Enhancing Global Climate Technology RD&D

1. Enhancing Global Climate Technology RD&D Annelène Decaux Global Climate Change Research EPRI Climate Talk Series Climate Change Kiosk UNFCCC COP 9, Milan December 5, 2003

2. Enhancing Global Climate Technology RD&D The climate change challenge and current energy RD&D trends Some key elements for implementing an energy technology RD&D regime

3. The time scale of the climate problem

4. The climate technology RD&D challenge • Climate change is a problem of unprecedented scope: century-scale, massive risks, “public good” nature, global • “Technology is the answer”: • Responding to the climate change challenge means widespread deployment of low- and non-carbon energy systems • These systems do not currently exist on a commercial scale • Higher levels of RD&D investment than today are needed • Why act now? • Energy R&D takes time – typically, decades (e.g. carbon sequestration project = 10-20 years) • Energy capital stock is long-lived – typically, 50+ years • It is not just the technology, it is the infrastructure (e.g. hydrogen) • Overall, it takes approximately 50 years for energy technologies to become dominant in the economy (e.g. automobile)

5. Current investment in energy R&D that could reduce the cost of stabilization are inadequate Total public energy R&D, OECD countries Source: IEA, 2001

6. … and inconsistent Total public energy R&D, OECD countries Source: IEA, 2001

7. Energy R&D decline continues • Most industrialized countries are cutting public sector energy R&D budgets in real terms as well as in % of overall R&D • Total world energy R&D expenditure = $7.4B (US: $3.75B), vs Daimler/Chrysler $8.4B (3.8%) Microsoft $3.8B (16.4%) Cisco Systems $4.7B (21.5%) Pfizer Corp $2.9B (10.1%) Intel Corp $3.95B (11.9%) • No sustained commitment to non- or low-carbon technologies • Nuclear R&D declining across the industrialized world • Solar, wind and efficiency program funding declining in the US, Germany and Canada • Investment has grown in some key climate technology areas, but remains relatively small ($10’s of millions): • Energy efficiency: most of the growth • Hydrogen and fuel cell research: from nothing to some • Carbon capture and sequestration: growing but still less than 5% of total public energy R&D budget

8. Trends in private RD&D are no different • Private sector is also cutting funding, due in large part to deregulation, liberalization, and consolidation of energy industries • Lowest R&D / Sales ratio of any industry: • 0.3% for energy sector (0.1% for electricity sector) • vs 3.9% for industry on average (source: NSF) • Long term research time frames contracting • Most investment decisions down to business unit level • Initiation of advanced power generation R&D programs (e.g. fuel cells) not feasible under these conditions • Concentration: • E.g. in US, 69% of all industrial energy RD&D is conducted by the 12 largest companies (> 25,000 employees) • and 97% by 37 large companies (> 1,000 employees)

9. US example Energy R&D in the US, 1990-2000 • Since 1990: • Federal energy R&D fell by ~25% • Private energy R&D by ~63% • Since 1996: • Hydrogen research program has grown ~83% (to $28M) • Superconductor and electricity storage program has doubled (to $68M) • Biomass program has grown ~30% (to $116M) • Nuclear fission R&D has fallen ~30% (to $78M) Source: Battelle GTSP, 2003

10. What about international climate change RD&D cooperation? • Very little cooperation so far, and mostly review/coordination role only, e.g IPCC (reviewing role only), OECD Global Science Forum, IEA GHG project • Energy R&D is uncoordinated across countries • Duplication of efforts, missed opportunities, diseconomies of scale • Why? Competitive concerns: cooperation only justified for very large, capital-intensive, not commercializable research topic (e.g. ITER – nuclear fusion) • Kyoto Protocol has not provided impetus for more or coordinated energy R&D – in fact, the issue is not addressed • 96% of the world’s public (i.e. long term) energy R&D in only 9 countries • UN may not the right forum for implementing an energy RD&D regime: what forum?

11. Enhancing Global Climate Technology RD&D The climate change challenge and current energy RD&D trends Some key elements for implementing an energy technology RD&D regime

12. 1. Use the right combination of policy instruments: “market pull” vs “technology push” • “Innovation failure”: Emissions mitigation measures are not enough to promote private and public sector investment in emerging technologies • especially if they do not provide long-term objectives • Pushing technology RD&D is not enough either • Better / cheaper approach = combination of “market pull” and “technology push” measures • Technology push measures provide automatic incentives for participation and compliance • while emissions mitigation strategy is often criticized for not providing such incentives, e.g. concerns over Kyoto “leakage” effects

13. A few examples of “technology push” measures • Raise carbon tax or equivalent to fund public RD&D • Increase IP protection (patents) • Encourage industry research consortia (EPRI, GRI) • Incentivize private sector R&D through: direct funding, subsidies, government/industry consortia, private sector matching funding • Focus on RD&D that stimulates strong private sector participation • Focus on technologies that bring broader public benefits • E.g. air quality, cheaper electricity, sustainable development • Communicate effectively on RD&D investment choices

14. 2. Understand what is in the “RD&D black box”3. Identify financing mechanisms • Get broad understanding of what is in the RD&D “black box”, i.e. for each technology, investigate and communicate its: • Technical potential = chance of success, time frame, environmental performance, ancillary costs and benefits • Market potential = chance of being funded and deployed (involves analysis of market trends and psychology) • Cost • Barriers to commercial deployment, often a cause for failure for deploying large-scale systems (environmental acceptability, security, infrastructure, complexity) • Draw RD&D roadmaps • Identify mechanisms to finance long-term key technology RD&D and enable public and/or private funding

15. 4. Re-define Public / Private roles • Public / Private sector traditional roles: • Re-defined leadership roles in Public / Private partnerships:

16. 5. Facilitate international cooperation and enable technology transfer • Put in place new institutional arrangements: what is the right forum? • Identify good candidates for international RD&D programs: • E.g. carbon sequestration: international cooperation most welcome • Hydrogen production: US – EU have announced cooperation • Carbon capture (IGCC etc), biotechnologies and fuel cells: not so good candidates (very competitive, IP concerns) • Enabling technology transfer: • CDM / JI (indirect) mechanisms • Develop effective institutions to directly incentivize transfer of new energy technologies? • Private companies, not governments, own commercial technologies

17. Effective technology transfer will make the difference in the success of a UN agreement FirstCommitment Period Zero Spillover Scenario 14,000 12,000 Developing Country Emissions 10,000 Intermediate Spillover Scenario 8,000 Carbon Emissions (MTCpa) 6,000 Maximum Spillover Scenario 4,000 2,000 Industrialised Country Emissions (Kyoto -1% pa) Source: Grubb, Hope and Fouquet, in Climatic Change, 2003

18. Key points • Energy R&D expenditures are small by most metrics and still declining • Especially, climate “gap” technologies are languishing • Investment choices reflect current incentive structure and policies • Indirect incentives alone (e.g. creation of a carbon market) are likely to fail to stimulate critically needed technology development • Kyoto Protocol is silent on energy technology development • UN may not be the right forum for implementing an energy RD&D regime, given energy RD&D concentration among industrialized countries and large firms • Elements that could speed implementation of an energy technology RD&D regime include: • Right combination of push and pull policy levers • Understand what is in the “RD&D black box” • Identify mechanisms to finance long-term key technology RD&D • Emphasize public/private partnerships and re-define public/private roles • Put in place new institutional arrangements to facilitate international cooperation and address technology transfer