexperientialprogram,thescaleofusersisrelativelysmall.TheMaaSprojectwasimplementedatamunicipalitylevel,underaprivate-publicpartnership.Hence,therehasbeenagreaterlevelofparticipationthoughtheoriginalpurposeoftheprojecthasbeensomewhatdiluted.Finally,theAntForestprojectwasimplementedbyaprivateplatform,hasamassofusers,andmoreimportantlyisawell-designedincentivemechanismtoallowtheprojecttobesustainable.However,thebusinessmodeloftheAntForestprojectisnotjustfocusedonclimatechangemitigation;itisalsoacommercialproject.54Overall,thesecasestudiesshowhowdigitallyenabledPCAscanbeanewsocialinfrastructuretotrace,measure,andincentivizeindividuals’carbonreductionactivities.Further,PCAcanalsoincludepeople’sbehaviorswithinacircularsystem.WhilesomecasesofPCAarestillatthestageofnicheinnovation,someofthemhavebeguntoestablishthemselvesasregimes.Asacomplementaryincentivedevicetoaneffectivesystemofcarbonpricing,aPCAshouldhaveatleastthreebasicelements:(1)adigitalinstrumentsystemtomeasurecarbonactivities,(2)anincentive-compatiblemechanismtofosterstakeholdereconomy,and(3)agovernancesystemtounifystandardsandfacilitatecarboncredittransactions.Ride-sharePlatformsTransportationaccountsforaround24%ofglobalCO2emissions.Withinthetransportationsector,emissionsfrompassengerandfreightroadvehiclesaccountsfor45%and29%respectively.ManyexpertsbelievethesetwosubsectorshaveimmensepotentialforCO2emissionsreductionsthroughdigitalization.101GeSI(2015)estimatesthatdigitalizationintransportationcansave2.6GtCO2eby2030inabest-casescenario.Ridesharingisonesuchareawheredigitalizationcanmakeabigdifference.First,sharedridescaninducelowerprivatecarownership.Second,sharedrides,especiallycar-pooledrides,canreducetotalvehiclemilestraveled(VMT)comparedtoprivateownershipofvehicles.Third,sharedridescanreduceVMTwhentheycomplementcurrentpublictransitsystemtosolvethe‘firstandlastmile’problem,allowingcommuterstoliveandworkclosertotheirfirstandlastsubwayandbusstops.Alreadymorethan10yearshavepassedsinceUberlauncheditsbusinessin2010.Duringthistime,ridesharingplatformshaveincreasedtheirmarketsizeglobally,havinghugeimpactsonpersonallives.Forinstance,about25%oftheU.S.populationusesride-sharingatleastonceamonth.Accordingtoonereport,UberandLyftaccountforanon-trivialfractionoftotalVMTinbigcities.InSanFranciscoCounty,forexample,UberandLyftmakeupasmuchas13.4percent.101Globale-Sustainability“SMARTer”(2015);PwC“HowAIcanenableaSustainableFuture”(2019);IEA“DigitalizationandEnergy”(2017).55InBoston,it’s8percent;inWashington,DC,it’s7.2percent.102DidiisthedominantridesharingplatforminChinawithover90%ofthemarket.Asof2021,Didihad377millionannualactiveusers,withanaveragemonthlyactiveusernumberof156million;inthepast12months,thenumberofdailyactiveuserstotaled13million.103Asof2016,thecumulativemileageofDidiordershasreached12.8billionkilometers.104Basedonmarketsize,itseemsclearthatsharedrideplatformsarealreadyhavingsubstantialimpactsinmanypartsoftheworld.However,theexpectationsofcarbonreductionsassociatedwiththegrowthofsharedridesplatformshavenotmaterialized.SeveralrecentstudiesfindthatgrowthinsharedrideshasincreasedemissionsofGHGcomparedtoascenarioofprivatecarownership.RodierandMichaels(2019)reviewspreviousstudiesbetween2015-2017.Dependingonthemethodologyused,thereviewedstudiesinthepaperarecategorizedeitherassurveystudiesorsimulationstudies.105Despitesmalldifferencesamongtheresults,interestingly,severalconclusionshavebeendrawn.First,usageofsharedrideplatformbarelyaffectsprivatevehicleownership(small,ifanyeffect).Second,theincreaseintotalVMTistheresultofadditionaltripsthatwouldnothavebeenmadewithoutsharedrideplatforms,anddueto“deadheading”ofsharedridevehicles(wherenoonebutthedriverisinthevehicle).106Third,peopletendtosubstitutesharedrideservicesforothermodesoftransits(bus,subway,bike),insteadofusingthemasacomplementtosuchtransportation.Tworecentstudies(Wardetal.2020;UnionofConcernedScientists2020)analyzetheeffectsofUberandLyftonmajorU.S.cities,confirmingthefindingsofthepreviousstudies.AccordingtotheUnionofConcernedScientists(2020),atypicalride-hailingtripproducesabout69%morecarbonemissionsthanthetripsitreplaces.102FehrandPeersreport(2018)103https://www.chinaventure.com.cn/news/78-20210706-363040.html104http://www.cs.com.cn/qc/202104/t20210408_6154559.html105Surveypapers:Smith(2016);Alemietal.(2017a);Diasetal.(2017);ClewlowandMishra(2017);Rayle(2016);CrammerandKrueger(2015);Henao(2017);SFCTA(2017).SimulationPapers:Faganantetal.(2015);FaganantandKockelman(2016);MaciejewskiandBischoff(2016);ChenandKockelman(2016);MartinexandChrist(2015)106Deadheadingreferstothepartofvehicletripsmadewithoutapassenger.56Figure12.Comparisonofemissionsbetweenride-hailinganddisplacedtripsSource:AdaptedfromUnionofConcernedScientists(2020)RideHailingclimaterisksThisexampleillustratesthatniche-innovationdoesnotnecessarilytranslatetoadesiredsocio-technicalregime,intheabsenceofadequatechangesinconsumerpractices,policies(e.g.,taxincentivesthatinternalizetheexternalitycostsofsuchbehaviors),businessmodelsandinfrastructures.Ridesharingplatforms,especiallyintheU.S.andChina,havealreadygonethrough(orhavebeengoingthrough)economiccompetitionbetweentraditionaltaxiindustries,businessstruggles(Didivs.UberinChina;UberandLyft’smarketdominationintheU.S),andpoliticalconflicts(issuesofUberdriver’slegalstatusintheU.S).Intermsofourmulti-levelperspective(MLP)approach,ridesharingseemstohavealreadypassedthethirdphaseofthesocio-technicaltransitioninmanypartsoftheworld.Especiallyinmajorbigcities,wemayconcludethatridesharinghasformedanewsocio-technicalregimeforpersonalmobility.107Unfortunately,thisnewregimedoesnotseemtobecompatiblewiththegoalofNetZero.Thisdemonstratesthatthetransitionpathdependsonmultiplefactorsofthesocio-technicallandscape,andthatweneedmultipleinterventionsonthetransitionpathifwewanttoreachnewregimesthatarealignedwithNetZero.107Geels(2019)57Manystudiessuggestthreecommonchangesthatmustbemadetochangecourseandcorrectthecurrentridesharingregimetowardanetzerolandscape:1)increasedcar-pooling;2)higherpenetrationofelectricvehicles;and3)increasedintheuseofridesharingascomplementstopublictransit.Xiaetal.(2019)arguethatthelackoftrustinotherpassengersandhighcommutingcostsaretwomajorobstaclespreventingcar-poolactivitiesfromprevailing.108Platformcompaniesmightbeabletohelppassengerstoeasetheseconcernsbyprovidingrelevantinformationtoeachpassengerwhilestillprotectingtheirprivacy.Advanceddataanalyticsandmoreefficientmatchingalgorithmscanreducethecommutingcostsofcar-pooltrips.Atthesametime,othermeasuresshouldbetakentochangeconsumerpreferencesinfavorofcar-pooltrips.Companiescanalsocoordinatebetterworkfromhomewithride-sharingtoreducecommutingcosts.IncreasingthenumberofEVs,ontheotherhand,requiresmoreactivemeasuresinitiatedbygovernmentsandridesharingplatforms.ThecurrentglobalmarketshareofEVsisonlyslightlyabove1%despiteitsrapidgrowthratesince2010andthepledgesmadebymajorridesharingcompaniestobe100%EV.109Toexpeditetheroll-outofEVs,especiallyamongthevehiclesregisteredinride-sharingplatforms,governmentscanbuildpublicinfrastructuresuchaschargingstations,providesubsidiestoEVmanufacturingcompaniesandridesharingplatforms,orsetregulatorymeasurespromotingrapidadoptionofEVs.110Forexample,in2021,California’sAirResourcesBoardmandatedthatUberandLyfttogoall-electricbytheendofthisdecade.111InChina,generoussubsidypoliciesandtaxexemptionshaveledtorapidgrowthinthenumberofbothEVsandchargingstations.112However,measurestoincreasetheshareofEVsamongride-sharingplatformswillrequirespecialconsideration,becausedriversregisteredforride-sharing108Xiaetal.(2019)109IEA(2020)GlobalEVOutlook2021“Electriccars,whichaccountedfor2.6%ofglobalcarsalesandabout1%ofglobalcarstockin2019,registereda40%year-on-yearincrease.Onlyabout17000electriccarswereontheworld’sroadsin2010.By2019,thatnumberhadswelledto7.2million,47%ofwhichwereinThePeople’sRepublicofChina(“China”)”.110Lyftcommitsto100%electricvehiclesontheLyftplatformby2030;Ubercommitstozero-emissioninCanada,Europe,andtheUSin2030,andthengloballyzero-emissionin2040;The"2020DidiPlatformGreenWhitePaper"showsthatin2019,themileageofpureelectricvehiclesontheDidiplatformreached7.09billionkilometers.111Seehttps://www.greencarreports.com/news/1132348_california-approves-ev-mandate-for-uber-and-lyft112IEA(2020)GlobalEVOutlook202158platformsarenotnecessarilythosewhohavethehighestwillingnesstopayforEVs.113Therefore,theymightnotbethefirstoneswhowillrespondtogovernmentsubsidies.114Governments,inthiscase,mayrequirespecialmeasuresfavoringeitherplatformsorplatformdriversifthepriorityistopushridesharingplatformstotransitto100%EVsratherthanpromotingroll-outofEVsamongthegeneralpublic.Ontheotherhand,platformcompaniesarealsorespondingtoincreasingpublicdemandforreducingcarbonemissionsinheavilycongestedurbanareas.DidihasteamedupwithaChineseelectricvehiclemanufacturerBYDandhasalreadystartedtoproduceelectriccarsfortheexpresspurposeofride-hailing.115AnU.S.carrentalcompanyHertzrecentlymadeadealwithUberandbought100,000TeslaplanningtomakehalfofthemavailabletoUberdrivers.116TotalVMTcanbesubstantiallyreducedwhenmorepeopletakepublictransitanduseridehailingservicesonlyforthefirstandlastmilesoftheirtrips.Suchtransformationrequireschangesnotonlyinridesharingindustriesbutalsoinotherpublictransitsystem.Consequently,diverseeffortsfromdifferentactorsareneededtorealizeasuccessfultransformation.onthebusinessside,theFinland-basedcompanyWhimofferssubscriptionsofmulti-modalmobilitypackages.AlipayinChinaoffersacomprehensivetransportationpaymentsystem.117Bothofthemprovidepassengerswithservicesfacilitatingtheuseofpublictransit.Ofcourse,ontopofallofthis,governmentsmustincreasetheireffortstomaintainthequalityofpublictransportation.Forexample,Germanyhasbuilt62-milelongbicycleroadsthatconnect10cities.118Netherlandshasbuilt22,000milesofbicyclepaths,andaround27%ofalljourneysaremadebycycle.119In2017,thecityofXiamen,Chinaopenedthelongestelevatedcyclingpathintheworld.120113PeoplewithhighincomelevelusuallyhavehigherwillingnesstopayforEVs:https://www.fuelsinstitute.org/Research/Reports/EV-Consumer-Behavior/EV-Consumer-Behavior-Report.pdf114https://qz.com/2081286/uber-drivers-will-soon-be-able-to-rent-teslas-from-hertz/“Studiessuggestride-sharedriversincitieslikeSeattleandChicagoearnbelowminimumwage,andrentingagascarwithHertzforUberisstillcheaperthanrentingaTesla.”115https://www.theverge.com/2020/11/17/21570016/didi-chuxing-byd-electric-car-ride-hailing-china116https://qz.com/2081286/uber-drivers-will-soon-be-able-to-rent-teslas-from-hertz/117https://www.bloomberg.com/news/articles/2018-10-25/is-helsinki-s-maas-app-whim-the-future118https://www.intelligentliving.co/germany-62-mile-bicycle-highway/119https://www.centreforpublicimpact.org/case-study/focusing-bicycles-transport-urban-netherlands120https://www.archdaily.com/806710/the-worlds-longest-elevated-cycling-path-opens-in-china59Finally,time-of-daycongestionpricing,byreducingtraveltimes,canfacilitatealloftheabove,minimizingreboundeffectsandsubstantiallyreducingnetcarbonemissions--“byabout22%,”inarecentstudythatfound“another3%reductionassociated[with]reducedhousingsizes,evenas[alongwithacombinationofacarbontaxandlanduseregulation]itincrease[d]socialwelfare.121Byeliminatingadversereboundeffects,suchmarket-basedpoliciescanhelpdigitalizationtocreatewinsfortheenvironmentaswellasfortheeconomy.House-sharePlatformsTheSharingEconomyandEnvironmentalImpactsofAirbnbAsoneofthemostfamousapplicationsofthesharingeconomy,Airbnbisinthemidstoftransitionfromnicheinnovationtomatureregime.Martin(2016)identifiesthreeimportantingredientsfornicheinnovation:(1)economicopportunity;(2)sustainableconsumption;and(3)pathwaystoadecentralized,equitableandsustainableeconomy.Inresponsetochangingpatternsofconsumerandworkerbehavior,Airbnbenablesapeer-to-peersharingmodelofconsumptionwhilecreatingnewformsofworkthroughhelpingpeoplebecomemicro-entrepreneurs.BotsmanandRogers(2010)arguesthatasharingeconomyfacilitatestransitionfromacultureofowningassetstoacultureofsharingaccesstoasset.WhileAirbnbutilizesidleresourcesmoreefficiently,italsopromotesindividualeconomicempowerment,whichfurthercatalyzesthepathfrommarketnichetoafull-fledgedsharingregime.Buttherearealsofactorsthatcangetintheway.Regulatorybarriersareoftencited.However,toolittleregulationcantransferexcessiverisktoconsumers,creatingunfaircompetition,establishingillegalmarkets,andpromotingtaxavoidancethatdistorteconomicdecision-makingandreduceconsumerwelfare(Martin2016).121Domonetal.(2022)60ItisimportanttounderstandtherelationshipbetweenAirbnbandtraditionalhotels.Airbnbcanbeeitherasubstitutefororacomplementtotraditionalhoteloccupancy.Zervasetal.(2017)findthatthecausalimpactofAirbnb’sentryonhotelrevenueinAustinisalossof8to10percent,suggestingthatAirbnbisasubstitute.Onthecontrary,becauseAirbnbisgenerallymoreaffordablethantraditionalhotels,itcanbeacomplementtohotels,capturingaclassofconsumerswhowouldotherwisestayhome,whilewealthierconsumerscontinuetofrequentmoreexpensivehotelscateringtotheirneeds.Competitivesubstitutioneffectsandcomplementaryincomeeffectsonthesharedaccommodationmarketsarestillunder-studied.Theycanhaveprofoundeffectsforenergyefficiencyandthesustainabilityoftheenvironment.TheenvironmentalimpactsofAirbnbcanbetwofold.Ontheonehand,Airbnbmaygeneratelowercarbonemissionsthantraditionalhotels.Cleantech(2014)findsthattheenergyconsumptionofAirbnbperguest-nightis78-84%lessthanthatofhotels,andthecarbonemissionsare88%lower.Inaddition,Airbnbpromotesincreasedefficiencyintheutilizationofandaccessibilitytounder-utilizedresourcesandcancontributetothereductionof9.5milliontonsofGHGemissionsintheUSby2025and20.9milliontonsintheEuropeanUnionby2030(Airbnb,2015&2017).Moreover,ifAirbnbandhotelsaresubstitutes,itislikelythatthegrowthofAirbnblowersthedemandforhotels,whichresultsinlessconstructionofnewhotelsreducinglonger-termcarbonemissions.Ontheotherhand,itcanbearguedthatAirbnbmaycausereboundeffectsoncarbonemissions,aspeopletendtochangetheirtourismhabitsandtravelpatterns.Thecostreductioninaccommodationcanleadtomoretravels,longerstays,further-awayvisits,forexample,increasingthecarbonfootprintsofitsconsumers.Chengetal.(2020)findthesumofdirectandindirectcarbonfootprintsgeneratedbytheAirbnbplatforminSydneyincreasecarbonemissionsby7.27to9.39kgperroompernight.Theirfindingchallengestheprevalentnotionthatthesharingeconomyutilizesidleresourcesmoreefficiently,decreasingadverseimpactsontheenvironment.61WhetherAirbnbandhotelsaresubstitutesorcomplementsclearlyneedstobefurtherstudied.BetterunderstandingofthesubstitutionandincomeeffectsinthismarketwillhelpustoquantifytheenvironmentalimpactsofthesharingeconomyonsustainabilityandNetZero.Whetherthisnicheinnovationcanbesuccessfullytransitionedtoregimeswilldependontradeoffsthatareyetbefullyidentifiedandexplained.Digitalization–aKeytoBuildingTrustTopromotethetransitionfromnichetomarket,buildingtrustamongmarketparticipantswillbeveryimportant.Digitalizationcanbekeytoitssuccess.Thesharedaccommodationplatformbuildsatwo-sidedplatformthroughtheInternet,effectivelyintegratingidlehousing,reducinginformationasymmetryandsearchcosts,andimprovingtheefficiencywithwhichlandlordsarematchedwithtenants.Comparedwithtraditionalhotels,sharedaccommodationprovidesnon-standardaccommodationproductswiththreemaincharacteristics:diversifiedhousing,personalizedservices,andsocializeduserexperience.Asthelargestsharedaccommodationplatform,AirbnbadoptsC2C(customer-to-customer)asitsmainbusinessmodel,whichmeansthatthesharedaccommodationplatformprovidesaconnectionchannelbetweenthelandlordandthetenanttoverifytheinformationonbothparties.SimilartoC2Csecondhandmarkets,trustbuildingisthecriticalissueinthescalabilityofthesharedaccommodationmarket.Withoutaneconomicmechanismthatempowerstrust,tenantsarelikelytoseethatpicturesandtextsdonotmatch,thelandlorddoesnotabidebythecontract,etc.,sothatthequalityofhousingandservicemaynotmatchtheirexpectations.Ownersmayencountertenantsthatdon’ttakecareofrthehouse,forcingthemtoraisetheirratesandevendiscouragingthemfromputtingtheirhomesonthemarket.Toenhancetrustandbuildascalablemarket,digitizedeconomicmechanismssuchassystemsforcreditratingsandforbuyerandsellerratingsareessential.TheDigitalCircularEconomyplaysavitalroleinthesharingeconomyinaccommodation,asit62enhancesefficiencywhileimprovinglandlordandtenantexperiencesastheyconnectwitheachotherinthecirculareconomy.DigitizationandtheProliferationofRe-commercePlatformsDigitaltechnologyreducesthetransactioncostofmatchingpeoplewithidleresources.Effectivesecond-handmarketscanextendthelifeofgoodsandreducewasteandotherenvironmentalburdens.Dhanokar(2019)findsthattheentryofCraigslist,oneofthelargestsecond-handdigitalmarketplacesintheUS,leadstoa2%-6%annualreductioninmunicipalsolidwastepercapitagenerated.Fremstad(2017)documentsthatthedailypercapitasolidwastegenerationisreducedbyaroundonethirdofapoundbyCraigslist.IdleFish,theleadingcomprehensiveidlegoodstradingplatforminChina,hasaccumulatednearly300millionusers.Therearemorethantwentymillionactivedailyusersandmorethanonemillionproductsaretradedeveryday,coveringmostcitiesandregionsinthecountry.Apersoncannotonlybuyandsellgoods,butalsocommunicatewithotherpeoplewiththesameinterestsandhobbies.ThevariouspracticesofIdleFishcannotonlyincreaseuserretentionandincreasethefrequencyofbuyingandsellingidlegoods,butalsocultivateacultureofrecyclingidleresources.Intheeraofthedigital,“4.0”economy,platformtradingmodelssuchasIdleFishhavetherequisitecharacteristicsoflowemissions,highenergyefficiency,high-volumerecycling,andfacilitationofcarbonsinks,allofwhichareinlinewiththerequirementsofinnovativegreendevelopmentinacirculareconomy.Anewsocio-technicalregimestartstobeestablished.However,secondhandmarketsmayhavesomenegativeimpacts.Sincesecondhandmarketsincreasetheliquidityofconsumptiongoods–theeasewithwhichtheycanbeconvertedintocash-consumersmaytendtobuymoreproductsfromfirsthandmarketsasmoremoneyisputintotheirpocketsfromsecondhandmarketsales.Thereboundeffectmayonceagainraiseitsuglyhead,increasingasolderandlessenergy-efficientproductsstayinservicelongerastheir63saleinducesanoverallexpansionofenergyconsumptiononthenewproductswhosesaletheyfinance.Thecomplementaritybetweenfirsthandandsecondhandmarketsraisesthequestionoftheoverallenvironmentalimpactofsecondhandmarkets.If,ontheotherhand,re-commerceresultsinadecreaseinthesaleandmanufactureofnewgoods,economicgrowthandemploymentcandeclineraisingadditionalconcernsabouttheabilityofsocietytofinanceneededstepstowardsNetZero.Inorderforpolicymakerstobetterlookatthisproblem,anewmeasureofeconomicgrowthbasedonthedigitalcirculareconomymayneedtobedesigned.AswepointedoutinChapter2,transitiontoasustainableeconomymaynotbepossibleunlessthisisaccomplished.ThesocialandeconomicmechanismsofIdleFishWe’veidentifiedthreekeyelementsforasuccessfulsocio-technicaltransitionforIdleFish:(1)Digitalizationenablesnicheinnovationtoevolveintoasocio-technicallandscapesupportingnet-zero,(2)Economicmechanismsbasedondigitaltechnologysolvethematchingproblem,promotingthescalabilityandenhancingparticipationofconsumers.,and(3)Trustbuildingandplatformgovernance.ThecorevalueoftheIdleFishplatformistohelpbuyersandsellersbuildtrustandreachadeal.EffectivemanagementoftheplatformandhandlingoftransactiondisputesarealsothefocusandchallengeinmanagingtheIdleFishplatform.Theseinclude,forexample,effortstopromotebuyers’trustinthequalityofsellers’goods,andsellerstrustinthecreditworthinessofbuyers,toaddressbothparties’concernsaboutthefairnessofdisputeresolutionmethods,andbuyers’trustinthequalityofsellers’after-salesservices.Thetrustprobleminthesaleofusedproducts–causedbytheasymmetryofinformationbetweenbuyersandsellersthatgiverisetotheabovechallenges–canincreasesthefrictionsandcoststhattheyentail,reducingthewillingnessofbuyersandsellerstogoontheplatform64andentertheresalemarket.IdleFish,throughinnovativematching,trading,andgovernancemechanisms,assistsinregulatinguserbehavior,greatlyenhancinguserfriendlinessandthesatisfactionofbuyersandsellersontheplatform.IthasdonesobasedonAlibaba’scorporatee-commerceplatformgovernancemodel,buildingaplatform-basedcreditsystemforusers,andimprovingthetransactionefficiencyofusedandidleitems.Herewehaveemphasizedtheroleoftheeconomicsoftheplatformbusinessmodelinhelpingtobuildanewsocio-technicalregimetoachievecircularity.CloudcomputingCloudcomputingasacircularbusinessmodelByprovidingscalableandelasticIT-enabledcapabilitiesasaservice,cloudcomputingisbecomingthefoundationfortheongoingdigitaltransformation.Internetdatacenters,whetherthemoretraditionalonesorthemoreadvancedhyper-scaledatacenters,togetherwithdatatransmissionnetworks,arethenewcriticalinfrastructurefordigital-basedsocietiesandeconomies.CloudcomputingisaB2B(business-to-business)service,bynaturebuiltonacircularbusinessmodel,throughwhichenergyandresourceusesaregenerallyconservedandreduced.Atleastthreeservicemodelsexist–IaaS,PaaS,andSaaS.Cloudinfrastructureasaservice(IaaS)isastandardized,highlyautomatedoffering,wherecomputingresources,complementedbystorageandnetworkingcapabilities,areownedbyaserviceproviderandofferedtocustomersondemand.Theresourceshostedbytheserviceproviderorincustomers’datacentersarescalableandelasticinrealtime,andtheirusecanbestraightforwardlymetered.UnderthePlatformasaService(PaaS)model,serviceprovidersalsoprovidetheoperatingsystemanddatabases,thusgivingdevelopersasimple,scalableplatformforbuildingapplications.PaaSsystems,suchasAWSElasticBeanstalkandGoogleAppEngine,enablestreamlinedworkflowsandenhancedcoordinationbyallowingmultipleusersfromdifferentlocationstosimultaneouslyaccesstheirapplications.Byfurtherprovidingavarietyofapplications,SoftwareasaService(SaaS)offers65themostsupportandisthesimplestofalldeliverymodelsfortheenduser.Withoutneedingtomanagesoftwareupdates,usersareonlyresponsiblefortheirdata.Gartner(2021)estimatesthatin2022,globalcloudrevenueswillrisetoatotalof$474billion,upfrom$408billionin2021,andthatcloudrevenuewillsurpassnon-cloudrevenueforrelevantenterpriseITmarketswithinafewyears.TherapidgrowthinInternettraffic,especiallythroughincreasingglobaldataflowsthroughvideosandstreaming,hasraisedconcernsabouttheenergyandclimateimpactsofcloudcomputing.In2017,theGuardianwarnedthata“‘Tsunamiofdata’couldconsumeonefifthofglobalelectricityby2025”122.By2018datacentersworldwideconsumedaround1%ofglobalelectricityuse,roughlyequivalenttotheelectricityconsumptionofSpainorAustralia.Yet,whilethevolumeofdatagenerationanddataflows,aswellastheresourcesrequiredtobuildtheseinfrastructures(includingsomerareminerals),arestillincreasingdramatically,globallytheoverallenergyusehasnotincreasednearlyasmuchasexpectedorestimatedafewyearsago.Masanetetal.(Science2020)haveestimatedthattheyearlyincreaseinoverallenergyusefromcloudcomputinghasonlybeenaround8%orso(Figure7).Andintermsofcarbonemissions,whilethereisn'taclearaccountingofthat,wehavereasonstobelievethattheoverallemissionshavenotincreasedmorethantheenergyuse,giventhatoverallenergysystemsaregreeninginmajorcountrieswheremostdatacentersarelocated.Nevertheless,thesustainabilityofcloudcomputing,andofdatacenters,iskeyforthesustainabilityofdigitalizationandthemajorcontributionitcanmaketoglobaldecarbonizationandenvironmentalsustainability.Creationofcapacityforenhancedinnovationhasbecomeapivotaldimensionalongwhichworldleadersincloudcomputingservicesincreasinglycompete.122https://www.theguardian.com/environment/2017/dec/11/tsunami-of-data-could-consume-fifth-global-electricity-by-202566Cloudcomputingforsustainability–Asocio-technicaltransitionanalysisTheobservedevolutionofcloudcomputingdevelopmentandadoptionworldwideisanextremelyimportantexampleofasocio-technicaltransition.Overthepastdozenyearsorso,ithasemergedfromanicheinnovationtoamajorsocio-technicalregime.Mostimportantly,cloudcomputinghasovercomesomeoftheearlierperceivedobstaclesandbecomeamajorpositiveforceforsustainability,especiallyconsideringthegreatpotentialitoffersinimprovingenergyefficiencyandreducingcarbonintensity.TakingMLPasananalyticalframework,wefurtherelaborateonthesocio-technicaldimensionsoftheriseofcloudcomputing.Industry–marketconsolidationMajorcloudcomputingprovidersnowadaysofferfull-featuredplatformswithintegratedIaaSandPaaScapabilities,orcloudinfrastructureandplatformservices(CIPS),andmanyalsoprovideSaaSwithanincreasingbatteryofapplications.Increasingdemandfordigitalizationfromemergingandtraditionalindustriesforcloudcomputingdrivesﬁercecompetitionamongthehyperscalecloudproviders.Themostrecentforecasts123projectthatby2023,40%ofallenterpriseworkloadswillbedeployedincloudinfrastructureandplatformservices(integratedandstand-alone),doublingthatin2020.By2025,itisexpectedthatmorethan90%ofenterprisecloudinfrastructureandplatformenvironmentswillbebasedonaCIPSofferingfromoneofthetopfourpubliccloudhyperscaleproviders,AmazonWebServicesandMicrosoftAzurebeingtheleadersandAlibabaCloudandGoogleCloudtheirclosestcompetitors.Worldwide,thisconsolidationshowsnosignofslowingdown,whilethereissomefierceregionalcompetition,especiallyinAsia.AWSandMicrosoftcontinuetoleadinmuchofNorthAmericaandEurope,whereoverallcloudgrowthratesremainstrong.AlibabaisaleadingforceinChinaandacrossalmost30countries.EmergingChineseproviderssuchasAlibabaCloud,Tencent,andHuaweinowcompetenotonlyinAsiabutalsoinLatinAmericaandotherregions,whereAWSandMicrosofthaveasmallerfootprint.Theworldleadersincloudcomputingprovideamuch123Gartner(2021)67broaderrangeoffunctionalityandfasterspeedofinnovationtomeetthegrowingneedsofenterpriseworkloads,therebydrivingsmallerregionalprovidersoutofthemarketandacceleratingmarketconsolidation.Tobesure,takingGartner’sMagicQuadrantforcloudcomputingasareference,manyoftheearlyplayersinthecloudcomputingindustryhavedisappeared.ScienceandtechnologyTechnologyplaysanimportantroleincloudcomputing’ssustainabilityperformance,andhyper-scaledatacentertechnologyisoneofthefactorsthatdifferentiatelargeglobalandsmallerregionalserviceproviders.World-leadingprovidersareshiftingtohyper-scaledatacenterswithincreasinglyefficientIThardware,helpingtokeepelectricitydemandflat,despiteexponentialgrowthinthedemandforcloudcomputingservices.Since2015,demandforhyperscalecloudcomputinghasdoubledwhileoverallenergyusehasremainedflat(Figure8).Thisisbutoneofthefactorsthathelpcloudcomputingtoachievesustainability.AnalysisbyAccentureshowsthatenterprisesmigratingfromlocalITinfrastructurestocloudcomputingreducetheircarbonfootprintby84%onaverage.Promotingthetransitiontothecloudisclearlyacriticalstepindecarbonizingthebroadereconomy.AccordingtoAccentureachievingcloudcomputingsustainabilityinvolvesthreelevels:IaaSmigrationswithoutmajorredesign,applicationofsustainablesoftwareengineeringpractices,andapplicationoptimizationforthe“fabricofthecloud”.Bydesigningapplicationsspecificallyforthecloud,CO2emissionsreductionscanbepushedbeyondthecurrent84%—byupto98%.68Figure13.Estimatedcarbonemissionsreductionbyadoptingcloud-basedcomputingSource:AccentureMarketanduserpreferencesUsersalsoplayakeyroleincloudcomputing’spathwaytoNetZero.InstitutionalInvestorsareincreasinglydemandingthatlargetechnologycompaniesimprovetheirESG(EnvironmentalandSocialGovernance)performance,withcarbonemissionsamongtheirtopconsiderations.Thesameistrueforcorporateclients.TheincreasingprevalenceoftheadoptionoftheGHGprotocolforcorporateGHGemissionsreportingisanewfactorthatismakingclouduserslookmorecloselyintofindingcloudenergysavingsandcarbonemissionperformance124.ArecentsurveybyCloudBoltshowsthatgloballyESGconcernshaveemergedasanewcriticaldimensionalongwithcomputingpowerandcostwhenevaluatingenterpriseclouddecisions.ESGconsiderationsplayanincreasinglyimportantroleinselectingcloudprovidersbasedontheprovider’senvironmentalcommitmentsandthecloudservice’scarbonfootprint.Outof256ITleaders,twothirdsindicatethatthecloudvendor’ssustainabilityinitiativesaretakenintoconsiderationindecisionmakingandalmostfourfifthssaythattheywillpayaPREMIUMtoworkwithvendorswhoarepursuingandincorporatingsustainabilityintotheirbusinessmodels(with41%sayingthatpremiumcouldbeasmuchas11to15%ormore).It’salsoworthnotingthat79%ofthemsaytheirITdepartmentsareexpectedtohelptheircompaniesachievespeciﬁcsustainabilityinitiativesdrivenbytheircorporateleaders.124Cloud’smissionispartofacorporateuser’sScope3emission.69PolicyRegionalandlocalTherearenaturallyregionalvariationsandglobal-localdisparitiesintheperformanceofcloudcomputing125.InChinaoverallemissionsfromIDCsareincreasingfastandwillcontinuetoincreaseasitseconomykeepsgrowing.Thelastquarterin2021observedamajorshiftinChina’spolicytowardsdatacentersseekingtoturnthemfromlargeenergyusersandcarbonemitterstoamajormechanismforachievingcarbonneutrality,withafocusonoverallemissionsreductionsratherthanonenergyintensityofspecificdirectuses.Thispolicyshiftrecognizestheimportantroledatacentersandcloudcomputingcanplayinimprovingthecarbonefficiencyoftheeconomygoingforward.3-3.SynthesisThefivecasesillustratethethreeessentialbuildingblocksofasuccessfulDCE–socialadaptationthroughappropriatesocio-economicmechanisms(e.g.,personalcarbonaccounting),circularbusinessmodels(ridesharing,housesharing,andre-commerce),anddigitalization(cloudcomputing).Theevolutionofeachcasefromanicheinnovationtoamorematureregimeillustratesthemanydifferentpatternsandprocessesatwork.Scaling-upatechnologytoitsbestintendeduseisalmostneverasimpleandstraightforwardprocess.Thetransitiontowardsamoresustainableregimeoftendependsonlocalsocioeconomiccontextsbeyondthenicheactors’influence.Anicheinnovationmustfitinwithexistingculturalnormsandsocialinteractions.Whenitispossibletoadaptcurrentpracticeandenhanceitwithdigitaltechnologyinnovationsthenichecanquicklybetransformedintoanewregime,aswehaveobservedinthesustainablecloudcomputingcase.Thenewprotocolsthatemergewithdigitalizationmustbesufficientlyflexiblethattheycanbebraidedintodifferentlocalevolvingcontexts,andanchoringingood125https://www.iea.org/commentaries/data-centres-and-energy-from-global-headlines-to-local-headaches70governanceatearlystagesoftheniche-regimetransitionisimportant,aswehaveillustratedinourdiscussionofpersonalcarbonaccounting.Thesocio-technicalregimeframeworkemphasizesthreeelements:actors,systems(resources,materialaspects)andrules/institutions(Geels,2011).Oftenthesamerules/institutionsmaysupportorinhibitmorethanoneregime.AswediscussedinChapter3.2,differentdigitaltechnologiesmaybeindifferentphases,dependingonthelocalsocioeconomiccontext.Forexample,ridingsharingbecameanewregime,albeitnotassustainableasexpected,dependingonhowthetechnologyisgovernedandadaptedtolocalcontexts.Similarly,personalcarbonaccountingtakesmanydifferentformsaroundtheworldandmayhaveavaryingimpactonsustainableconsumptionbehaviorsdependingonhowitisleveragedandgovernedbylocalcommunities.ForDCEtoliveuptoitspromisesinachievingnetzeroandothersustainabilitygoals,systemicchangesareneededthroughsupportivegovernancesystemsthatdirecttheuseofdigitaltechnologyinawaythatenhancesthecirculareconomyandachievesthefulleconomiesofscaleandscopefromdigitalizingcirculareconomypractices.Thediagrambelowillustrateshowweseethemulti-regimeinteractiontowardsa“whole-system”transition.Figure14.DigitalCircularEconomyandwhole-systemtransitions71Note:BasedonFigure3fromGeels(2002)TechnologicaltransitionsasevolutionaryreconfigurationprocessesaMLPandacasestudySynergiesareobtainedthroughdirectinteractionsbetweentheregimes,andthroughinteractionsamongthelandscapes,regimes,andrelevantniches.Interactionsbetweenthetechnologies,actorsandnetworks,shapedbyevolvingrulesandgovernancemechanismsforthenichesandregimes,inturntransformproductionmodes,consumptionhabitsandsocialinteractions.System-widetransitiontogreatersustainabilitycomesaboutthroughlandscapepressures,particularlypolicies,newregulationsandshiftingnormsthatdestabilizeexistingregimes.Technologicalnicheinnovationsthatrespondtothenewlandscapepressuresaretheessentialdrivers,buttheybreakthroughintonewregimesonlywhentheyaresupportedbychangingsocialinteractions,regulatoryandtaxpolicies,andgovernancesystems.Inthenextandfinalchapter,wediscusschallengesandopportunitiesrelatedtotheselandscapepressures,specificnichesinwhichNetZerocanbeachieved,andthegovernancereformsthatmightbestputthesenewpracticesintooperation.Chapter4:ProspectsandPerils:AnAgendaforNewResearchandActionsInChapter2,weproposedtheDCEasanessentialtransformationtoachievenet-zerogoals.InChapter3wehighlightedtheimportanceofsocio-technicalenvironmentsindevelopinginnovativetechnologiesintoanewregimeoftheDCE.Suchafundamentaltransitionraisesnumerousissuesandcangiverisetoconflictsbetweendifferentinterestgroups.Webrieflytouchonsomeoftheseissuesandproposeseveralavenuesforfutureresearch.4.1Digitalization,dataownership,anddataprivacy:Howtobuildtrust72Digitalizationhasmadeiteasierthanevertocollectdatafromourdailylives:mobiledatatrafficalonehasincreasedalmost300-foldoverthelast10years.126Digitaldatahasnotjustgrownexponentiallyontheextensivemargin,withmoreandmoreusersofmobiledevices,butalsoontheintensivemargin,withmoreandmorescreentimespentbyusers.Whileenjoyinghugebenefitsfromtheironlineactivities,usershavealsobeenincreasinglyconcernedabouttheconcentrationofdatainafewhands,withtheconsequentrisksfrombreachesofdataprivacyandcybersecurity.Suchconcernsareexpectedtogrowasmoreandmorepartsofoursocietybecomedigitalized.127DataprivacyandsecuritybecomesevenmoreimportantaswedeploydigitizationinpursuitofNetZero.Mostofthedemand-sidesolutionsdiscussedinthisreportrequiremonitoringpeople’sdailylivesinordertomeasureandtakeaccountoftheirdetailedandvariedlevelsofcarbonemissions.Themoreaccurateestimatesofcarbonemissionwewant,themoredetailedaspectsofourlivesmustbetrackedandrecorded.Themoredetailedemissionsdataengineerscanfind,themoreaccuratelyandmoreeasilytheycantailortheireffortstostimulatedemandforenergy-efficientgoodsandservices.Butifpeopledonottrustthesecurityofthemonitoringdevices,thelevelsofdigitalizationmayneverencompassalargeenoughnumberofuserstoreachNetZero.Wehavelearnedduringthepandemichowimportantitisforgovernmentstohaveenoughdatatodealwithanemergencysituation,butatthesametimehowdifficultitistosetatransparentandconsistentstandardaccordingtowhichprivatedataofpeople’slivesarecollectedandused.We’vealsolearnedthatastandardusedinoneplacemaynotbeappliedtoothercountriessinceeachcountryhasdistinctnormsandpreferencesforprivacy.128Alltheconflictsbetweenpublicandprivatesectorsoverdataprivacyduringthepandemicoffervaluablelessonsforfuture126https://www.ericsson.com/en/press-releases/2021/11/ericsson-mobility-report-mobile-data-traffic-increased-almost-300-fold-over-10-years127Chenetal.(2021)showsthatpeoplecoulddevelophigherlevelsofprivacyconcernsastheyexperiencemoreofamobileapplication.128Forexample,eastAsiacountriesandregionssuchasChina,Taiwan,andSouthKoreaimplementedmandatoryschemesofcontact-tracingappsfromtheearlystageofthepandemic,andthemeasureswereacceptedwithoutsignificantresistancefrompublic.Onthecontrary,evenweakermeasuresbreachingpersonalprivacyfacedstrongresistanceinwesternEuropecountriesandtheUnitedStates.SeeFusoNerinietal.(2021)formoredetails.73carbonreductionpolicies,especiallywhenthosepoliciesrequirebalancingdataprivacyandpublicpolicygoals.Governmentsmustalsoconsiderissuesrelatedtotheinteroperabilityofdataanditsimplicationsforprivacyprotection.Adailyactivityofanindividualwouldgeneratelargesetsofcarbonemissiondata,andnoteveryIoTcompanieswouldmanagethecollecteddataaccordingtothesameprotocol.Toprovideacompletesolutionforreducingcarbonemissions,allthedatafromdifferentsourcesshouldbeavailableforanalysisbysomethirdparty.Forexample,ahousehold,whowishestotrackitsenergyconsumptionandtominimizeitscarbonemissions,needstohaveaplatformthatcancombinethedataofelectricityusagefromdifferentbrandsofIoTsinstalledinthehouse.Clearandconsistentdemarcationofdataownershipwouldstreamlinetheprocessofcombiningdatasetsfromdifferentsources.Clearlydefineddataownershipwillbecomemoreimportantwhengovernmentsimplementapersonalcarbonaccounting(PCA)program.Supposetheprogramprovidesacertainamountofcarboncredittoapersonwhobuysasecond-handproduct,andthecreditcanbeusedtobuyaticketforpublictransit.Tomakethishappen,thePCAplatformfirstneedstobeabletoverifythepurchaseofthesecond-handgood.Whatkindofdatashouldbesharedtomakethishappen?Whoshouldownthedata?Moreresearchandpublicinitiativesshouldbedevotedtoansweringthesetypesofquestionsifwearetobuildpublicconfidencethattheirdigitalprivacyisadequatelyprotected.Fulltransitiontoadigitalcirculareconomywillcomefasterwithhigherlevelsoftrustinthesystemofdatagovernance.4.2TheCorporateRoleinGettingtoNetZero:FromShareholderEconomytoaStakeholderEconomyOver113countries,representinghalfofworldGDP,havebynowmadenet-zerocommitments.129Thecorporatesectorhasalsostartedtomakecommitmentstoreducecarbonemissions.130TheGHGProtocolestablishedbytheWorldResourceInstituteandtheWorld129https://www.visualcapitalist.com/race-to-net-zero-carbon-neutral-goals-by-country/13010bigtechcompanies’net-zerogoals.https://www.ces.tech/Articles/2021/May/10-Tech-Companies-Setting-Big-Goals-to-74BusinessCouncilforSustainableDevelopmentisnowthegoldstandardforcorporatecarbonemissionsreporting.Besidedirectemissions(Scope1)andemissionsfromtheuseofelectricityandheating(Scope2),theGHGprotocolprovidesaguidelineforcorporationstoreporttheirindirectemissions,including15categoriesthroughoutupstreambuyersanddownstreamsellersalongtheirvaluechains.Acompany’sScope1,2,and3carbonfootprintaccountingthusprovidesabasisforsystematicdesignandimplementationofmoretargetedandeffectivedecarbonizationprogramsnotonlyforthemselves,butalsoforothercompaniesupanddowntheirvaluechains.Obviously,Scope2andScope3emissionsusuallycannotbereducedtoasingleentityactingalone.Theuseofsuchaccountingsystemsmakesitclearthatcompaniesmustworktogetherwithothers,especiallythosealongtheirvaluechains,iftheyaretoreducetheiroverallcarbonfootprints.Asmoreandmorecompaniesadoptthissystem,thebusinessworldisundergoingatransitiontowardamoreholisticandglobalviewofcorporatesocialresponsibility.Thisisakeypartoftheongoingbusinesstransformationfromashareholdertoastakeholdermodelofeconomicactivity.Theideaissimple–tobetterlivetogetherinaworldwithawholesetofsocial,economic,andhealthcrises,thebestresponsewillbeforallstakeholders,especiallythemoreaffluentones,toconsidermorethantheirnarrowandshort-termself-interest.Amongthemostambitiouscommitmentstodayarethenetzeroalignmentcommitmentsmadebyoveronethousandcompaniesthroughthescience-basedtargetinitiative(SBTi).131Corporationsincreasinglyrecognizetheneedtobemoreproactive--thattheymustleadthetransitiontonetzero,ratherthancontentthemselveswithpassivelyrespondingtopublicpoliciestowardsclimatechangemitigation.Bybeingmoreproactivetheycanhelpreducetheriskstheyincreasinglyfacefromtheclimatechangecrisisthatmaterializedaybyday.Theycanalsobettermanagethetransitionbymakingpolicydecisionsontheirowntermsratherthanhavingthemimposedontheminahaphazardway.132AnimportantwaytoachieveSBTiofacompanyistoReduce-Clim.aspx131https://sciencebasedtargets.org/companies-taking-action#table132“Thefirstphaseofbusinesssustainability,[…]call“enterpriseintegration,”(emphasisadded)isfoundedonamodelof75workwiththeirsupplychainpartners.Forexample,Walmart,asoneoftheworld’slargestretailers,initiateditsGigatonprojectin2017toengageitsthousandsofsupplierstoreduceuptoonebilliontonsemissionsby2030.Allparticipatingsupplierswereaskedtoreporttheiremissionsexplicitlyandsystematically,incollaborationwiththeglobalClimateDisclosureProject(CDP).Whileit’sencouragingtoseemorecompaniesadoptingSBTi,theeffortstilldoesnotseemtobeinsyncwiththe1.5-degreegoal.It’sgoodtoseethattheSBTialsoencouragescompaniestogooutsidetheboxandconsidereffortsthatcouldfurtherhelpreduceemissionsbeyondthoseenvisionedinScopes1,2,and3.Someleadershaveembarkedonjourneysinthisdirection.AT&ThasstarteditsGigatonproject,usingitsstrongholdinICTtechnologiestohelpitscustomersreduceandavoidsignificantfurtheramountsofcarbonemissions.Theincreasingdigitalizationofsocietyandtheemergenceofplatformcompaniesprovidenewopportunitiesforsuchinnovativethinking.RecentlytheAlibabaGroupcoinedthetermScope3+,whichincludesallemissionsrelatingtoactivitiesonitsvariousecommerce,logisticandcloud-computingplatforms,pledgingtoreduceatotalof1.5billiontonsofitsScope3+emissionsby2035.WhatiskeytoScope3+isthatplatformswithnewformsofbusinessstructuringandfunctioningwillofferadditionalopportunitiestoenlistandconnectamuchlargerquantityofbusinesses(especiallySMEs)and,veryimportantly,enlistconsumerstojoinincoordinatedeffortstowardsacommongoalofdecarbonization.Platformoperators,withtheiruniqueroleinthedigitaleconomy,canleveragetheircapacityinbothtechnologicalknowhowandmarketinsightstogearafastertransitiontowardlow-carbonconsumption.Sufficientdemandforlow-carbonproductsandservicescantrickleupanddownthevaluechain,fosteringchangesontheproductionside,furtherincreasingthesupplyoflowcarbongoodsandservices.Thispositivebusinessrespondingtomarketshiftstoincreasecompetitivepositioningbyintegratingsustainabilityintopreexistingbusinessconsiderations.Bycontrast,thenextphaseofbusinesssustainability,whatwecall“markettransformation,”(emphasisadded)isfoundedonamodelofbusinesstransformingthemarket.Insteadofwaitingforamarketshifttocreateincentivesforsustainablepractices,companiesarecreatingthoseshiftstoenablenewformsofbusinesssustainability”-AndrewJ.Hoffman(2018)TheNextPhaseofBusinessSustainability76feedbackloop–this“virtuouscycle”--isurgentlyneededtospeedupandscaleupthetransitiontowardalow-carboncirculareconomy.Suchprivatesectorinitiativesmustbesupportedbygovernments.Aspublicopiniononclimatechangeincreasinglyreflects,consumersalsowantgreaterinvolvementinclimatechangemitigation.133Theytoowouldliketomakecommitments,aligningtheirbehaviorswiththegoalofNetZero.Oftenpublicopinionisaheadofpublicpolicyonclimatechange,butconsumerslackthetoolstoimposechange,signaltheirpreferences,andmakelargescalecommitmentstoreducethecarbonfootprintoftheirconsumptionbaskets.Moreandmoreconsumerstodaymakepurchasesonlineandarecomfortablewithdigitaltechnology.134Thisopensthepromiseofleveragingdigitaltechnologytochannelpublicopiniontomoredirectlyandpositivelyaffectbusinessoperationsthatembraceagreenerworld.ThisviewechoestheargumentmadebyHartandZingales(2017)inwhichtheobjectivesofcompaniesarenotnecessarilytomaximizefinancialmarketvaluewhenshareholdersareprosocial.Theyshowhowseekingtomaximizeshareholderwelfarecanlinecorporateobjectivesupwiththoseofastakeholdereconomy,achievingawin-winworldinwhichenvironmentalandeconomicprogressgohandinhand.Despitegrowingsupportfromcorporateleadersforthestakeholdereconomy,westilllackenoughconcretepoliciesandplanstoachievethetransitiontoastakeholdereconomy.ToacceleratethetransitiontoNetZerowemustbetterdefinetheboundariesofstakeholderinvolvementwithindifferentbusinesscontexts.Furthermore,moreresearchisneededtoestablishwhatlegalreformsandchangesinsocialnormswillbestsupportthetransformationofthecurrentcorporategovernancemodelintoonethatbetterreflectsgrowingpublicaspirationsforasustainableplanet.Someofthemosturgentquestionsforgovernancereformandsecuritiesregulationareaboutdisclosure,howtostandardizecorporatereportingofcarbonemissionsand133AboutGlobalClimateStrike:https://www.vox.com/2019/9/17/20864740/greta-thunberg-youth-climate-strike-fridays-future134In2018,93%ofinternetusersofU.S.,92%inChina,and97%intheUKmadeatleastoneonlinepurchaseinthelast12months(https://www.statista.com/outlook/dmo/ecommerce/china#analyst-opinion);Globalsmartphonepenetrationrateisabout78.05%in2020(https://www.statista.com/statistics/203734/global-smartphone-penetration-per-capita-since-2005/).AsofJanuary2021,around59.5%oftheworldpopulationareestimatedtoactivelyuseinternet(https://www.statista.com/statistics/617136/digital-population-worldwide/).77otherenvironmentalimpacts(Boltonetal.2021),andhowinstitutionalinvestorsshouldengagewithcompaniestoinducethemtoaligntheirbusinessmodelswiththegoalofNetZero.Theseandotherquestionsdeservefurtherattentionfromscholarsandpolicymakers.4.3GlobalCooperation:BuildingtrustbetweencountriesinaGlobalDigitalCirculareconomyFinally,globalcooperationisanessentialpartofanysuccessfultransitiontoNetZero.TheParisClimateagreementhassetinternationalcoordinationinmotionthroughtheNationallyDeterminedContributions(NDCs),nationalNetZerocommitmentsandotherinitiatives.Yet,progresstowardsfullglobalcooperationisstillfartooslow.DisagreementsbetweencountriesoverinitiativessuchastheBorderCarbonAdjustmentandfailurestofulfillthepromisesoftheGreenClimateFunddemonstratejusthowdifficultitistoachieveconsensusonaglobalpathwaytonetzeroandtheallocationofdecarbonizationeffortsamongcountriesalongtheway.135Yet,ashighlightedattheCOP26summit,activeglobalcooperationisstillaprerequisiteforasuccessfultransitiontosustainability.Thisisallthetruerastheworldeconomybecomesmoreandmoreinterconnected.Withoutglobalcooperation,acirculareconomyinonecountryisatriskofturningintoa“spurious”circulareconomy,withalotofcarbonleakagefromrichtodevelopingcountriesthroughtheglobalsupplychain.ActivecooperationamongcountriesisessentialtorealizeallthepromisesoftheDigitalCircularEconomy.Tobesure,thecirculareconomycandeliverbothcarbonemissionreductionsandeconomicgrowthifitcanbefullyscaledthroughdigitalization.Theproblemisthatpoorcountries,whoareoftenthemostvulnerabletotheclimatecrisis,aretheleastequippedtoimplementadigitalcirculareconomyatfullscale.Thequestionthereforeariseswhetheritisstillpossiblewithout135FortheconflictsaroundGreenClimateFund,seehttps://www.nature.com/articles/d41586-021-02846-3.FortheconflictsaroundBoarderCarbonAdjustment,seehttps://www.technologyreview.com/2020/07/27/1005641/carbon-border-taxes-eu-climate-change-opinion/.78adequatedigitalinfrastructuretoachievebothsignificantdecarbonizationthroughtheexpansionofthecirculareconomyandeconomicgrowth.Canthecirculareconomystillachievedecouplingofcarbonemissionsandeconomicgrowthwithoutextensivedigitalizationofdevelopingeconomies?Poorcountriesdonothavetheluxuryofprioritizingdecarbonizationovereconomicdevelopment.Iftheymustsacrificeeconomicgrowthatanearlystageastheyshifttoacirculareconomymodel,mustthiscomewithfinancialandeconomiccompensatorysupportfromthemoredevelopedcountries?Answeringthesequestionsisimportanttobeabletoestimatethecostsoftransitioningtoaglobalcirculareconomy.Anotherimportantareaisinternationalpolitics.Weneedtoexaminehowtobuildaconsistentandsustainablecooperationsystemamongallthecountriesoftheworld.WhatthepoorimplementationoftheGreenClimateFundhastaughtusistheimportanceofbuildingtrustbetweencountriesinimplementingglobalcooperationfortacklingtheclimatecrisis.Alltheglobalinitiativesandagreementswillbeoflittleusewithoutactiveandlong-termparticipationbybothdevelopedanddevelopingcountries.Butdifferentcountrieshavedifferentstagesofeconomicgrowth.Howshouldwebalancetheinterestsandresponsibilitiesamongcountries?Howshouldwebuildtrustanddesignagreementsbetweendevelopinganddevelopedcountriesthatguaranteelong-termparticipationofeverynation?Solvingthoseproblemswillrequiredeterminedeffortsbyeverynation,largeandsmall,weakandstrong.Developedcountrieswillneedtoanswerquestionslike“whatkindsofinitiativesshouldwetaketobuilduptrustwithdevelopingcountries?”Developingcountrieswillneedtoshowtheircommitmentstotransitioningtoalowcarboncirculareconomyusingthesupporttheyreceivefromdevelopedcountries.Howcanwemakesurethosegreenloansandgrantsarebeingusedforthegoalsweallholdincommon?Doweneedindependentinstitutionstosupervisetheireffectiveimplementation?79Answeringallthesequestionswillrequiremuchfurtherresearchandexperimentation.Butwecannotaffordtowaitmuchlongerfortheanswers.Thefutureisnow.Everyonemustgetaboardifwearetosaveourpreciousplanet.80References<Journalarticles>1.Anderson,B.,Böhmelt,T.,&Ward,H.(2017).Publicopinionandenvironmentalpolicyoutput:across-nationalanalysisofenergypoliciesinEurope.EnvironmentalResearchLetters,12(11),114011.2.Andrae,A.S.,&Edler,T.(2015).Onglobalelectricityusageofcommunicationtechnology:trendsto2030.Challenges,6(1),117-157.3.Bawden,T.(2016).Globalwarming:Datacentrestoconsumethreetimesasmuchenergyinnextdecade,expertswarn.TheIndependent,23,276.4.Benetton,M.,Compiani,G.,&Morse,A.(2021).WhenCryptominingComestoTown:HighElectricity-UseSpilloverstotheLocalEconomy.AvailableatSSRN3779720.5.Belkhir,L.,&Elmeligi,A.(2018).AssessingICTglobalemissionsfootprint:Trendsto2040&recommendations.Journalofcleanerproduction,177,448-463.6.Bolton,P.,&Kacperczyk,M.T.(2021).CarbonDisclosureandtheCostofCapital.AvailableatSSRN3755613.7.Botsman,R.,&Rogers,R.(2010).What’smineisyours.Theri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85LuohanAcademyandLHAReportsLuohanAcademywasfoundedinHangzhouinJune,2018.ItisanopenresearchinstituteinitiatedbytheAlibabaGroupandlaunchedbyworld-renownedsocialscientists,whichconsistoftheacademy'sacademiccommittee,includingsevenNobelPrizelaureatesineconomics.AprimarymissionofLuohanAcademyistoworkwiththebestmindsacrosstheworldtotacklefirst-orderquestionstohelptheworldbetterembracedigitaltechnology.Togetherwehopetobuildthebestdigitalresearchcommunity—amissionmorerelevantnowthaneverintoday'sturbulentandfracturedworld.PreviousLuohanAcademyReportsinclude:DigitalTechnologyandInclusiveGrowth,2019MeasuringandTrackingtheGlobalPandemicEconomy,2020UnderstandingBigData:DataCalculusinTheDigitalEra,202186

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