+ Innovation Policies to Support Low-Emissions Development Prof. Nathan Hultman University of...

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Innovation Policies to Support Low-Emissions Development

Prof. Nathan HultmanUniversity of Maryland School of Public Policy

World Bank InstituteSeptember 26, 2012

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Why green innovation?

3+Rio+20: “Green economy in the context of sustainable development and poverty eradication”Sustainable development emphasizes a holistic, equitable and far-sighted approach to decision-making at all levels. It emphasizes not just strong economic performance but intragenerational and intergenerational equity. It rests on integration and a balanced consideration of social, economic and environmental goals and objectives in both public and private decision-making. The concept of green economy focuses primarily on the intersection between environment and economy. This recalls the 1992 Rio Conference: the United Nations Conference on Environment and Development.

+Green Growth Goals: Decoupling Environmental Impacts andGrowing the Economy

5+Innovation and the development / environment agenda

New, cheap applications of existing technology

Resurrections of old ideas in a new context

Integration of several existing technologies to serve an under-tapped market

Utilizing new business models to provide services

6+Solar LED flashlight

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Which will push battery technology forward?

Tesla Roadster in California Electric Scooters in Asian city

High tech, high cost, small market Low tech, low cost, large demand

Both!

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Which will provide broader benefits now?

Tesla Roadster in California Electric Scooters in Asian city

High tech, high cost, small market Low tech, low cost, large demand

+The Role of Government

Market Failures provide the rationale for public policies• Examples:

• Environmental externalities• Insufficient investments in clean energy

R&D• Market power (monopolies etc.)• Lack of information

Implication: Green technologies can benefit from policy

10+An Example:Four Energy Challenges

Energy Security

Economic Growth

Energy Access

Climate Change

+ Is it possible to achieve the four energy goals? Yes.

Energy Innovation• New and less expensive

technologies• New markets

Energy Implementation• Clear, credible, and long-

term policy

Energy Integration• New models of

production, consumption, behavior, & business

Energy Transformation• Access to clean energy

services• Development and

economic well-being

Green Growth

+Benefits arise in many development contexts

Less Developed Countries

Middle Income Countries

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Middle income countries’ economies are expanding quickly. At this stage, a green growth strategy can bring essential elements for development, such as support for energy efficiency, enhanced access to renewables, efficient mass transport systems, development of clean technology and others.

Benefits arise in many development contexts

+Benefits arise in many development contexts



One of the priorities for many less developed countries is energy access (insert textbox link with graphic).

Problem: How can low income countries in the Sub-Sahara bring electricity to remote, isolated communities?

Solution: The Lighting Africa program is developing commercial off-grid lighting markets in Sub-Saharan Africa to provide off-grid lighting to 2.5 million Africans by 2012 and to 250 million Africans by 2030

http://www.lightingafrica.org/

http://www.lightingafrica.org/

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End-Use Energy Efficiency

Power Generation Efficiency and Fuel Switching

Renewables

End-Use Fuel Switching

Advanced Technologies under Development

Key Technology Areas

Example: Green growth and innovation in the energy sector

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Renewables



Based on the simple concept of using less energy to provide the same level of output or perform the same task


Credit: Karen Doherty, Ohio Department of Development


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Renewables



Key Technology AreasIncludes a variety of technologies including solar, wind, biomass, hydro, and geothermal

© Dana Smillie / World Bank

Example: Place of green innovation in the energy sector

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Renewables



Key Technology Areas Choosing the most appropriate energy carrier to supply a given end use while minimizing primary energy consumption


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Power Generation Efficiency and Fuel

Switching

Renewables



Key Technology AreasIncreasing efficiency of power plants and switching to cleaner fuels


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Renewables


New Technologies – Advanced and

“Mundane”


Brazil Pres. Lula driving VW Gol, first production gas/ethanol vehicle, Brazil

2003


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+Policies to Support Green Innovations

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Policy Option

s

Innovation

Regulations and

Standards

Price Instruments

Quantity Instruments

International

Cooperation

Green growth benefits from complementary policies

Source: Sierra, Hultman, & Shapiro

+Policy instruments for

innovation

Innovation policies

Promote frontier

innovation

Strengthen adaptive innovation

Improve absorptive capacity

Strengthen internation

al collaboratio

n

Innovation policies for promoting frontier innovation

+Supply side “technology

push”

Strengthen national research systems

Provide Research Grants

Tax credits for energy research

Public funding to labs and universities

Early stage development finance

The traditional supply-push mechanism:• More influence over research• Select participants to projects

IEA estimates: $1 trillion per year until 2050 in 17 key technologies

Demand side “market pull”



push”






Government donations to universities or individuals to undertake research in the energy field.

Benefits: easy to target specific sectors of the energy field and also include requirements of social co-benefits.

Weakness: does not ensure commercialization, as it only affects early stages in the technology cycle.




push”






Tax reductions to entities that undertake desirable research and innovation activities.

• Helps stimulating corporate investment in energy projects

• Allows firms to choose the most profitable research opportunities

But: may promote distorting tax avoidance rather than productive investment in countries with a weak tax enforcement system.




push”

Strengthen national research infrastructure





Objective assessment of the national research system in order to improve it, including:

• Develop a national research and innovation strategy for the energy sector and national priority setting

• Work with industrial partners and international donors

• increase access to scientific information

• Establish centers of excellence for clean energy research

• Create programs for entrepreneurship and innovation

• Improve remuneration• of researchers



push” Demand side “market pull”






Angels and

Venture Capital firms

Policies to support business incubators


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Dedicated international VC funding and risk capital for

developing country start-ups,

Training for developed country firms in

understanding BOP needs, conducting demonstration

tests

Government-funded R&D, compulsory licensing, patent pools bilateral and multilateral market access agreements, applied research networks

Allowing firms to access national, regional and global supply chains

Prize funds

Market

Deployment

Special support to small and medium enterprises

Promoting BOP innovation for LED

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Role for both domestic and international policy

Applied research networks

Advanced Market Commitments

Patent Commons

Patent pools / cross-licensing

agreements

Challenge / prize programs

Business acceleration centers

Joint R&D partnerships

R&D

Procurement / Price support

Basic research networks

Business education at technical universities

Country green growth rankings

International standard setting agreements

Global or regional science foundations

International Green Growth Challenge

Corporation*

Enterprise worker discovery programs

Scholarships, fellowships

Idea marketplaces

Direct Support Indirect Support

Source: Sierra, Hultman, & Shapiro

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Research DemonstrationDevelopment Market formation

Diffusion

Innovation climate

New energy technologies and

processes

Skills and capabilities

Macroeconomic environment Natural

capital

Policies Institutional structures

International Technological collaboration

Source Modified from WESS 2010

National Innovation Ecosystem

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Facilitate access

Stimulate uptake

Adaptive innovation requires policies that

Strengthening Innovation

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Improve financial infrastructure

Public Procurement

Standards

Regulations• Guaranteed feed-in tariffs for renewables• Taxes and tradable permits for emissions pollution• Tax credits for new technologies (e.g. for compact fluorescent light bulbs)• Government rules (e.g. limits to polluting emissions from industrial plants)


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Public Procurement

Standards

Regulations

Stimulate the uptake of technologies

• Improve quality of the business environment and governance conditions• Improve the bureaucratic climate and the formal/informal regulations regarding economic transactions• Shorten official licensing procedures for entrepreneurial activity


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Public Procurement

Standards

Regulations


• Help firms to reduce the early stage production costs • Motivate new companies to enter the clean energy market• Raises awareness among consumers• Lead to economic competitiveness in the energy sector


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Public Procurement

Standards

Regulations


•Guarantees to foster markets of green energy

• Generate green jobs in the energy sector


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+Policy Strategies to support Green “Innovation Ecosystems”

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Source: OECD/IEA 2008

Prototype & demonstratio

n stage

High cost-gap

technologies (PV)

Low-cost gap

technologies (Wind onshore)

Research Development Market formation

Demonstration Diffusion

National

International

Support R&D through funding, tax credits, grants, sticky city policies, global connectivity of firms

Early stage development finance, promote business incubators, VC funding and risk capital, Policies for market re-entry and experimentation, global connectivity of firms

Stimulate market pull through standards, procurement, sticky city policies

Mature technologie

s (Hydropowe

r)

University networks, Science centers, patent collaboration

Mark

et

Deplo

ym

ent

The Kyoto Technology Mechanism

CDM projectsTrade and FDI

Procurement

Framework for National Innovation Policies

40Regional Science Foundations

Regional Science Foundations

National Business Incubators

National Business Incubators

Investment De-risking Funds

Investment De-risking Funds

Academic Institutes

Academic Institutes

Fund 1:Risk capital

Fund 1:Risk capital

Fund 2: IPSharing

Fund 2: IPSharingStart-upsStart-upsEntre-

preneurs Entre-

preneurs

UniversitiesUniversities

PublicLabs

PublicLabs

PrivateLabs

PrivateLabs

NGOs, thinktanks

NGOs, thinktanks

Project developers

Project developers

IP developers

IP developers

Non-profitIP buyers Non-profitIP buyers

Services provided:

• Regional priority setting • Research funding • Cooperative / Extension programs• Scholarship / Fellowship funding• Curriculum design support • International scientific and entrepreneurial “study abroad”

• Business plan assistance• Market intelligence • Access international venture capital • Fundraising & pitch training • IP training & policy advisory • Office space • Networking facilitation• Tech transfer assistance

• Equity and debt instruments to de-risk capital investment in developing countries • Funding to purchase IP from developers• Funding to subsidize patent licensing to non-profit or socially-oriented technology deployment groups

Research Development Demonstration DeploymentSource: Sierra, Hultman, & Shapiro

41+Conclusions: Innovation for Low-Emissions Development

Transformative innovations may not happen in predictable places

Refocus on supporting the diversity of innovation

Domestic: Regulatory and business environment IP Standards National priorities

International: Regional Science Foundations National Business Incubators De-risking funds

+Hultman, Sierra, Shapiro, and Eis, Green Growth Innovation, The Brookings Institution 2012

World Bank (2012) Dutz, Mark and Sharma, Siddarth, Green Growth, Technology & Innovation. Policy Research Working Paper 5932

World Bank (2012) Inclusive Green Growth The Pathway to Sustainable Development. Washington: The World Bank

World Economic and Social Survey 2011, The Great Green Technological Transformation, The United Nations: New York

Tomlinson, Shane, Zorlu, Pelin and Langley, Claire (2008) E3G report launch: Innovation and Technology Transfer: Framework for a Global Climate Deal.

Xiaomei Tan and Zhao Gang. “An Emerging Revolution: Clean Technology Research, Development and Innovation in China.” WRI Working Paper. World Resources Institute, Washington DC.

Sauter, Raphael and Jim Watson, (2008) Technology Leapfrogging: A Review of the Evidence, Sussex Energy Group, University of Sussex, 2008.

IEA (2010) Energy Technology Roadmaps: a guide to implementation, IEA: Paris

Dechezleprêtre, Antoine, Matthieu Glachant, Ivan Hascic, Nick Johnstone, and Yann Ménière. (2011) Invention and transfer of climate mitigation technologies on a global scale: a study drawing on patent data.

Further Readings

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Acknowledgments

• Kathy Sierra and Allison Shapiro (Brookings Institution)

• Pablo Benitez, Alex Bozmoski, and Amanda Jerneck (World Bank)

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Dr. Nathan E. HultmanAssoc. Professor & Director, Environmental Policy ProgramSchool of Public Policy, University of MarylandNonresident Fellow, The Brookings [email protected]

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