In 1999, Paul Hawkin, Amory Lovins and Hunter Lovins wrote a fantastic book ‘Natural Capitalism’ which investors must read. It is downloadable on natcap.org. The thrust of the argument in the book is that industries and products have been designed without taking into account the efficient use of natural resources (hence Natural Capitalism) and this has resulted in an inefficient system.

This column will talk about two industries, automobiles and agriculture.

The auto industry produced 73 million cars last year. Cars were designed at a time when crude oil was cheap and fossil fuel supply seemingly endless (now proven untrue). The design of the automobile was thus, focussed not on how efficiently energy was used, but on attributes such as speed, spaciousness and safety. To provide safety in the event of collision, the choice of material was heavy steel instead of lighter materials. This, thus, reduced energy efficiency, but, what the heck, petrol was cheap and fossil fuel plentiful, so who cared?

We do, now.

The authors say that of the energy in the fuel, as much as 80 per cent is lost, mainly in the engine’s heat and exhaust, so only 20 per cent of the energy is used to move the vehicle. Of this 20 per cent, in proportion to weights, 95 per cent moves the vehicle and 5 per cent the passenger. Five per cent of 20 per cent is 1 per cent. So only 1 per cent of the energy in the fossil fuel derivative actually moves the passenger. A colossal waste. No wonder, with 73 million cars sold annually, we are running out of fossil fuel.

The authors say that three things are necessary to change the design of the industry and of the product. Cars must be made lighter, perhaps using composite material. Cars must be designed to have a low drag (air friction should be reduced).

The authors proposed a hypercar (hydrogen powered car) but this is not being talked about.

Electric vehicles are more energy-efficient; they convert 90 per cent of the electricity produced into traction. They also have 10 per cent of the moving parts of an internal combustion engine (ICE) and thus, have almost zero maintenance.

The hurdles with electric vehicles are: a) Shortage of raw materials such as lithium and cobalt; b) Shortage of infrastructure, mainly charging stations, which discourages consumers from buying them; and c) More efficient batteries.

These will be overcome, surely, and the auto industry will undergo a huge makeover.

Agro industry

The agro industry has been built on a model of intensive agriculture, using the same land but enhancing productivity. In terms of output of agri commodities, both food and cash crops, it has been a success using the green revolution, chemical fertilisers and pesticides.

However, the authors of Natural Capitalism state that a third of the natural topsoil in US farmland has gone or is degraded.

Thus, the model of agriculture, based on distant large farms using mechanisation and hugely dependent on fossil fuel-generated fertilisers and pesticides, to transport and supply produce across long distances, is very vulnerable to an oil shock.

These are just two industries, out of many, which need to, and will have to, undergo a transformation.

(The writer is India Head — Finance Asia/Haymarket. The views are personal.)

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