Tyler Crowe

The Motley Fool

Lots of small inefficiencies adds up to massive amounts of wasted energy.

In the U.S.%2C 1.9 billion gallons of fuel is consumed every year from drivers sitting in traffic.

The internet of things trend is approaching ... fast.

Machine to machine communication, or the internet of things, is on the precipice of taking the world by storm. At its very core, machine to machine communication is the ability to connect everything, I mean everything, through a vast network of sensors and devices which can communicate with each other. The possibilities of this technological evolution span an immensely wide spectrum; ranging from monitoring your health through your smartphone, to your house knowing where you are to adjust lighting and heating.

The way that the internet of things could revolutionize our lives can be hard to conceptualize all at once. So today let's focus on one place where machine to machine communication could have an immense impact: Energy consumption. Not only could this technology make turning the lights on easier, but it could be the key to us effectively managing anthropogenic carbon emissions.

Regardless of your thoughts and opinions on climate change and the scope of how much carbon emissions affects the global atmosphere, we all can agree on one thing: Emitting less carbon is a good thing, especially if it can be done without impeding economic growth. For years, the battleground for the climate change debate has been on the energy generation side, pitting alternative energy options like wind and solar against fossil fuels. The problem with fixating on this side of the argument, though, is that even under the most ambitious outlooks for alternative energy growth, we will never be able to get carbon emissions below the threshold many think is required to prevent significant temperature changes over the next century.

Does that mean there's no shot at significantly reducing carbon emissions? No -- we're just focusing on the wrong side of the energy equation, and that is where machine to machine communications comes into play. Let's look at how the internet of things can mean for carbon emissions, and how investors could make some hefty profits from it.

Energy consumption's overdue evolution

We humans are a fascinating study in inefficiency. We will sit in traffic on the freeway rather than take the alternative route on "slower" roads. We oversupply the electricity grid because we don't know precisely how much demand is needed at any given moment. It's not that we deliberately try to do things less efficiently; we just don't always have the adequate information to make the most efficient decision.

When you add all of these little inefficiencies up, it amounts to massive amounts of wasted energy and, in turn, unnecessary carbon emissions. In the U.S. alone, 1.9 billion gallons of fuel is consumed every year from drivers sitting in traffic. That's 186 million tons of unnecessary CO2 emissions each year just in the U.S.

Now, imagine a world where every automobile was able to communicate with the others, giving instant feedback on traffic conditions and providing alternative routes to avoid traffic jams. This is the fundamental concept of machine-to-machine communications, and it goes way beyond the scope of just automobiles and household conveniences.

One of the added benefits of this technology is the impact it could have on our everyday energy consumption and the ultimate reduction in total carbon emissions. A recent report by the Carbon War Room estimates that the incorporation of machine-to-machine communication in the energy, transportation, built environment (its fancy term for buildings), and agriculture sectors could reduce global greenhouse gas emissions by 9.1 gigatons of CO2 equivalent annually. That's 18.2 trillion pounds, or equivalent to eliminating all of the United States' and India's total greenhouse gas emissions combined, and more than triple the reductions we can expect with an extremely ambitious alternative energy conversion program.

How is this possible? Increased communication between everything -- engines, appliances, generators, automobiles -- allows for instant feedback for more efficient travel routes, optimized fertilizer and water consumption to reduce deforestation, real-time monitoring of electricity consumption and instant feedback to generators, and fully integrated heating, cooling, and lighting systems that can adjust for human occupancy.

There are lots of projections and estimates related to carbon emissions and climate change, but the one that has emerged as the standard bearer is the amount of carbon emissions it would take to increase global temperatures by 2 degrees Centigrade. According to the UN's Environment Programme, annual anthropological greenhouse gas emissions would need to decrease by 15% from recent levels to keep us under the carbon atmospheric levels. Based on current emissions and the 9.1 gigaton estimate from Carbon War Room's report, it would be enough to reduce global emissions by 18.6%, well within the range of the UN's projections.

The internet of things is still very much in its infancy, but it's taking off fast. The pending boom in machine-to machine communication helps explain why Google (GOOG) shelled out more than $3.2 billion for smart-thermostat company Nest Labs. Its ability allows customers to better manage heating and cooling in households and instantly provide feedback to utilities in order to better manage energy demand during peak load hours. Sure, estimates put the total number of machine-to-machine capable devices in the billions, but for the Internet of things to be truly effective, everything needs to be connected. Estimates for total connected devices around the globe could reach into the trillions. This could lead to an industry with annual revenues of a whopping $948 billion.

The big players in the technology world, like Google and Intel (INTC), will undoubtedly be major players in this fast-growing market. Aside from its investment with Nest for smarter home energy use, Google is also getting into the transportation game with its Open Auto Alliance, a group of automakers and technology companies that will establish common practices such that vehicles from different manufacturers can communicate with each other -- the building block for self driving vehicles. With that much money on the line, can you really blame these companies for diving into this market?

The internet of things trend is approaching ... fast. For investors, it could be an amazing opportunity to get in on the ground floor of a new market with trillion dollar potential, but it is so much more than that. Increased productivity and elimination of wasteful energy consumption through smart devices could be the one and only key to cutting greenhouse gas emission enough to reduce the chances of significant climate change. So go ahead and continue arguing about the use of fossil fuels or alternative energy -- the investors who will really be betting on reducing carbon emissions will be putting their money here.

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