At the beginning of last year’s COP in Paris, political leaders from twenty countries came together to announce Mission Innovation, a commitment to double publicly funded Research & Development (R&D) into low-carbon energy alternatives over the course of the next five years. Together with its private sector counterpart, the Breakthrough Energy Coalition, this effort gives an unprecedented role to energy innovation policy, particularly noteworthy in the context of international climate policy, which has traditionally focused on emission targets and carbon pricing. This post will argue that Mission Innovation provides an essential addition to the climate and energy policy mix that should receive far more attention in the future.
I Why bother? Does Mission Innovation matter in the energy policy mix?
With much of the climate debate focusing on carbon pricing or subsidies for renewable deployment (such as feed-in-tariffs in Germany driving the Energiewende or the Renewable Energy Production Tax Credit (PTC) in the US), one might wonder why the strengthening of a third element – energy innovation policy – should be crucial in tackling the climate challenge (see Figure 1 visualising the triangle of instruments).
Estimates for the optimal ratio of RD&D to deployment subsidies for wind/other renewables and solar suggest that at least one third of spending should be devoted to explicit RD&D in order to optimally induce innovation. In comparison, actual RD&D spending in the six largest European economies in 2010 in comparison to the total of RD&D and deployment subsidies was close to only 0.01%.
As a recent report from the Grantham Institute at the LSE citing these numbers in the analysis of policy choices put it, the “marginal euro [...] spent on low-carbon technologies should go to R&D [e.g. innovation policy such as Mission Innovation] rather than deployment [such as feed-in-tariffs].”
In other words, since innovation has been so neglected compared to deployment and explicit R&D support is much more effective inducing innovation than deployment, an increase in funding for innovation policy will have a much higher impact than increased subsidies for low-carbon deployment (estimates vary across analyses and stages of technological maturity, but the effect can be huge, as illustrated by Figure 2 showing estimates for the case of wind).
As innovation policy is likely to be neglected by both fossil fuel industry interests as well as the interests of existing renewable technologies, and many of its likely beneficiaries (companies and entrepreneurs profiting from innovation support) are diffuse and in the future, it is of utmost importance that those concerned with climate change and clean energy for non-economic reasons aggressively push for the realisation of Mission Innovation to achieve the decarbonisation objectives so important to us.
Data sources of graphics
Fischer, Carolyn, Richard G. Newell, and Louis Preonas. (2013) "Environmental and technology policy options in the electricity sector: Interactions and outcomes." RFF DP 13-20. http://www.rff.org/files/sharepoint/WorkImages/Download/RFF-DP-13-20.pdf
Zachmann, Georg, Amma Serwaah-Panin, and Michele Peruzzi. "When and How to Support Renewables?—Letting the Data Speak." Green Energy and Efficiency. Springer International Publishing, 2015. 291-332. http://link.springer.com/chapter/10.1007/978-3-319-03632-8_12