Technological innovation “trumps” politics

Technological innovation, often induced by national and sub-national policies, is a key driver of global climate and energy policy ambition and action. Donald Trump’s decision to pull out of the Paris Agreement will hardly affect this trend.

US President Donald Trump recently decided to pull out of the Paris Agreement. Will this be the beginning of the end for an international agreement that took two decades to reach? To answer this question it is important to understand why the Paris Agreement was signed by 195 countries in the first place – only six years after the failure of the Copenhagen conference.

Many political analysts argue that – besides French diplomacy – the key driver of Paris was that emission reduction pledges are voluntary. While this might be valid, in a recent comment [1], we argue that another, often overlooked factor was decisive: technological innovation.

A paradigm shift in climate politics

In 2009, many low-carbon energy technologies were expensive and, even more importantly, analysists predicted rather slow cost declines [2]. Contrary to this prediction, innovation in renewable energies, battery technology, hydraulic fracturing, ICT based solution etc. massively decreased the cost of these technologies, so that today many low-carbon technologies are cost-competitive in many applications. Crucially, it was primarily national (and sub-national) policies that pushed these technologies down their learning curve and incentivized innovative activities.

These cost reductions have contributed to a paradigm shift in international climate politics, from an emissions to a technology focus, from minimizing the economic burden of climate change mitigation to seizing its economic opportunities (see figure). Politicians realize more and more that low-carbon technologies can cut costs while creating local industries and jobs. The core mechanism of international climate policy is no longer to negotiate national climate targets aimed at fair burden-sharing. The new core mechanism is to draft national policies that target low-carbon technological change.

 

Infographic

The interplay of politics, policy, technological change and climate change. (Figure from [1])

The challenges ahead

In other words, technological innovation served as driver of climate policy ambition. This is good news indeed. However, challenges remain: Cost-effective policies supporting the NDCs (Nationally Determined Contributions) need to be tailored to and implemented across many countries (including fossil-fuel subsidy reform and carbon pricing). Financial and technical support needs to be channeled to lower income countries. Importantly, ambition needs to be further increased as the current pledges are not sufficient to reach the agreement’s target of limiting the global temperature rise to well below 2 °C.

So what to make of President Trump’s decision then? In short: Pulling out of the Paris Agreement will not stop the technological mega-trend towards low-carbon technologies. Even the US low-carbon technology industry is unlikely to suffer from his decision in the short run, in part because states like California, but also many cities, are stepping in.

There are, nevertheless, potentially negative consequences [3]. First, the US looks likely to stop its contribution to the Green Climate Fund, which helps lower-income countries in their climate change mitigation and adaptation measures. Second, the announced budget cut for US-based research in low-carbon technology will have long-term negative effects on innovation. Third, some fear that the Trump decision might lead to a bandwagon effect with other countries also pulling out. Finally, implementing policies that incentivize a shift from fossil fuels (particularly coal) to low-carbon technologies will face local resistance in the US and other countries with strong fossil fuel industries. Local fossil fuel constituencies might try to capture politics, as we have seen in in the past with attempts to reform fossil fuel subsidies. They can now point to the US decision.

Overcoming resistance

To overcome local resistance, it is important to strengthen local low-carbon constituencies, i.e. both economic and political actors forming around low-carbon technologies. Creating local jobs in low-carbon technology production, assembly, installation and maintenance is a powerful lever. The cheaper these technologies get, the more likely this is going to happen. Therefore, innovation can also serve as a driver to overcome this type of resistance.

Just one day after Trump’s decision, China and India announced that they will exceed their Paris pledges (mostly driven by higher-than-expected renewable energy installations). This leads us to conclude that the Paris Agreement will prevail. Technological R&D, at ETH and elsewhere, is crucial if we are to strengthen the new technology paradigm further.

 

By Prof. Tobias Schmidt and Dr. Sebastian Sewerin, Energy Politics Group, ETH Zurich

This blog was originally posted on ETH Zurich’s Zukunftsblog.


Further information

[1] Schmidt, Tobias S., and Sebastian Sewerin. “Technology as a driver of climate and energy politics.” Nature Energy 2 (2017): 17084. Link: https://www.nature.com/articles/nenergy201784 Free access (read only): http://rdcu.be/s2LQ

[2] See e.g., McKinsey’s Marginal Abatement Cost reports of 2007 and 2009

[3] On June 13, ETH Zurich’s Center for Security Studies (CSS) organized an event where these questions were debated by Dr. Tim Boersma (Columbia University), Dr. Severin Fischer (CSS) and Prof. Tobias Schmidt.

Vulnerability and resistance in the United Kingdom’s smart meter transition

The Smart Meter Implementation Program (SMIP) lays the legal framework in the United Kingdom so that a smart gas and electricity meter, along with an in-home display, can be installed in every household by 2020. Intended to reduce household energy consumption by 5–15%, the SMIP represents the world’s largest and most expensive smart meter rollout. However, a series of obstacles and delays has restricted implementation. To explore why, this study investigates the socio-technical challenges facing the SMIP, with a strong emphasis on the “social” side of the equation. It explains its two primary sources of data, a systematic review of the academic literature coupled with observation of seven major SMIP events. It offers a history of the SMIP rollout, including a summary of 67 potential benefits as well as often-discussed technical challenges, before delving into pertinent non technical challenges, specifically vulnerability as well as consumer resistance and ambivalence. In doing so, the paper not only presents a critique of SMIP, it also offers a review of academic studies on consumer responses to smart meters, an analysis of the intersection between smart meters and other social concerns such as poverty or the marginalization of rural areas, and the generation of policy lessons.

Written by Benjamin K. Sovacool, Paula Kivimaa, Sabine Hielscher and Kirsten Jenkins

Read the full publication online

Bringing into focus the financing challenge of the low-carbon innovation

For some time in discussions about a global transition towards a low-carbon economy the unacknowledged elephant in the room was the financial sector. Various estimates from the International Energy Agency and others suggest that annual investment in a low-carbon energy system to mid-century will need to average USD2-3 trillion, with two thirds of that comprising a shift in investment from high-carbon to low-carbon infrastructure, and the other third being extra low-carbon investments. The 100 trillion dollar question about the elephant, which is now at least being increasingly acknowledged, is how such a dramatic shift in investment finance can be achieved.

Part of the problem for the investors who will need to make this shift is that it is not yet clear precisely which technologies should be the recipient of this investment. Innovation in new energy technologies, and corresponding changes in business models and consumer behaviour, are proceeding at a bewildering rate; however most projections indicate that current (financial) commitments fall short in achieving a 2° world. Trying to understand such innovation, and where it may lead, is at the heart of the INNOPATHS project, which was presented to a full house in Brussels on June 22 as part of Sustainable Energy Week.

An early output from INNOPATHS, the construction of which is being led by Aalto University in Finland, is a Technology Assessment Matrix, the purpose of which is to provide online insights into how technologies are developing, what their potential might be in terms of cost and scale of deployment, and how they might fit into the low-carbon energy system of the future.

Stimulating investment on the scale required to come anywhere near the 1.5-2oC temperature target of the 2015 Paris Agreement will require, in addition to technologies that offer large-scale energy efficiency savings or low-carbon energy supply, measures that will address institutional, regulatory, informational and business constraints on investment, as well as a supportive policy environment to pull through low-carbon investment that do not yet meet normal criteria of risk-adjusted rate of return.

These are among the topics addressed by the finance workstream of the INNOPATHS project, led by Utrecht University in the Netherlands, ETH in Switzerland and The Potsdam Institute for Climate Research in Germany, the first workshop of which will be held in Utrecht in September. Here, experts from the financial sector will meet and discuss the challenges ahead with energy company representatives and policy makers. These topics were also the subject of the recent meeting of the European Commission’s High-Level Panel of the European Decarbonisation Pathways Initiative, which will be producing a report in 2018 on research needs in Europe to ensure that the European Union can make the most of the many economic and other opportunities offered by deep decarbonisation of the energy system.

Another initiative that brought the financial sector into full focus was the workshop at UCL on July 5th, organised by the European Horizon 2020 Green-Win project, entitled ‘The Risk Transition: shifting investment to a low carbon economy’. The Keynote Speaker was Russell Picot, Special Adviser to the Financial Stability Board’s Climate-related Financial Disclosures Task Force, the final report and recommendations from which were published on June 29. Its areas of core recommendations were governance, strategy, risk management and metrics and targets. While the suggested measures were intended to be voluntary at present, it is clearly possible that they will become mandatory as experience with how best to disclose climate risk is acquired and the need for the great energy transition investment becomes appreciated as increasingly urgent.

INNOPATHS finance workstream colleagues also contribute to the New Pathways for Sustainable Finance process, led by the Brussels-based institution Finance Watch, the Global Alliance for Banking on Values, and Mission 2020, which over the next few will explore a financial market design conducive to a low-carbon transition and specific actionable areas to be addressed by 2020.

Such projects, initiatives, events and publications at least mean that the various parts of the elephant of transition finance for a low-carbon future are being recognised put together, so that the shape of the whole challenge ahead is becoming apparent. What is now required is determined action on the various insights that are being generated being the temperature targets of the Paris Agreement slip quite out of reach.

By Paul Ekins, Professor of Resources and Environment Policy and Director, UCL Institute for Sustainable Resources