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INNOPATHS holds a workshop for European policymakers

How might Europe achieve deep decarbonisation? The INNOPATHS project is using a process of stakeholder engagement and co-design to develop decarbonisation pathways for Europe to 2050 – each of which explores a different route to deep decarbonisation. On Tuesday 9th July the project brought together policymakers from across Europe to think through how decarbonisation

Will incumbent industries and infrastructures (like gas networks) play a big role in shaping technology choices, or will upstart newcomers disrupt and reshape the business landscape for energy? Will populist movements cause some countries to fall behind, while others press ahead towards net-zero, leading to a Europe with “two speeds” of decarbonisation? How might a “circular” or “sharing” economy change patterns of energy demand?  These are important issues for long-term energy strategy, and are explored through the narrative scenarios being developed within the INNOPATHS project. Each narrative highlights knowledge gaps, where more research might help, and each one highlights challenges for policymakers.

The workshop discussions helped the INNOPATHS team to further develop the narrative scenarios. The key aspects of these narratives will then be quantified using the project’s suite of integrated assessment and energy modelling tools, and then made available to explore via an interactive decarbonisation simulator. The final narratives—and associated modelling—will be completed in March 2020. Watch this space!

No simple answer to carbon complexity

“These are the times that try men’s soul” wrote Thomas Paine in his famous pamphlet American Crisis in the heat of the American Revolution. These words well describe the present time too – in their broadest meaning. The political systems in the western world are under unprecedented pressure not witnessed since the dark times of the 1930’s.

But we also see the raise of a quite new kind of awareness among people and businesses on climate change. The public discourse on emissions has jumped to another level compared to just a few years ago. Our leaders are being challenged to move from just talking about the issue, to undertaking stronger measures to cut carbon emissions quickly.

At the same time, bottom-up popular movements are entering the political arena reflecting our political systems’ inability to adequately reflect on timely issues. However, they also reflect the failure of our politicians to equip the people with the tools and skills required to handle with wicked problems such as climate change.

The climate change movement is obviously getting stronger in several member states of the EU, and also resonated in the recent European Parliament elections. It may, however, still be too early to claim a coming leapfrog in climate policies due to the shifting political landscape in Europe, though all scientific evidence univocally speaks for its urgency.

But let’s make a ‘gedankenexperiment’ by assuming that in spite of all the uncertainties, Europe would soon make a shift towards a stricter climate policy. Instruments for emission cuts are in place (e.g. the price of emission allowances in ETS could be better regulated, among others). Scenario tools such as those used in the Horizon 2020 INNOPATHS project can help to construct least-cost technology trajectories to reach a zero-carbon energy sector in Europe. From a techno-economic point-of-view, we could well find a feasible deep decarbonization solution for Europe.

But would society be prepared for such a quick energy transition?  Deep decarbonization equates in practice to a huge technology disruption similar to the industrial revolution. It goes beyond the techno-economic realm. It involves profound social issues. It is essentially a social-technical transition in which institutions and business models supporting present technologies need to be changed to enable adoption of new clean technologies and practices.

Consumers also need to adapt and engage in new ways. How to deal with distributional effects? A change involves winners and losers. For example, a high carbon tax may sound like a perfect tool for cutting emissions as it forces those who pollute to pay and it could motivate the polluters to change their behaviours. But from a justice point of view, it could also legitimize those who can afford to pay to pollute (even more) and not to change their lifestyles, whereas those who cannot pay or afford non-polluting solutions, could face large challenges in their everyday lives. A just climate legislation would therefore strive for measures which treat each of us equally in relation to our capabilities.

There are multiple ways to frame the energy and climate problem1. Importantly, the way we frame it would also prioritize the values and factors against which we make our decisions, which in turn will shape the solutions. Personally, I would prefer to see the more fundamental factors being prioritized in any type of climate framing, namely the Science (laws of nature), the Planet (planetary boundaries), and the Ethics (universal values).

Though a lot of research has already been done on policy and social dimensions, also within the INNOPATHS project, the complexity of the issues involved is so profound that this would call for much stronger efforts for this area of research in the coming Horizon Europe R&D programme.

Thomas Paine ended his pamphlet with the words “…the harder the conflict, the more glorious the triumph”. For me his inspirational words sound in today’s terms more like where there’s a will, there’s a way – also in the quest of solving the carbon question.

1 Sun-Jin Yun, John Byrne, Lucy Baker, Patrick Bond, Goetz Kaufmann, Hans-Jochen Luhmann, Peter Lund, Joan Martinez-Alier, and Fuqiang Yang. 2018. Energy and Climate Change. In: Rethinking Environmentalism: Linking Justice, Sustainability, and Diversity, ed. S. Lele, E. S. Brondizio, J. Byrne, G. M. Mace, and J. Martinez-Alier. Strüngmann Forum Reports, vol. 23, J. Lupp, series editor. Cambridge, MA: MIT Press, 2018 ISBN 9780262038966.

Assessing the impacts of setting CO2 emission targets on truck manufacturers: A model implementation and application for the EU

The European Commission introduced in 2018, for the first time, CO2emission standards for truck manufacturers, to incite additional reduction in the road transport CO2 emissions; trucks represent the second major contributor to CO2 emissions in the EU road transport. This paper presents a model based analysis which simulates the implementation of such targets in an energy economic framework and assesses the impacts of such standards using the PRIMES-TREMOVE model. We implement the CO2 emission standards on truck manufacturers as CO2 emission constraints on the new vehicle choice module. The proposed method is formulated as a mixed complementarity problem. The analysis reveals a reduction in road transport CO2 emissions and diesel consumption as a result of an uptake of more efficient truck technologies. In particular, LNG trucks are favored because of the lower emission factor of natural gas relative to that of diesel. Implementing progressively ambitious CO2 standards renders diesel trucks more expensive as their energy efficiency potential reaches its technical limit.

Written by Pelopidas and Yannis Moysoglou

Read the full publication online

Modelling the EU’s Long-Term Strategy towards a carbon-neutral energy system

The COP21 UNFCCC conference in Paris in December 2015 flagged a new era for energy and climate policy. Climate change mitigation turned from being the wish of a few, to the reality of almost all nations around the globe. The signed agreement has invited all parties to submit, by 2020, mid-century low-emission strategies compatible with the goal of limiting the rise in average global temperatures to well below 2oC above pre-industrial levels and pursuing efforts to limit it to 1.5oC.

The aim of a low carbon economy has been on the EU policy agenda since the release of its “Low carbon economy roadmap” in 2011 that introduced an 80% GHG emission reduction target for the year 2050 relative to 1990 levels. However, pursuing the 1.5oC temperature increase limit requires boosting even more the ambitious climate target and aiming at a carbon-neutral economy by mid-century. Given the new climate policy regime, the discussions around low, zero, or even negative carbon policy options have been intensified in the years following the Paris milestone; new quantitative analysis, in the form of detailed policy scenarios, strategies and quantitative pathways, is necessary to assist EU policy makers in assessing the available options from both a technological and economic perspective, while also considering societal and governance issues. Many research discussions, debates and synergies in the modelling communities, have been triggered after the COP21 conference, as new innovative concepts need to be introduced and enrich existing modelling frameworks, in order for the latter to be able to perform the appropriate deep decarbonisation scenarios and provide sound input to impact assessment studies.

Certain key policy elements and technologies are considered pillars of the low-carbon transition and are treated as “no-regret” options in all recent EU climate and energy policy discussions. Such policy options are the strong electrification of final energy demand sectors, accelerated energy efficiency mainly via the renovation of the existing buildings’ stock, advanced appliances, heat recovery in the industrial sector and intelligent transportation, and the strong push of variable renewable energy sources (RES) in the power system. From a modelling point of view, their assessment is well established in the literature, and does not pose any considerable, unpresented difficulties. However, the modelling of disruptive technologies and policy instruments that could be proven essential for the transition towards a carbon-neutral EU economy (a case that requires GHG emission reductions beyond the 80% target) is far from being considered as mature in the existing literature or academic research. Modelling a power sector with renewables above 80% is a challenge as it requires representing variability in some detail along with the various balancing resources including cross-border trade. Modelling strong energy efficiency in buildings implies representing the decision of individuals about renovating the buildings deeply; this is also a challenging modelling task give the large variety of building cases and idiosyncrasies of the individuals in decision making. Electrifying heat and mobility in market segments where this is cost-efficient is among the no-regrets option. Modelling the pace of transition and the role of policy drivers from internal combustion engines to electric cars and from boilers to heat pumps are also challenging tasks due to the large heterogeneity of circumstances that the modelling will have to capture. So, the amplitude of the three main no-regrets options is challenging the modelling despite the significant experience accumulated so far. 

The carbon-neutrality target poses considerable additional challenges for the modelling. The no-regrets options are not sufficient to deliver carbon-neutrality by mid-century. Mobility, heating, high-temperature industrial uses and the industrial processes would emit significant amounts of CO2 by 2050 if conventional wisdom policies and measures only apply. To abate the remaining emissions in these sectors, disruptive changes are necessary, regarding the origin of primary energy and the way energy is used and distributed. The disruptive options are surrounded by high uncertainty due to the low technology readiness levels of the technologies involved. The disruptive options are antagonistic to each other because they require large funding resources to achieve industrial maturity and economies of scale of the yet immature technologies. Such concentration of resources requires long-term visibility for the investors and infrastructure investment, which both require clear strategic choices among the disruptive options.

We consider the “disruptive” options grouped in stylised categories, as shown below. The modelling has to include assumptions regarding the future evolution of costs and performance of a plethora of technologies and options for alternative sets of disruptive changes had to represent. Each stylized category of disruptive changes has its own challenges in terms of modelling considerations, as presented below:

  1. Extreme Efficiency and Circularity: The aim of the options included in this category is to push energy efficiency savings close to its maximum potential, introducing circularity aspects and further improving material efficiency in the EU economy, increasing the intelligence of the transport system, sharing of vehicles, achieving near-zero energy building stock, etc. Even though these concepts are present in the literature, introducing them in a large-scale applied modelling framework poses significant difficulties as, for instance, estimating the maximum industrial output reductions that can be realised at a sectoral level. It also required estimating the upper boundaries of the impact of behavioural and restructuring changes in the transport sector in reducing transport activity. Similarly, modelling a near-zero energy building stock involves great difficulties regarding the driving policies and the idiosyncratic behaviours of individuals. Almost all options included in this category are associated with non-linearly increasing costs, beyond a certain level of deployment that needs to be captured in the quantitative assessment. Some of the options might also create so-called “disutility” to the consumers, as they alter their behaviour to an eventually less “comfortable” patterns. Not capturing such effects, would underestimate the difficulty in the introduction of such policy options.
  1. Extreme Electrification: Strong electrification is a “no-regret” option, but extreme electrification is a relative newly established concept. This category adopts electricity as the single energy vector in all sectors in the long-term, with bioenergy complementing electricity only in sectors where full electrification is not technically feasible with currently known technologies, such as aviation and maritime. From a modelling perspective, deep electrification requires to studying the technoeconomic of innovative technological options such as full-electric long-distance road freight vehicles, electric aircrafts for short-haul flights and high temperature heat pumps. Using electricity as the only vector for the heating of buildings will broaden the seasonal demand gap between the summer and winter seasons for many regions, requiring either significant investments in power storage solutions or in power capacity that will have low utilisation. Capturing this in the modelling requires establishing electricity load patterns that differ by scenario at an appropriate time resolution.
  1. Hydrogen as a carrier: This category assumes that hydrogen production and distribution infrastructure will develop allowing hydrogen to become a universal energy commodity, covering all end-uses including transport and high-temperature industrial uses. Hydrogen can also provide a versatile electricity storage service with daily up to seasonal storage cycles. Hydrogen is assumed to replace distributed gas after an extensive overhaul of the pipeline system and gas storage facilities. From a modelling perspective it requires identifying the industrial processes that can be decarbonised using hydrogen-based solutions (and the relative boundary conditions), assessing the techno-economics of a variety of carbon-free hydrogen production facilities (for both blue and green hydrogen) and the costs associated with the upgrade of the gas distribution and storage system. All the above, should be established in a modelling framework that is available to co-optimise the operation of the power system and the hydrogen production facilities, enhancing in this way energy storage and coupling various sectors of the energy system and the economy.
  1. GHG-neutral hydrocarbons (liquid and gaseous): In this case, the paradigm of using and distributing energy commodities, along with the respective infrastructure, is maintained. The nature and origin of the hydrocarbon molecules is modified in order to ensure carbon neutrality from a lifecycle emissions perspective, using synthetic molecules rather than fossil ones. The production of synthetic methane and liquid fuels requires carbon-free hydrogen production and an appropriate carbon dioxide (CO2) feedstock source. The last element hints at the emergence of CO2 as a commodity, therefore it is important that energy-economy models are modified in order to treat CO2 not only as a by-product of fossil fuel combustion, as it was done till recently, but as a product that can be used for different purposes (e.g. apart from producing GHG-neutral fuels, creating carbon sinks and inducing net negative emissions via embodying it in materials or storing it underground). The origin of CO2 can either “from air” via using Direct Air Capture (DAC) technologies or by biogenic sources; both of them have uncertainties related to its learning potential and maximum availability potential, respectively. For the production of hydrogen, similar modelling considerations as in the previous case apply. A model able to represent effectively this strategy should have a rich technology database that explicitly includes the major pathways for the production of synthetic fuels; in turn populating such a database is a difficult and time-consuming exercise given the uncertainty regarding the learning potential of the various technologies. Ideally, a model should be in a position to optimise of the location of clean-fuel production facilities in Europe or elsewhere, as it is more likely that such commodities will be traded extensively.

The analytical assessment, which has provided input to the “Clean Planet for All” strategy by the European Commission in November 2018, has confirmed that a carbon-neutral EU economy by mid-century (2050) is viable both from a technological but also an economic perspective, should a number of key technologies evolve as anticipated. The analysis should be perceived as the first step of a complex assessment procedure to bolster the decision-making process regarding the definition of the EU’s long term energy and climate strategy.

Next steps should focus on the assessment of several uncertainties associated with the various pathways studied. For instance, emphasis should be given to identifying the appropriate policy instruments that could be used to materialise the emergence of technologies and energy carriers as long-term visibility of future markets is crucial for their deployment. The characteristics and costs of several disruptive technologies are also worthy of further research with emphasis on the potential of learning and economies of scale. The modelling and data improvements to be realised in INNOPATHS will enhance the model representation of disruptive options and sectoral transformation, and will enable further improvement of the design of deep decarbonisation pathways.

For more information on the analytical work behind the “Clean Planet for All” communications, please click here.

Ratcheting up policy stringency through sequencing

While in the EU the past decade can be characterized mostly by getting climate policies into place and refining them, the challenge ahead for the next decade is to substantially increase their stringency. In the first decade of this century, many of the policies considered to become the backbone for achieving these targets were developed and implemented. First of all the EU’s Emission Trading Scheme became operational in 2005, although with very weak reduction targets and primarily to achieve the Kyoto protocol obligations. In 2008 the EU adopted the 2020 climate & energy package, which entailed relatively modest targets for GHG emission reductions, renewable energy use, and energy efficiency. Around ten years later the ETS is expected to have overcome its long lasting “prices crisis” (in the wake of the 2018 reform), CO2 emission standards for cars and trucks are being tightened, and a new governance mechanisms for renewable support with complementary EU mechanisms has been agreed upon as part of the “Clean Energy for All Europeans” package.

Yet the targets of the next decades are considerably more ambitious and require even more stringent policies. For the EU Long Term Strategy, a number of scenarios were developed that project the achievement of the 2030 targets as agreed in June 2018, and aim at long-term emission reductions of at least 85% by 2050 (from 1990 levels). While these scenarios are underpinned by a range of assumed policies, it is by no means clear that these policies can be implemented and ratcheted up as needed. For instance, the current price in the EU ETS – even though it has quadrupled in the last two years – still seems to be far away from driving decarbonization in the power and industry sectors at the rate required. A core question is thus: how must policies be designed in order to allow for such ‘ratcheting’?

Climate policies as sequences that can overcome barriers to higher ambition
In recent work (Pahle et al) we examined how climate policy today may be effectively designed to lay the groundwork for more stringent climate policy in the future—what we call policy ‘sequencing’. Such advance thinking is essential, because as the Roman emperor and philosopher Marcus Aurelius put it: “the impediment to action advances action. What stands in the way becomes the way.”

The core mechanism is illustrated in the figure below: the effects of policies implemented at an initial stage (t1) remove or relax stringency barriers over time so that policymakers can ratchet up stringency at the subsequent stage (t2).

In this work we also identify at least four categories of barriers: costs (both due to the cost of new forms of decarbonization technology, and due to the economic costs of more or less efficient policy choices); distributional effects (the winners and losers of any specific climate policy choice); institutions and governance (where capacity limits and veto points might prevent the enactment of more stringent policy) and free-riding concerns (where some jurisdictions may not adopt climate policies in the hope of free-riding off of the climate policy achievements of other jurisdictions). After exploring ways in which those barriers might be reduced or eliminated, we finally draw on the cases of Germany and California to provide specific examples of how sequencing works.

Applying sequencing to strengthen the EU ETS.
The concept of sequencing is not only a useful approach for explaining what has enabled ratcheting in the past – it can also be used strategically to design current and future policies. In the following we apply the sequencing framework to the EU ETS to illustrate the concept and discuss implications for policy choices. A first aspect is that strong myopia of market participants could lead to persistently lower ETS price, which eventually might rise sharply towards the end of the next trading period (“hockey stick”). Such a sharp rise would face strong political opposition, possibly jeopardizing the ratcheting up of the policy. A remedy could be a minimum carbon price, which would balance prices over time as described for example by Flachsland et al.

Overcoming the waterbed effect
In a similar vein, the EU ETS has long been challenged by the problem of overlapping policies on the national level, which reduce demand for certificates, thus depressing ETS prices, and thereby inducing the ‘waterbed effect’ that other countries emit more. Again, a minimum carbon price could alleviate this problem, an EU-wide minimum price seems to be politically infeasible at least in the near future. Suitable policy sequencing could over time reduce this barrier. For example, recent work (Osorio et al) with a focus on the German coal phase out, examined how a coalition of ambitious countries could implement such a price floor to reduce the short-term waterbed effect. In order to prevent leakage to future trading periods, they would have to cancel allowances equivalent to the level of additional mitigation the price floor would induce – an option that was made more prominent in the last reform of the ETS,. Such a coalition could grow over time and eventually create a majority to also implement a carbon price floor in the full EU ETS.

Professor Benjamin K. Sovacool authors Visions of Energy Futures: Imagining and Innovating Low-Carbon Transitions

INNOPATHS consortium member, Professor Benjamin K. Sovacool has authored a recent book entitled, Visions of Energy Futures: Imagining and Innovating Low-Carbon Transitions, that uses INNOPATHS initial work and findings.

This book examines the visions, fantasies, frames, discourses, imaginaries, and expectations associated with six state-of-the-art energy systems—nuclear power, hydrogen fuel cells, shale gas, clean coal, smart meters, and electric vehicles—playing a key role in current deliberations about low-carbon energy supply and use.

Visions of Energy Futures: Imagining and Innovating Low-Carbon Transitions unveils what the future of energy systems could look like, and how their meanings are produced, often alongside moments of contestation.

Read more about it here.

INNOPATHS initial findings presented at the 24th Conference of the Parties

Dr Elena Verdolini from the RFF-CMCC European Institute on Economics and the Environment and INNOPATHS Work Package Leader, presented initial results from the INNOPATHS project, explaining how this project aims to work with key economic and societal actors to generate new, state-of-the-art low-carbon pathways for the European Union. This presentation was part of a side event on ‘energy decarbonisation & coal phase out: financial, technological and policy drivers’ at the COP24 in conjunction with Carbon Tracker, WWF Poland and CEE Bankwatch Network.

This presentation was structured around three key INNOPATHS outputs. First, the “Technology Matrix”, an online database presenting information on the cost of low-carbon technologies and their performance, including both historic and current data, and future estimates. The key feature of this database is the collection of a wide variety of data from different data sources, and the computation of metrics to measure the uncertainty around values. The matrix will thus contribute to mapping technological improvements (and associated uncertainty) in key economic sectors, including energy, buildings and industry. It will show that many low-carbon technologies options are available in certain sectors, but also the specific technological gaps characterizing many hard-to-decarbonize sectors, including aviation, or energy-intensive manufacturing sectors such as chemicals and heavy metals. For these technologies, additional and dedicated Research, Development, Demonstration and Deployment funding will need to be a priority.

The second key output is the “Policy Evaluation Tool”; an online repository of evidence on the effect of policy interventions against key metrics, such as environmental impact (i.e. emission reductions), labour market and competitiveness outcomes. The tool will become a repository of evidence on what approaches and policy instruments work, or do not work, helping policy makers to understand how best to achieve various goals related to the energy transition.

The third key output are insights from INNOPATHS researchers focusing on the financing of the decarbonization process. First, similarly to the process of industrial production, financing costs benefit from “learning-by-financing”, as lenders develop in-house abilities and experience in the selection of renewable energy projects. Second, researchers focus on the importance that public investments can play in signaling change and promoting a shift of investments away from fossil and towards low- and zero-carbon technologies. In this respect, public banks are crucial actors, which can act as catalysts for private investments.

Find out more about the conference 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.