Disruptive Technologies and Sustainable Development:The Case of Fuel Cell Vehicles

Paper for Policy Agendas for Sustainable Technological Innovation,3rd POSTI International Conference, London, United Kingdom, 1-3 December, 2000

Kerry-Ann Adamson and Tim Foxon

Imperial College Centre for Energy Policy and Technology (ICCEPT),TH Huxley School of Environment, Earth Sciences and Engineering,Imperial College,48 Prince's Gardens,London SW7 2PE

AbstractThis paper will explore the relationship between disruptive technologies and social paradigmshifts, with the aim of highlighting the need for managing these technologies to enable amove towards sustainable development. Disruptive technologies are those which requireradical, discontinuous change from current technologies and, as such, are less likely to bepursued by companies which are market leaders in the current technology. The paper willfocus on the case of fuel cell vehicles as a potential new disruptive technology and discuss therole that different actors could play in promoting these as a sustainable technology.

1. Introduction

This paper looks at sustainable development from a technology perspective focusing on theprospect that ‘disruptive’ technologies may help to meet the goals and targets set by nationaland supranational governments.

The terminology of ‘disruptive’ technologies comes from study of business management, andwas defined by Christensen (1997) in his book The Innovator’s Dilemma as:

“Sustaining technologies improve the performance of established products, along thedimensions of performance that mainstream customers in major markets have historicallyvalued. … Disruptive technologies bring to a market a very different value proposition thanhad been available previously. … They under perform products in established markets, buthave other features that a few fringe (and generally new) customers value.”

It follows from this that

“Sustaining technologies support traditional business models. Disruptive technologies enablethe introduction of alternative business models to fundamentally change the way industriesfunction”(Draughon, 2000).

These two different types of technology form the core of this paper. The aims of the paper areto:• outline the effects of a disruptive technology, not just on the business environment;• use the example of the future fuel cell vehicle to highlight how a disruptive technology

could potentially change the automotive technological and business paradigm towards amore sustainable system;

• outline the difference between the formation of sustaining and disruptive technologies;and

• argue that, through the management of these disruptive technologies, there could be amore concrete move towards sustainable development.

2. Sustainable Development and Changing Relationships

Although the idea of sustainable development first entered global consciousness with thepublication of the Brundtland Report in 1987 (WCED, 1987), it seems that the radical natureof this idea is only now starting to be seriously addressed in national government policies andat the highest level in industry. The European Union (EU) has inscribed the pursuit ofsustainable development as a key objective in the Treaty of Amsterdam in 1998, and,following the production of a national strategy in 1999, the UK’s Department of Trade ofIndustry published its Sustainable Development Strategy in October 2000 (DTI, 2000).

At the same time, sections of the business community which are increasingly feeling the needfor a 'social license to operate' have begun to consider the possibility that sustainability mayprovide new opportunities instead of being seen as threat to business. To help this processalong the World Business Council for Sustainable Development (WBCSD), an organisationof multinational companies, was created. The WBCSD runs a number of program areas,looking at ways of helping to work towards sustainable development (WBCSD, 2000).

These policy and organisational changes highlight both growing acceptance of the concept ofsustainable development and, arguably, the first moves towards a new relationship, asgovernments and businesses explore both separately and together how they can promoteincreasing sustainability. It is clear that the rate and direction of technological change willhave a major influence on moves towards sustainability. In the next section, we explore thepotential drivers for influencing technological change towards increasing sustainability.

3. Drivers for Change

There are a number of potential drivers for change which create the possibility for disruptivetechnologies, such as fuel cell vehicles, to contribute towards achieving sustainabledevelopment, i.e. to become a ‘sustainable technology’. Two of these are government policyor legislation and consumer demand. A third driver, which will be outlined in the nextsection, is industry led. The first of these is the ‘top-down’ policy drive towards sustainabledevelopment. This policy driver is likely to continue the trend towards forcing companies todecrease the impact that their products have on the environment throughout the life-cycle.The second is the ‘bottom-up’ drive from customers who are increasingly demandingenvironmental attributes as well as the accepted levels of technical and economic attributes ofthe products and services they consume. Of course, these two drivers are not independent, asthe overall policy context helps to determine individual customer’s preferences forenvironmental attributes, and the strength of public commitment to environmental objectiveshelps to determine the rate of policy development. We now consider these differing drivers inmore detail, together with the third driver of the changing business pattern using the topicalexample of fuel cell vehicles.

Policy drivers

Sustainable development has been defined by the UK government as ‘ensuring a betterquality of life for everyone, now and for generations to come’ (DETR, 1999). This isinterpreted as meeting four objectives at the same time, in the UK and the world as a whole:• social progress which recognises the needs of everyone;• effective protection of the environment;• prudent use of natural resources; and• maintenance of high and stable levels of economic growth and employment.

The problem of climate change has been widely understood as the greatest threat to achievingsustainable development (RCEP, 2000). In 1997, industrialised countries agreed at Kyoto to

achieve an average 5.2% reduction in their emissions of 6 greenhouse gases from 1990 levelsby the period 2008-2012. Following internal negotiations, the overall reduction target of 8%for the EU bubble, was re-distributed, with revised targets ranging from -21% for Germanyand Denmark, -12.5% for the UK to +13% for Ireland and +27% for Portugal. All EUcountries are currently producing programmes detailing how they intend to meet these targets.The transport sector is likely to be of particular concern in all countries, as it is currently thefastest growing source of greenhouse gas emissions in most industrialised countries (DETR,2000). These programmes are likely to include combinations of• incentives, e.g. for energy efficiency improvements;• taxation, e.g. the UK’s Climate Change Levy on the business use of energy;• voluntary agreements, e.g. the agreement of car manufacturers with the EU to reduce the

average CO2 emissions from the fleet by 2008 to 140 g/km (ACEA, 1998; DGXI, 1998).This may be achieved through an increase in the average fuel efficiency of new cars, orby any other technological means; and

• carbon emissions trading schemes, e.g. the voluntary trading scheme set up by the UKAdvisory Committee on Business and the Environment, due to come into operation inSpring 2001.

Though transport is of concern at all levels within the EU, the current focus of the sustainabledevelopment strategies covers a range of areas - economic, e.g. improving resourceefficiency, social, e.g. tackling poverty and social exclusion, and environmental, e.g. reducinggreenhouse gas emissions.

Customer drivers

The heart of the argument of Bower and Christensen (1995) is that “disruptive technologiesintroduce a very different package of attributes from the one that mainstream customershistorically value”. The attributes of a disruptive technology that will in future be valued bythe consumer are very difficult for companies to predict with accuracy. This is one reason thatChristensen (1997) highlights for the fact that companies often fail to spot the true futuremarket potential for disruptive technologies, as they listen closely to the current wants of theircustomer base.

The strength of the value that the customer will in future place on broadly environmentalattributes is dependent on a number of factors. These may include:• how the environmental attributes affect the overall price of the product;• whether one particular attribute can be given more weight by the consumer, e.g. whether

carbon neutrality is weighted more important than noise pollution;• the geographical location and the socio-economic conditions of the consumer.

Each industry and product has a range of attributes that the consumer values differently. Forexample in the automotive industry, the reduction of the CO2 levels from internal combustionengine vehicles, mentioned above, is marketed not according to its decreasing effect on theenvironment but because it represents an increase in vehicle range.

To summarise, although sustainable development may be viewed by the public as desirable,and in future it is likely that this will impact on product choice, it is currently difficult forcompanies to predict which attributes of a disruptive technology their customers will finddesirable in the future.

The next section focuses on how the development of Carbon Trading, one of the mechanismsagreed upon at Kyoto, could be used to make the light duty transport sector more sustainableby potentially helping the market penetration of a particular disruptive technology, fuel cellvehicles.

4. Industry Drivers, Sustainable Mobility and Fuel Cell Vehicles

The current automotive technological and business paradigm is for automotive manufacturersto build and then sell an internal combustion engine car (ICE) to the private consumer. Thisparadigm has lasted for over 100 years but recently a number of questions have been raised asto how long this technological paradigm can last and what will be the effects of atechnological paradigm shift on the business paradigm. This section looks at these questions,drawing on the results of my PhD thesis (Adamson, 2000) looking at the potential for fuel cellvehicles (FCV).

Fuel cells combine hydrogen and oxygen in a catalytic reaction to produce electrical energywith water as a "waste product". Most of the major automotive manufacturers are currentlyundertaking intensive research and development into the use of fuel cells to power vehicles.Already, fuel cell powered buses and taxis are in operation and the first commercial fuel cellpowered car is expected to be released in 2004 (Brandon and Hart 1999).

Direct hydrogen fuel cell vehicles are a disruptive technology as they have an importantlydifferent attribute from conventional ICE vehicles, zero CO2 emissions. We argue that theyhave the potential to create a new business paradigm in the automotive industries and that, bythe creation of this new paradigm, there will potentially be a window of opportunity to movetowards sustainable mobility. Sustainable transport mobility, which has no agreed upondefinition at EU level, can be thought of as having the following points:• "Allows the basic needs and development of individuals, companies and societies to be

met safely and in a manner consistent with human and ecosystem health, and promotesequity within and between generations;

• is affordable, operates efficiently, offers choice of transport mode, and supports a vibranteconomy, and regional development;

• limits emissions and waste within the planets ability to absorb them, uses renewableresources at or below their rates of generation, and, uses non-renewable resources at orbelow the rates of development of renewable substitutes and minimises the use of landand the generation of noise."

(EC, 2000a)

The World Business Council on Sustainable Development project Sustainability Mobility2030, which is industry led, has the following aims:

“to assess the global impacts of current transportation modes (land, sea and air) and todevelop visions of future mobility. The project also aims to provide a strategic direction forthe diversified transportation and oil industries, creating ideas for next-generation systemswhich address societal, environmental and economic concerns”(WBCSD, 2000).

This project is co-chaired by GM, Shell and Toyota, with active members including BP,DaimlerChrysler, Ford and Volkswagen, who are the main actor manufacturers involved indeveloping the fuel cell vehicle and producing the fuels to power it. The final report of thisproject will be produced in 2003, with an interim report to be released in time for the 3rd EarthSummit ‘Rio+10’ in 2002.

How can fuel cell vehicles and sustainable mobility be linked together?

The main benefit from the use of a hydrogen fuel cell vehicle (H-FCV) is that it can be carbonneutral. Not only does it have zero tailpipe emissions but it also has no emissions of carbondioxide (CO2). It is the only fuel that can be used in combination with the fuel cell vehicletechnology that has this potential. Using hydrogen produced from natural gas couldpotentially kick-start the hydrogen production process but hydrogen from a renewableresource such as biomass, potentially a closed-cycle process, could have net zero CO2

emissions. This benefit is very much currently a benefit for the governments, in terms ofhelping to reach emission reduction targets, and not for the automotive industry, or theconsumer. Therefore, there exists a window of opportunity for realigning of business strategywith government policy, creating a win-win situation for business and government.

Vehicle leasing and Carbon Trading

Though buying a vehicle outright is the norm in Europe, leasing of a vehicle in the US is anincreasingly popular option. Leasing of the vehicle means that the company keeps outrightownership of the vehicle while the consumer pays for the benefits of use of the vehicle.

In terms of fuel cell vehicles and their market launch, which is set for 2004, there are anumber of important advantages, for the manufacturers to keep overall control of the vehiclesand to lease them to the consumer. These are outlined below:• Leasing of a vehicle spreads the risk between the manufacture and consumer. In terms of

the launch of FCVs as a new product, this could highlight belief by the manufacturers inthe quality of their product and remove some of the concerns of consumers over investingin the product.

• If all FCVs are leased, then no second hand market can develop in the product. Initially,this could have important positive safety implications as, until there is significant trainingand diffusion of knowledge, all repairs and maintenance of the vehicles will have to bedone 'in house'.

• There are concerns that leasing of vehicles removes a 'moral hazard' to look after andmaintain the vehicle. Again this could have safety implications. Development of a systemof increasing / decreasing rent could be implemented so that careful looking after of thevehicle resulted in direct economic benefits for the consumer.

• The companies could more closely monitor the FCV fleet if they are still in some measureof contact with the vehicles.

• As initially refuelling facilities are more likely to be based in large urban conurbations, asystem of trading in a FCV for an ICE vehicle for long trips, which would be out of rangefor a FCV, may alleviate some of the initial concerns over availability of refuellingpoints.

• Finally, by leasing of FCVs the auto-manufacturers have ownership of a commodity thatcould be important in the development of a CO2 tradable permit scheme for privatetransport, which is discussed below.

If there was a move to the leasing of Fuel Cell Vehicles together with the predicted movetowards increasing the number of ICEs leased (Golding, 1999), there is a potential for costinternalisation due to the increased profit margins.

Companies keeping ownership of the vehicle and its technology are in effect renting out theright to pollute. This could provide a powerful incentive for companies to promote thedevelopment of a Carbon Trading scheme, as they would then own the right to trade theemissions savings due to the fuel cell vehicle. This in turn could promote the uptake of the H-FCV.

The European Commission has already produced a ‘Green Paper on Greenhouse GasEmissions Trading within the EU’ (EC, 2000b), which outlines a range of issues affecting the

potential for a EU wide trading scheme in the near future. The relevant one for the discussionhere include:• emissions allowances within the EU to be calculated on a CO2 -equivalent basis, to ensure

compatibility with possible global emissions trading schemes under the Kyoto Protocol;• companies involved in the scheme are the ultimate responsibility of the Party where the

emissions sources are located;• that emissions trading has the potential for benefits to the environment but must not cause

a barrier to trade internally or externally.

The Green Paper goes on to state that at present:

“allocating allowances, monitoring emissions and enforcing compliance of small mobileemitters, such as private cars, raise complex technical and administrative issues”.

Though it is understandable that the current EU private vehicle fleet would be difficult tomonitor and regulate, an emission trading scheme of the type proposed here together withvehicle leasing could provide an opportunity to overcome some of these barriers.

By taking part in a Carbon Trading scheme, the initial increased cost of a fuel cell vehicle canbe internalised and by making a shift to leasing the automanufacturers could make a large steptowards becoming providers of sustainable mobility.

5. Understanding Disruptive Technologies

Long term forecasting of technological trends, innovation and paradigm shifts has beengaining acceptability and prominence as a science over the last few years within multinationalcompanies and governments, as well as within the academic community. The aim of thissection is to briefly look at two very different methods of forecasting and then discuss theprocess of technological revolution, for disruptive technologies, as opposed to the currentmainstream thinking of technological evolution.

Techniques such as Road Mapping and Visioning are being used increasingly to try andexplore the possible shape of things to come. Visioning, used by the Pentagon and other highlevel US governmental departments (Ronis, 1999), is a technique in which differing scenariosof long term future family life are created. Once the 'family unit' has been outlined the sphereof interest is expanded to explore the family's life to see what type of technology would beuseful, desirable and socially acceptable (Ronis, 1999). Road mapping is a management toolin which a company sits down and defines 'triggers' of change, in legislation or technologicalinnovation etc, and creates targets to meet them. Once these targets have been set down, thetechnology needed to meet the targets is worked out and these are broken down intocomponents. By working back down the chain, the companies are able to see where synergiesmay lie and to calculate lead times for change (PA Consultants, 1998).

Technological evolution vs technological revolution of disruptive technologiesThe field of study in technological change has over the past few years witnessed an increasein the use of terminology and theories from the evolution arena, the best example being the'Darwinian' model of technological change. During the late 1980's, a number of studies andbooks were published exploring and elaborating on this idea.

Hinnels (1995) outlined Langrish’s (1995) five point Darwinian model for 'non-biological' aswell as biological change. The five points are:• competition;• variety;

• some mechanism for ensuring the transmission of the attributes of fitness to a newgeneration;

• some mechanism for the production of novel entities; and• potential for change in the rules of fitness.

Hinnels went on to show that competition from rival firms and new legislation could bethought of as changes in the rules of fitness and, in the case of the white goods industry, thatthis helped to push the incorporation of environmental factors into products to make themsuccessful. This, therefore, is a mechanism for the production of novel entities andtransmission of these attributes to a new generation.

As with Darwinian technological change theory, the alternative theory involving disruptivetechnologies has its basis in the evolution debate. Discussion of the punctuated equilibriumtheory of evolution can be found in many different media and at different levels, ranging fromthe academic to the mystic to the religious. This contentious theory was originally publishedin 1972 (Eldridge and Gould 1972) with Niles Eldridge and Steven J. Gould arguing that gapsin the fossil record may not in fact be evidence of current imperfect records, but rather thatevolution may have proceeded by a series of discontinuous jumps. A technological analogy ofpunctuated equilibrium which was discussed in Bowonder et al (1995) is the Internet. TheInternet was not born out of small continuous, easily traceable, incremental steps but acombination of a number of discontinuous leaps forward in computer and telecommunicationstechnology.

Ojha, et al (1997) noted that it was Kuhn who, in 1970, first hypothesised that scientificprogress moved in discontinuous jumps. Kuhn showed that science exhibited long periodsduring which the scientific theories were evolving incrementally and then there would be aperiod of 'revolution', as opposed to 'evolution', in which the old theoretical paradigm1 isreplaced by an entirely new one which was often incompatible with the old.

Like the discussions on sustainable development there are a number of different definitions ofpunctuated equilibrium, each slightly, but importantly, different. For this discussion, thedefinition of punctuated equilibrium that will be used is Gersick's (1991) as quoted in Ojha etal (1997):

“relatively long periods of stability (equilibrium), punctuated by compact periods ofqualitative, metaphoric change (revolution)…”

which Gersick goes on to say that:

“the interrelationship between these two modes is explained through the construction of ahighly durable underlying order or deep structure”.

For technological dynamics, this underlying order or deep structure can be usefullyunderstood as saying that society is change averse, and will usually change existingtechnology only incrementally and gradually before turning to a new paradigm caused by adisruptive technology.

Due to the nature of disruptive technologies requiring radical change, we argue that theirformation is analogous to the theory of punctuated equilibrium change of technology.

1 Kuhn defines paradigm as "the entire constellation of beliefs, values and techniques, and so on shared by a givencommunity" (Kuhn, 1971)

6. Conclusion

The above examples help to show how the implementation of the concept of sustainabledevelopment could help to create a new context for technological innovation and diffusion, bycreating new relationships between governments, businesses and customers.

We argue that disruptive technologies, as exemplified by fuel cell vehicles, not only present achallenge to companies to understand the changing needs of their customer base, but alsocreate an opportunity for the promotion of new business strategies which could help to moveforward societal and policy goals of sustainability.

In particular, we argue that the leasing of fuel cell vehicles by companies to provide mobilityservices to their customers shows how a disruptive technology can change the ‘businesslandscape’ in favour of increasing sustainability.

The idea that a move towards service provision enabled by technological change could help tostimulate changes towards enhanced sustainability has also been discussed in Foxon (2000).

In conclusion, to use the language of Christensen (1997), sustaining technologies whichsupport traditional business models are unlikely to facilitate a change to social, economic andenvironmental sustainability, whereas what are now seen as disruptive technologies may, inthe long run, be recognised as sustainable technologies.

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