Strange Webfellows

The people who probe and measure markets have reached a startling conclusion about the New Economy: It's lighter than the old one. It takes less physical matter to generate a dollar of economic output than it did 20 years ago.

That fact has set analysts pondering a second possibility. The digital revolution may tread so gently on the globe's ecosystems that it will help the environment. If that's true, then economists and environmentalists will have to throw out their old assumptions about growth and energy use.

Unlike previous industrial transformations, the New Economy may continue to boom without causing the environment to decline.

To be sure, these ideas remain unproven. Critics point to previous rosy prognostications that technology failed to deliver, such as the paperless office and the energy-sipping economy. Nevertheless, the clues of change are tantalizing.

"We're at the beginning of a very big revolution," says Joseph Romm, executive director of the Center for Energy and Climate Solutions in Washington, D.C., and author of a new report on the subject. "The basis of the Industrial Revolution really was the substitution of fossil-fuel energy for human labor. What we are starting to see in part is the substitution of information for both human labor and fossil fuels."

The net effects are difficult to pin down because economic transformations usually change society in unexpected ways. "It's going to be almost impossible to figure out what its impacts are in the short term," says Brad Allenby, vice president for environment, health, and safety at AT&T, the telecommunications giant based in Basking Ridge, N.J. But "my gut feeling is that it's already a net positive" for the environment.

Anyone who uses e-mail will instinctively understand the idea. Two decades ago, someone sending a message from Miami to Nome, Alaska, wrote a letter. Trees were crushed to make the stationary; more trees made the envelope. It took a lot of physical effort and fuel for the Post Office to deliver it. When the fax machine gained popularity, a little electricity took the place of the Post Office. With e-mail, electricity eliminated the paper entirely. Analysts call this process "dematerialization."

It's happening rapidly in today's economy. Instead of sending packages of disks to customers, software companies are downloading the programs electronically. Teenagers are skipping the CDs and downloading music directly from the Internet. (Packaging makes up a third of the solid waste American consumers throw away.)

Business-to-business transactions are yielding even bigger savings. By selling direct to its customers, Dell Computer has eliminated the resources used by a middle man. Other high-tech companies, such as Cisco Systems, have shrunk their warehouse space dramatically by using information technology to coordinate just-in-time shipments of parts.

The New Economy is wringing out inefficiencies at such a rapid pace and along such a broad front that the effects are mind-boggling. For example:

*By encouraging its sales force to work from home, AT&T estimates it saved $550 million by not having to build new office space between 1991 and 1998. Not having to build or heat or cool that space saved the equivalent of some 55,000 tons of carbon-dioxide emissions, the company estimates.

*By offering special room prices on its Web site (www.starwoodhotels.com), Starwood Hotels and Resorts (owners of the Westin, Sheraton, and other chains) is seeing Internet bookings double from a year ago with no sign that growth is slowing. In five years, the White Plains, N.Y., company expects its site will be so popular that it will be able to handle an Internet booking at one-fourth to one-fifth the cost of booking a room through its call center.

*In 1995, the Recycler's World Internet site began offering businesses a free site to list recyclable materials they had or wanted. The site (www.recycle.net/exchange) has drawn business from NASA to Ford, Kodak to the Las Vegas Hilton (which had some batteries to recycle). On average, the site now gets a new submission every minute. "We could not have done what we do today without the Internet," says John Robb, Recycler's World spokesman.

*If all the nation's trucks traveled with full loads, the present fleet could handle an estimated 30 to 50 percent more cargo. Enter the National Transportation Exchange, an Internet-based service (www.nte.net) that uses sophisticated computers and tracking system to match up truckers and shippers. If the service brokers a deal, the shipper gets a price-break and the trucking company gets extra income for the same journey. "It makes very good business sense," says John Vander Wagen, director of research services for the exchange.

Companies dematerialize to save costs. But all those efficiencies add up environmentally, too. Last year, the Ernst & Young Center for Business Innovation calculated that the nation's total output (its gross domestic product or GDP) has risen 70 percent in the last two decades but actually weighs less than the total in 1977. Put another way: It takes far less matter to generate a dollar's worth of GDP today than it did 20 years ago.

If these efficiency savings are broad and deep enough, analysts say, they should begin showing up in the nation's energy usage. Perhaps they already are, says Mr. Romm of the Center for Energy and Climate Solutions.

During the oil embargo and energy-price spikes of the 1970s, the United States made important strides in energy efficiency. But when energy prices slumped in the late 1980s and 1990s, progress slowed. In the last two years for which data is available - 1997 and 1998 - energy efficiency has suddenly picked up again, overshadowing the annual gains of the 1970s. That's remarkable during a period of economic expansion and tame energy prices, Romm says. Is the digital economy working some special magic?

It's too soon to tell, analysts say, but a number of them are keeping a close watch. "It's clear that the economy is beginning to change in significant ways," says John "Skip" Laitner, a senior economist for technology policy at the Environmental Protection Agency. If the trend holds, the agency's projections of US energy and carbon dioxide emissions for the year 2010 could be off by some 5 percent, he estimates.

On the other hand, analysts say, warm winters or some other anomaly may have caused a blip in the numbers. Predicting the environmental results of the digital economy remains terribly complicated, they add, because the changes are so far-reaching and no one knows how consumers will react. Even straightforward questions bring murky answers.

For example, the average American household makes more than 500 trips to the store by car every year. If consumers do more of their shopping online, it seems reasonable that they'll drive less. When researchers at Northwestern University's management school looked at cost competition between traditional booksellers and the Web's Amazon.com, they found the online retailer won hands down. The retailer, who had to heat and light stores, spent an average 44 cents in energy costs for every $100 worth of books sold. Amazon.com, selling far more books from a large warehouse, spent only 3 cents per $100 of sales.

But does the environment benefit from an online sale versus a transaction at the mall? It depends. If the online retailer ships the item, say, 1,000 miles, the purchase on average consumes only about 0.1 gallon extra if a trucker adds it to his cargo, estimates Dave Rejeski, executive director of the White House Environmental Technology Task Force. But if it's shipped by next-day air, fuel consumption goes up to nearly 0.6 gallons.

That's probably still better than a 20-mile round-trip to the mall by car (about 1 gallon). But no one knows whether the average driver combines other errands with that trip to the mall. And there's some evidence, Mr. Rejeski adds, that consumers who buy things over the Web are two to three times more likely to return them than those who go to a brick and mortar store.

Another caveat: Employees who work out of their homes probably use less fuel than those who drive into the office each day, these analysts agree. But if telecommuting allows people to live farther and farther away from the city, they may have to travel longer distances on those days when they do go in to work.

At the moment, the Internet appears to be boosting electrical use, although analysts disagree about how much. In a study last year, Mr. Mills estimated the information-technology infrastructure accounted for roughly 13 percent of the nation's electrical consumption.

Although the 1970s proved that America's economy could grow while using the same amount of overall energy, the link between growth and electricity use has remained strong. Will the New Economy break that link too? "If you see this decoupling, and electricity [use] doesn't go up very much, that would be a very unusual historical event," says Jonathan Koomey, an energy analyst at Lawrence Berkeley National Laboratory in Berkeley, Calif. But "what the information technology does is make it easier to change what you're doing. It allows people to run a tighter ship.... The jury is still out."

(c) Copyright 2000. The Christian Science Publishing Society

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