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The role of intermediate trade in the change of carbon flows within China

In recent years, evaluating the emissions embodied in trade (EEIT) has become an important area of policy and research. Multiregional input-output (MRIO) analysis, which links producers and final consumers, is a widely-used method for quantifying the EEIT. However, the role of intermediate trade in driving changes in the EEIT is still not fully incorporated in MRIO analysis and as a result poorly understood. Here, we present a framework that separately identifies the drivers of the emissions embodied in the trade of final and intermediate products. We implement this framework in a case study in which we analyse the changes in CO2 emissions embodied in interprovincial trade in China from 2007 to 2012. We find that the largest changes are a rising final demand, which is associated with increased emissions that are to some extent offset by decreasing emissions intensity and changing interregional dependency. Regionally, the rising imports and the growth in final demand in less developed regions in the north and central (e.g., Hebei and Henan) reduced the CO2 emissions outsourced by central coastal regions and drove the traded embodied CO2 flows between the central and western regions. The framework enriches our understanding of the role played by intermediate trade in the relocation of emissions.

Written by Jing Meng, Zengkai Zhang, Zhifu Mi, Laura Diaz Anadon, Heran Zheng, Bo Zhang, Yuli Shan and Dabo Guan.

Read the full article here.

Dr Elena Verdolini explains decarbonising the energy sector

CMCC and EIEE senior researcher Elena Verdolini explains how the energy sector, the largest producer of greenhouse gases, is surprisingly one of the easiest areas to decarbonise.

Electrification is growing fast as it becomes increasingly low-carbon or carbon-free entirely. Dr Verdolini explains how variability is a major obstacle to increasing the use of renewables and goes on to talk about the best ways to tackle the increasingly difficult obstacles this sector faces.

Read the full article here.

 

Promoting the energy transition through innovation

With the striking exception of the USA, countries around the world are committed to the implementation of stringent targets on anthropogenic carbon emissions, as agreed in the Paris Climate Agreement. Indeed, for better or for worse, the transition towards decarbonization is a collective endeavour, with the main challenge being a technological one. The path from a fossil-based to a sustainable and low-carbon economy needs to be paved through the development and deployment of low-carbon energy technologies which will allow to sustain economic growth while cutting carbon emissions.

Unfortunately, not all countries have access to the technologies which are necessary for this challenging transition. This in turn casts serious doubts on the possibility to achieve deep decarbonisation. Developed countries accumulated significant know-how in green technologies in the last decades, but most of developing and emerging countries do not have strong competences in this specific field. Yet, it is in these latter countries that energy demand, and hence carbon emissions, will increase dramatically in the years to come. The issue at stake is how to reconcile the need for a global commitment to the energy transition with the reality of largely unequal country-level technological competences.

Public R&D investments play an important role in the diffusion and deployment of low-carbon technologies. Public investment in research is the oldest way by which countries have supported renewable energy technologies. For instance, following the two oil crises of the 1970s, the United States invested a significant amount of public resources in research and development on wind and solar technologies, with a subsequent increase of innovation activities in these fields. The same pattern can be observed in the last two decades in Europe, where solar, wind and other low carbon technologies have been supported by public money. But innovation policies and R&D investments are only one of the possible ways in which governments can stimulate low-carbon innovation.

Environmental policies are another way to stimulate clean innovation, which comes as an additional pay-off of emissions reduction. Usually, governments rely on two different types of environmental policy instruments: command-and-control policies, such as emission or efficiency standards, and market-based policies, such as carbon taxies or pollution permits. The former put a limit on the quantity of pollutant that firms and consumers can emit. The latter essentially work by putting an explicit price on pollution. Both types of instruments have the direct effect of lowering carbon emission in the short term. In the longer term, they also have the indirect effect of promoting low-carbon innovation. This is because they make it worth for firms to bring to the market new, improved technologies. Over the past decades, countries have implemented different low-carbon policy portfolios, namely a combination of different policy instruments to foster the development and deployment of low-carbon technologies. The combination of R&D, command-and-control and market-based policies varies greatly across countries.

A crucial question often debated in the literature is: which policy instrument is more effective in promoting innovation in renewable technologies vis-à-vis innovation in efficient fossil-based technologies? Importantly, low-carbon innovation can refer either to renewable technologies, which effectively eliminate carbon emissions from production processes, or to more efficient fossil-based technologies, which decrease the content of carbon per unit of production. Favouring the former type of innovation over the latter is strategically important in the long-run: renewable technologies allow to completely decouple economic growth from carbon emissions. Conversely, fossil-based technologies may give rise to rebound effects, namely increase in overall energy demand (and possibly also in overall emissions) because they make it cheaper to use fossil inputs.

A recent study by Nesta et al. (2018) shows that certain combinations of research and environmental policy instruments are more effective in promoting renewable energy innovation than others. More specifically, there is no ‘one-fits-all’ solution when it comes to choosing the optimal combination of market-based or command-and-control environmental policies. Au contraire, to be effective in promoting renewable innovation, policy portfolios need to be tailored to the specific capability of each country. The study relies on data on innovation in low-carbon and fossil-based technologies in OECD countries and large emerging economies (Brazil, Russia, India, China, South Africa and Indonesia, BRIICS) over the years 1990-2015. The authors apply an empirical methodology that allows to test how effective each “policy mix” is in promoting innovation, depending on the level of specialization of each country in terms of green innovation.

The analysis shows that there are three different regimes of low-carbon specialization. The first one characterizes those countries with extremely low competences in green technologies as compared to fossil-based technologies. This accounts for about half of the observations in the study, including the BRICS countries. In this case, the research suggests, the only effective way to promote the redirection of technological expertise towards green technologies is through direct investment in low carbon R&D.

The second regime does come into play until a country shows enough specialization in green technologies. In this regime, environmental policies start to become effective in further consolidating the green technological specialization. The successful innovation strategy in this case is that which combines command-and-control policy instruments – which lower the incentives associated with fossil innovation – with market-based policies – which increase the incentives associated with green innovation.

The third regime is characterized by a substantial specialization in green know-how. This regime includes only 12 percent of the observations in the study. In this last case, market-based instruments alone are effective in sustaining green innovation vis-à-vis innovation in fossil technologies.

Countries which tailor their policy portfolio based on their level of competencies will be more successful in promoting renewable innovation. A clear example of the dynamics behind this finding is illustrated by Denmark. In the pre-Kyoto period, Denmark had not yet reached the required level of expertise in renewable energy. The country continued to invested heavily in building such expertise through significant investments in renewable research and innovation. As a result, Denmark moved to the second regime. At that point, the country strengthened both command and control and market-based policy instruments, further promoting renewable innovation vis-à-vis innovation in fossil-based technologies. This resulted in an even higher level of competencies in renewables, bringing Denmark to the third regime. The country was then in a position to switch away from command-and-control instruments and simply rely on market-based instruments to promote renewable innovation.

Countries which fail to tailor their policy portfolio are not successful in promoting renewable energy innovation. For instance, France represents a case of failure, as illustrated by our results. The lack of an adequate market-based support for renewables in the nineties led to the full dissipation of the French early advantage in these technologies. Indeed, France was the only country that is in the third regime in the first period and was then in an ideal position to implement ambitious policies before other countries, thus keeping its relative technological advantage. Instead, the country chose to fully specialize in nuclear energy. This eroded France’s capability in renewable energy innovation. This implies that France cannot simply rely on market-based instruments to successfully promote renewable innovation nowadays.

These results are of interest for emerging economies, and suggest that countries like Brazil, Russia, India, Indonesia, China and South Africa should be less timid in strengthening the stringency of both types of policy instruments, because they are well positioned to fully benefit from the innovation incentives. Fast-developing countries desperately need to build innovative capacity in renewable energy technologies and promote their diffusion. Apart from India and, to a lesser extent, Indonesia, all countries have built a satisfactory level of expertise in renewables. This calls for the implementation of both market-based and command-and-control policy instruments as means to embark on a virtuous renewable innovation circle. China stands out due to a high level of expertise in green technologies. Overall, their level of expertise in renewables is such that they would be in the position to fully benefit from the innovation incentives associated with more stringent mitigation policies in support of the energy transition.

 

INNOPATHS consortium holds second all-partner meeting

The second all-partner meeting of the INNOPATHS consortium was held on 3rd – 5th September, hosted by the University of Cambridge. The meeting brought together representatives from all project partners from 8 European countries for three days of intensive, constructive discussions on progress within the project so far, and the future direction of the research. This included a review and demonstration of prototypes of the four original ‘interactive online tools’ – the Technology Matrix, the Policy Evaluation Tool, Interactive Decarbonisation Simulator, and Low Carbon Pathways Platform – each of which will channel different collections of results from the project research, and will seek to serve different purposes for their intended users.

 

In order to ensure that the research and the online tools (along with other research and their associated outputs) will best serve the needs of policy makers, civil servants, business and civil society, the second meeting of both the INNOPATHS External Advisory Board and the INNOPATHS Innovation and Exploitation Advisory Group also took place. Members of these respective bodies, drawn from the spectrum of stakeholder groups, provided insightful advice and guidance to the research team to maintain momentum and maximise policy relevance and we head towards the second half of the INNOPATHS research programme.

Revolutions at sea – reflecting on the cost of offshore wind

The costs of offshore wind are falling dramatically. Several European countries have now agreed to buy power from offshore wind farms at costs which challenge the notion that renewable energy must be heavily subsidised to survive.

The UK government has recently awarded contracts to offshore wind projects scheduled for the early 2020s, at prices 50-60% lower than those it handed to offshore wind projects in 2014.  Germany and the Netherlands have recently announced contracts, also for expected delivery in the early 2020s, in which offshore wind developers have agreed to receive the market price only – zero subsidy contracts.

What has caused these rapid cost reductions? Can we expect the costs of offshore wind contracts to remain at these relatively low levels, or even to reduce further?

The cost reductions are likely to have had a few contributing factors, several of which can be seen optimistically as factors that will continue to keep costs low in the future.

One such factor is an innovation relating to policy design. The payment level received by offshore wind projects is now increasingly decided not by governments, but by requesting companies to bid in for the contract, declaring the price at which they would be prepared to deliver it. Such auction-based systems allow governments to choose the lowest cost of the now revealed bids. It seems plausible that the move towards auction-based allocation systems may have helped to drive down prices by introducing price competition into the bidding process.

Technological improvement is an important factor for enabling such cost reductions. There has been a clear trend towards larger and more efficient turbines which can deliver greater amounts of energy, increasing return on investment, thereby lowering costs. The trend is set to continue, with one major company expecting the turbines they will use in 2024 to be double the current size.

However, other factors that could explain the recent low bids may give a less clear grounds for optimism that the low prices are here to stay.

It is possible that companies may currently be bidding low for strategic reasons. For some companies, a lower return may be considered worthwhile, at the present time, for the benefit of maintaining their project supply chains. If subsidies in some previous rounds were overly generous, as some have suggested, it might be that this is currently enabling some flexibility on the balance sheet for low bids. If this is part of the explanation, such strategic bidding could not be maintained in the long run.

Auction design can also incentivise companies to put in bids lower than they would ideally accept, if they believe that another project will bid in higher and set the price received by all selected bids. However, if such a strategy backfires then a company could win a contract but at a price at which it is impossible to deliver the project – sometimes called “the winner’s curse”.

Another important factor likely to be lowering costs at the present time is the relatively low cost of financing. Investors have increased familiarity with offshore wind, and the long term contracts being issued by governments help to manage uncertainty, enabling lenders to lend at lower rates of interest. However, there are also important external conditions – interest rates in general are exceptionally low at the moment. As interest rates are likely to rise again in the future, it is possible that this could add to the cost of future projects.

Costs of projects are also strongly affected by site conditions, such as distance from shore and depth of water. There is a limited number of sites close to shore and in shallow water, and if future sites are in deeper water and further from shore this could drive up costs.

It is also important to recall that not all costs associated with offshore wind farms are necessarily accounted for in the costs paid for by project developers, and thus covered by the subsidies. Important additional costs are the costs of connections to power grids, and of balancing the system, for example in the event of too much power being injected on to the grid at the wrong time and wrong place. Because wind turbines have variable output dependent on wind conditions, they can exert significant costs on the system in this way. In some countries generators must pay for, or at least make a contribution towards these kinds of costs. In other countries, generators are not required to cover their own balancing and transmission costs, as these are met by the network operator. This is an important contributing factor towards the difference in costs between offshore wind projects in different European countries. Clearly, systems that do not target transmission and balancing costs at generators to some extent create favourable conditions for offshore wind, and they certainly make achieving zero-subsidy auctions more likely. However, if not paid by generators, transmission and balancing costs still have to be covered by system operators and are ultimately paid for by consumers. Thus, there is a strong argument that to herald a ‘zero-subsidy’ auction within a system that does not direct transmission and balancing costs at generators is misleading – especially if offshore wind exerts greater than average transmission and balancing costs – as the socialisation of transmission and balancing costs is a clear subsidy. Giving generators some kind of signal as to the costs their output imposes on the network is an important part of developing a well-balanced and efficient system. While shielding offshore wind generators from these costs may have attractions in the short term, it could lead to greater costs in the longer term, if it means the system develops in a way that is harder and more expensive to balance.

Of course, the news of extremely low prices for offshore wind contracts is to be welcomed. However, rather than becoming too focussed on zero-subsidy auctions as ends in themselves, we should continue to pay attention to making policies that look robust across all market conditions: long-term policy stability; careful attention to auction design; allocating transmission and balancing costs to support rational network development and incentivise innovations in storage and flexibility; and supporting and coordinating innovation chains.

INNOPATHS in the European Sustainable Energy Week #EUSEW18

This year, the EU Sustainable Energy Week celebrated its 13th anniversary and INNOPATHS was invited to present some of its early results in this important event. The EU Sustainable Energy Week, which took place in Brussels last week (June 4-8), is the annual flagship event in the EU in which sustainable energy policy is at the centre of the debates and discussions among stakeholders from the governmental, industrial, academic, and non-for-profit communities. The European Commission´s Directorate General for Energy (DG Energy) and the Executive Agency for Small and Medium-sized Enterprises (EASME) join forces by focusing the 2018  conference on the theme – “Lead the clean energy transition”.

The theme clearly resonated. The conference included 60 sessions and more than 2,500 participants. We found that discussions involving energy efficiency policies attracted special interest during last week. With the revised Energy Performance of Buildings Directive (EPBD) on the table, Ms. Mechthild Wörsdörfer, Director in charge of renewables, research and innovation, energy efficiency of the DG Energy of the European Commission, highlighted that energy efficiency will bring “multiple benefits, such as lower cost of the energy transition, reduced energy bills for the most vulnerable, a more lenient and competitive EU economy, higher quality of life and cleaner air and environment”.

Since INNOPATHS is an innovative project in substance and form aiming to generate new state-of-the-art low-carbon pathways for the European Union, we did not want to miss out on the opportunity to contribute to the discussion of policies to facilitate deep energy renovation in buildings.

I presented the work of the University of Cambridge (with Prof. Laura Diaz-Anadon), the Euro-Mediterranean Centre on Climate Change (CMCC) (Dr. Elena Verdolini) and the European University Institute (Dr. Stefano Verde) developing one of the four innovative online tools coming out of the project.  In particular, I provided some early results from the prototype of the online Policy Evaluation Tool, which we designed with Nice&Serious (N&S) (Peter Larkin and his team), to inform policy makers and other stakeholders on the impacts of different policies on a wide range of outcomes (including economic, environmental, and social) in a panel with Commission and other European project representatives.

I presented INNOPATHS insights on the main innovations of the project, the barriers encountered for deep renovation of the residential building stock in the EU, as well as policy recommendations to overcome those obstacles. Using a systematic review of research on Building Codes and White Certificates collected for the Policy Evaluation Tool prototype, we presented some of the barriers envisioned for deep renovation in buildings to improve energy efficiency, among others:

  1. A poor understanding of the causes of policy failures in the buildings sector
  2. Aged building stock in some EU jurisdictions
  3. Lack of evidence in or applicable to Southern European contexts
  4. Aversion towards more stringent regulatory policies
  5. Lack of trust in the realization of expected savings
  6. Non-negligible welfare impacts in low income households

I found that the introduction of the Policy Evaluation Tool received a warm welcome and interest from the many attendees to the session on Deep Energy Renovation.

In addition to the panel, the audience were able to contribute to the debate by answering the following question: “According to you, which are the most important barriers hampering wide-scale energy renovation in Europe”. With 43 answers, 44% of the respondents said that the lack of knowledge and interest of the building owners was the main barrier, followed by a 30% who highlighted the lack of convincing financing solutions and a 28% reporting that the main obstacle was an unfavourable regulatory environment, incoherent policies and support schemes. These barriers for deep renovation highlighted by the stakeholders are surprisingly aligned with the early findings from the Policy Evaluation Tool on how to overcome key barriers.

Of special interest was the agreement among participants regarding the need to guide EU and national level policies in the building sector towards: the remodelling and renovation of the existing stock of buildings, the important role of finance schemes to undertake such works and the digitalization of the sector. The latter resonates with the recent creation in the UK of the Centre for Digital Built Britain (CDBB). The importance of increasing the ambition of long-term targets for countries in terms of energy efficiency or energy savings, the provision of innovative financial schemes to support digitalisation in buildings, and the need to improve information in an accessible way for households’ owners and tenants to create a demand for green buildings were recurring themes.

All in all, it seems clear that projects such as INNOPATHs are crucial for informing policies in the building sector to continue working towards a sustainable, clean and fair future for everyone.

Christina Penasco @chrispenasco

Dismissive and deceptive car dealerships create barriers to electric vehicle adoption at the point of sale

As most consumers do not have pre-existing knowledge of electric vehicles (EVs), and current market conditions favour petrol and diesel vehicles, car dealership experiences may strongly influence EV purchasing decisions. Here, we show that car dealer- ships pose a significant barrier at the point of sale due to a perceived lack of business case viability in relation to petrol and diesel vehicles. In 126 shopping experiences at 82 car dealerships across Denmark, Finland, Iceland, Norway and Sweden, wfind that dealers were dismissive of EVs, misinformed shoppers on vehicle specifications, omitted EVs from the sales conversation and strongly oriented customers towards petrol and diesel vehicle options. Dealers’ technological orientation, willingness to sell and displayed knowledge of EVs were the main contributors to likely purchase intentions. These findings combined with expert interviews suggest that government and industry signalling affect sales strategies and purchasing trends. Policy and business strategies that address barriers at the point of sale are needed to accelerate EV adoption.
Written by Gerarado Zarazua de Rubens, Lance Noel and Benjamin K. Sovacool

Read the full publication online

Energy Performance of Buildings Directive Revisions: What to Know.

The following is a guest blog by Anthony Gilbert, specialist in real estate and real estate marketing, and owner of The RealFX Group. Improving the energy efficiency of Europe’s buildings is a key element of a successful low-carbon transition. An important focus of the work of INNOPATHS is an examination of the barriers to achieving this objective, and how to overcome them. The blog focusses on the recent revisions to the EU’s Energy Performance of Buildings Directive (EPBD), which currently sits at the heart of European policy to encourage energy efficiency in buildings.


The EU has recently changed its Energy Performance of Buildings code to encourage the efficiency of older buildings in the union. This move is just one of eight different proposals that seek to reduce the amount of energy used in EU structures. Right now, the building sector accounts for 40% of all energy use in the EU. With 75% of all buildings in Europe described as energy inefficient, these new proposals seek to renovate buildings in an effort to lower energy consumption by up to 6% and COemissions by up to 5%.

Primary Objectives 

These revisions state that smart technology is to be implemented whenever possible to inefficient buildings. Ultimately, this translates to more automation and better control systems. The larger goal for the EU is to hit 0% emissions by the year 2050. Professionals are instructed to use readiness indicators to determine how easy it will be to integrate the new technology into the building.

Ideally, they’ll be able to piece the resulting data together to determine the best renovation strategies for future structures. The EU is trying to capitalize on just how adaptable technology can be. They see these methods as a chance to stabilize the electricity and to drive the union away from the use of fossil fuels and carbon emissions.

The Role of Member States 

The directives of these revisions are deliberately vague to account for the many anomalies and incongruities of renovation and retrofitting. Member States are given the freedom to accomplish these objectives as they see fit. Each neighborhood is allowed to decide the best way to implement the changes based on not only the physical infrastructure but also the environmental obstacles that may stand in the way of ideal working conditions. The larger EU bureaucracy will only interfere if they feel that Member States are not honoring the revisions or otherwise failing to promote sustainability. As they begin promoting more renovations, homeowners and tenants should start to see their energy bills fall.

A Rise in Jobs

The rate of renovation in the EU is currently between .4 – 1.2%, so there’s a lot of room for growth when it comes to installing smarter energy systems. The construction industry in Europe puts 18 million people to work and is responsible for 9% of Europe’s GDP. These new directives give experts in renovations and retrofits more opportunities to put their knowledge to good work, and it gives novices a chance to learn on the job and transform themselves into the energy protectors of tomorrow. These types of radical turnarounds tend to boost jobs in related sectors. The rise in competition usually results in better products and services, which is truly a win-win for both people and the planet.

Improved Lifestyles

Building inefficiency doesn’t just hurt the environment, it can also hurt the people who reside in the buildings. Humidity, dust, and pollutants can hang in the air of a building that lacks the necessary components to circulate it. Vulnerable groups like children and the elderly are particularly susceptible to illness after repeated exposure. The smarter a building is, the more breathable the air will be and the more comfortable the residents will feel. Ultimately, the EU wants everyone to start taking their energy consumption seriously. By starting with the buildings people live and work in, they hope to spur a larger movement that makes it easy to hit their greenhouse gas goals.

Future Goals 

The EU fully understands that is has a long way to go if they’re hoping to stamp out energy inefficiency in a sector as large as the building industry. However, these revisions are truly a step in the right direction. By encouraging Member States to put their energy into smarter building, they inadvertently create demand for green building. As homeowners, building owners, and tenants start to see their health improve and their energy bills become much more affordable, it will create a new standard of living. Leaders believe that this strategy will help them achieve global leadership in promoting renewable energy.

Every country is responsible for promoting their own version of energy efficiency, but the EU seems to have the right idea by dreaming big. Benefits like job creation, better health, and lower utility bills are developments that everyone can support, regardless of their personal views about our responsibility to preserve the planet for future generations.

Anthony Gilbert is the owner of The RealFX Group. Anthony specializes in real estate and real estate marketing, and likes to follow and promote advancements in accessible and efficient technology for homeowners.

Time to get ready: Conceptualizing the temporal and spatial dynamics of formative phases for energy technologies

Implementing the Paris agreement to prevent dangerous climate change requires energy system transformation and rapid diffusion of low-carbon innovations. In this paper we investigate both the temporal and spatial dynamics of formative phases by which energy technologies prepare for growth. Drawing on a review of diverse literatures, we offer a definition of the formative phase which clarifies its scope and duration, and identifies its main technological and economic determinants. We use parametric hazard models to assess the relative strengths of these determinants on formative phase durations for a sample of 15 energy technologies diffusing over time in their respective initial markets. We find that substitutability has stronger effects in accelerating the end of formative phases than installed capacity and prices. We extend our analysis using nonparametric models to analyze the spatial diffusion of formative phase durations from initial to follower markets. We find that formative phase durations are long outside initial markets as well, showing only signs of acceleration in latecomer regions. Our results imply risks for policies trying to accelerate the diffusion of large innovations without ready markets in both initial and follower markets.

Nuno Bento, Charlie Wilson and Laura Diaz Anadon

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Professor Paul Ekins presents at COP23 side event in Bonn

On 11 November, Professor Paul Ekins, Project Co-ordinator of INNOPATHS, was invited to speak at a COP23 side event session titled ‘Low Carbon Europe 2050 – The vision and beyond’.

The EU is set to reduce GHG emissions by 80-95% by 2050 and plans to bring a new long-term climate strategy on the table in 2018. Professor Ekins’ talk was part of a session which covered insights from ongoing H2020 and other research on low carbon transitions, ranging from the essential elements and scenarios to exploring future strategies and governance frameworks.

Three other short introductory presentations were given by Jürgen Kropp (PIK) on EUCalc as an analytical tool and experiences from policy interaction, Lars J. Nilsson (Lund University) on low-carbon Europe, and Guido Knoche (UBA) on the role of science and research. These introductory presentations led to an interactive scholarly debate between a panel and the audience on ways forward and the role of science in shaping policy and governance frameworks.

The panel discussed mitigation options and pathways, key opportunities, barriers and lock-ins, policy and governance implications seen from research, and the roles and responsibilities in science-policy interaction and co-design.

The event was organised by the German Federal Environment Agency and Lund University and co-organised by University College London, Potsdam Institute for Climate Impact Research, Ecologic Institute, Fraunhofer Institute for System and Innovation Analysis.

For an overview of the event, please click here.