Innovation Policies to Support Low-Emissions Development

1. Innovation Policies to Support Low-Emissions Development Prof. Nathan Hultman University of Maryland School of Public Policy World Bank Institute September 26, 2012

2. 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.

4. 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

7. Which will push battery technology forward? Both! Tesla Roadster in California Electric Scooters in Asian city High tech, high cost, small market Low tech, low cost, large demand

8. 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

9. The Role of Government

10. An Example:Four Energy Challenges

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

12. Benefits arise in many development contexts Middle Income Countries Less Developed Countries

13. Benefits arise in many development contexts 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. Middle Income Countries Less Developed Countries

14. 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 Middle Income Countries Less Developed Countries

15. Example: Green growth and innovation in the energy sector Key Technology Areas End-Use Energy Efficiency Renewables End-Use Fuel Switching Power Generation Efficiency and Fuel Switching Advanced Technologies under Development

16. Example: Green growth and innovation in the energy sector Key Technology Areas Based on the simple concept of using less energy to provide the same level of output or perform the same task End-Use Energy Efficiency Renewables End-Use Fuel Switching Power Generation Efficiency and Fuel Switching Advanced Technologies under Development Credit: Karen Doherty, Ohio Department of Development

17. Example: Place of green innovation in the energy sector Key Technology Areas Includes a variety of technologies including solar, wind, biomass, hydro, and geothermal End-Use Energy Efficiency Renewables End-Use Fuel Switching Power Generation Efficiency and Fuel Switching Advanced Technologies under Development © Dana Smillie / World Bank

18. Example: Green growth and innovation in the energy sector Key Technology Areas Choosing the most appropriate energy carrier to supply a given end use while minimizing primary energy consumption End-Use Energy Efficiency Renewables End-Use Fuel Switching Power Generation Efficiency and Fuel Switching Advanced Technologies under Development

19. Example: Green growth and innovation in the energy sector Key Technology Areas Increasing efficiency of power plants and switching to cleaner fuels End-Use Energy Efficiency Renewables End-Use Fuel Switching Power Generation Efficiency and Fuel Switching Advanced Technologies under Development

20. Example: Green growth and innovation in the energy sector Key Technology Areas End-Use Energy Efficiency Renewables End-Use Fuel Switching Power Generation Efficiency and Fuel Switching New Technologies – Advanced and “Mundane” Brazil Pres. Lula driving VW Gol, first production gas/ethanol vehicle, Brazil 2003

21. Policies to Support Green Innovations

22. Green growth benefits from complementary policies Source: Sierra, Hultman, & Shapiro

23. Green growth benefits from complementary policies Source: Sierra, Hultman, & Shapiro

24. Innovation policies for promoting frontier innovation • Policy instruments for innovation Innovation policies Promote frontier innovation Strengthen adaptive innovation Improve absorptive capacity Strengthen international collaboration

25. Innovation policies for promoting frontier innovation Demand side “market pull” Supply side “technology push” • Public funding to labs and universities • 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 Provide Research Grants • Tax credits for energy research Strengthen national research systems Early stage development finance

26. Innovation policies for promoting frontier innovation Demand side “market pull” Supply side “technology push” • Public funding to labs and universities Provide Research Grants 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. • Tax credits for energy research Strengthen national research systems Early stage development finance

27. Innovation policies for promoting frontier innovation Demand side “market pull” Supply side “technology push” • Public funding to labs and universities • 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. Provide Research Grants • Tax credits for energy research Strengthen national research systems Early stage development finance

28. Demand side “market pull” Supply side “technology push” • Public funding to labs and universities • 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 Provide Research Grants • Tax credits for energy research Strengthen national research infrastructure Early stage development finance

29. Innovation policies for promoting frontier innovation Demand side “market pull” Supply side “technology push” • Public funding to labs and universities Angels and Venture Capital firms Provide Research Grants • Tax credits for energy research Strengthen national research systems Early stage development finance Policies to support business incubators

30. Promoting BOP innovation for LED Dedicated international VC funding and risk capital for developing country start-ups, Allowing firms to access national, regional and global supply chains Training for developed country firms in understanding BOP needs, conducting demonstration tests Market Deployment Special support to small and medium enterprises Prize funds Government-funded R&D, compulsory licensing, patent pools bilateral and multilateral market access agreements, applied research networks

31. Role for both domestic and international policy Direct Support Indirect Support • 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 Source: Sierra, Hultman, & Shapiro

32. National Innovation Ecosystem Innovation climate Macroeconomic environment Natural capital Development Research Demonstration Diffusion Market formation Institutional structures Policies Skills and capabilities International Technological collaboration New energy technologies and processes Source Modified from WESS 2010

33. Strengthening Innovation Adaptive innovation requires policies that Facilitate access Stimulate uptake

34. Strengthening Innovation • 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) Regulations Improve financial infrastructure Public Procurement Standards

35. Strengthening Innovation Stimulate the uptake of technologies Regulations • 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 Improve financial infrastructure Public Procurement Standards

36. Strengthening Innovation Stimulate the uptake of technologies Regulations Improve financial infrastructure • 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 Public Procurement Standards

37. Strengthening Innovation Stimulate the uptake of technologies Regulations Improve financial infrastructure Public Procurement • Guarantees to foster markets of green energy • Generate green jobs in the energy sector Standards

38. Policy Strategies to support Green “Innovation Ecosystems”

39. Framework for National Innovation Policies Mature technologies (Hydropower) Low-cost gap technologies (Wind onshore) Market Deployment Highcost-gap technologies (PV) Prototype & demonstration stage Market formation Diffusion Research Demonstration Development 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 Support R&D through funding, tax credits, grants, sticky city policies, global connectivity of firms National Procurement University networks, Science centers, patent collaboration The Kyoto Technology Mechanism Trade and FDI CDM projects International Source: OECD/IEA 2008

40. Regional Science Foundations National Business Incubators Investment De-risking Funds Public Labs Academic Institutes Private Labs Fund 1: Risk capital Entre- preneurs Start-ups Fund 2: IP Sharing NGOs, think tanks Universities Project developers IP developers Non-profit IP buyers Services provided: • Business plan assistance • Market intelligence • Access international venture capital • Fundraising & pitch training • IP training & policy advisory • Office space • Networking facilitation • Tech transfer assistance • Regional priority setting • Research funding • Cooperative / Extension programs • Scholarship / Fellowship funding • Curriculum design support • International scientific and entrepreneurial “study abroad” • 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 Demonstration Development Deployment Source: 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

42. Further Readings 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, Pelinand 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, MatthieuGlachant, Ivan Hascic, Nick Johnstone, and YannMénière. (2011) Invention and transfer of climate mitigation technologies on a global scale: a study drawing on patent data.

44. Kathy Sierra and Allison Shapiro (Brookings Institution) • Pablo Benitez, Alex Bozmoski, and Amanda Jerneck (World Bank) Acknowledgments

45. Contact Dr. Nathan E. Hultman Assoc. Professor & Director, Environmental Policy Program School of Public Policy, University of Maryland Nonresident Fellow, The Brookings Institution hultman@umd.edu