Science and technology policy instruments for eco-innovation

1. Science and technology policy instruments for eco-innovation Directorate for Science, Technology and Industry Daniel Kupka 28 May 2013, Geneva Workshop Standardization and the International Transfer of Sustainable Technologies

2. WHY (eco-) innovation

3. Challenges are so big that we can’t afford expensive solutions – we are up against time and inertia so need (lots of) innovation The need for green innovation

4. More than just technological Innovation! Source: OECD

5. What role for Policy in driving GREEN innovation?

6. Can the market not solve the problem? • Market forces provide insufficient incentives for the development and diffusion of green innovations Potential Explanations • Market failure explanations • Information Problems (e.g. Lack of information, asymmetric information) • Energy Market Failures (e.g. dominant patterns , externalities) • Innovation Market failures (e.g. R&D spillovers) • Capital Market failures (e.g. liquidity constraints) • Behavioural failures (e.g. resistance to adapt technologies)

7. OECD’s Green Growth Strategy Source: OECD (2011), Towards Green Growth

8. Tools for delivering on green innovation

9. Tools for delivering on green innovation • Getting framework conditions right for innovation - “a rising tide lifts all boats” • macroeconomic policy, competition policy, openness to international trade and investment, fiscal policy, etc. • General innovative capacity and market conditions are often the most important determinants • Getting prices right – “price or market-based-environmental policies” • e.g. carbon pricing or cap and trade systems

10. Getting prices “right” is important… Swedish NOx tax Patents increased; emission intensities declined; Marginal Abatement Costs fell Swiss VOC tax Firms were quite innovative and found many solutions involving changes in organisational and production practices that did not result in patenting of technologies Graph based on: Hoglund-Isaksson (2005) cited in OECD (2011) Taxation, Innovation and the Environment; based on observations from 55 plants in the energy sectors over the period 1992-1996

11. …but not sufficient Sometimes difficult to target environmental ‘bad’ directly and excessive administrative costs Range of other ‘non-environmental’ market and system failures; Inertia in the market can favour incumbent firms, technologies and systems

12. Tools for delivering on green innovation • Getting framework conditions right - “a rising tide lifts all boats” • macroeconomic policy, competition policy, openness to international trade and investment, fiscal policy, etc. • General innovative capacity and market conditions are often the most important determinants • Getting prices right – “price or market-based-environmental policies” • e.g. carbon pricing or cap and trade systems • “Dedicated” Science, Technology and Innovation (STI) Policies

13. Science, Technology and Innovation (STI) Policies for green innovation

14. STI Policy priorities and strategies for green innovation • National and ministerial priorities and strategies serve to catalyse efforts around common goals and visions • Few take whole government approach on green innovation: mainly environmental or energy ministries or specific agencies • Five-Year-Plan for Green Growth (Korea), Clean Energy Future Plan (Australia), Ambition Ecotech 2012 (France), CleantechMasterplan and Energy Strategy 2050 (Switzerland) • Expressed through quantitate objectives, sectoral and science initiatives and various STI policy instruments • Supply-side policies: generate new knowledge • Demand side-policies: creating market opportunities

15. Supply-side technology and innovation policies Funding and management of “green” research at the level of research institutions

16. Public spending on energy and environmental R&D has not kept pace Source: OECD R&D database

17. … but green innovation draws on a broad range of research

18. Supply-side technology and innovation policies • Funding and management of “green” research at the level of research institutions • Public support for business R&D • “targeted” R&D support policies (e.g. US: R&D tax incentives for energy) • Support to SMEs and entrepreneurship (e.g. adjusted to green: US DOE’s SBIR) • Pizes as incentives for private R&D (e.g. H-prizes) • Supply of risk capital

19. Supply-side technology and innovation policies • Skills and infrastructures (e.g. European Energy research alliance) • Networks and partnerships • Support to Clusters (e.g. Finnish Clean Tech Cluster) • Support to Strategic Public-Private Partnerships (e.g. Germany’s Electric Mobility Platform) • Intellectual property regimes • Lower application fees, prioritised and expedited examination • Green Fast Track examination systems in Canada, US, UK, Japan, Brazil, etc.

20. Beyond technology-push: Innovation policies for diffusing green technologies In fostering markets, in particular in areas where price-based measures (e.g. carbon taxes) are ineffective or insufficient • Public procurement of innovation (e.g. performance-based Green Public Procurement) • Regulation (i.e “command-control and market-based regl. and standards) • Standards (limited role for governments) • Consumer policies (e.g. Green Guides) • Adaption and deployment policies (e.g. fiscal and financial incentives for green vehicles, demonstration projects, feed-in tariffs) • Potential conflict with WTO rules • Cost-effective?

21. STI policy at the international dimension • Coordination and harmonisation of priorities and research agendas • Co-operative R&D in international networks and funding commitments • International exchange of scientific and technical information • Closer to market: setting global standards For developing countries • The role of adaptive R&D and int. technology transfer to fit technologies to local conditions • Disembodied technology transfer ->education and training • Embodied technology transfer -> funding to cover costs of adaption (development assistance)

22. STI Policy implications and challenges

23. Implications for STI policy • Direct STI policy is necessary, but not sufficient • Providing a mix of incentives that induce solutions from ‘close-to-market’ up to ‘breakthrough’

24. The Need for a Mix of Policies:The relative impact of different policies Note: For ease of interpretation elasticities have been normalised such that effect of R&D=1. Unfilled bars indicate no statistical significance at 5% level. Source: OECD (2011) Invention and Transfer of Environmental Technologies.

25. Implications for STI policy • Direct STI policy is necessary, but not sufficient • Providing a mix of incentives that induce solutions from ‘close-to-market’ up to ‘breakthrough’ • Providing policy predictability in conditions of imperfect and changing information

26. Clear Policy signals help Source: Haščič, I. et al. (2010), “Climate Policy and Technological Innovation and Transfer: An Overview of Trends and Recent Empirical Results”, OECD Environment Working Papers, No. 30 http://dx.doi.org/10.1787/5km33bnggcd0-en

27. Implications for STI policy • Direct STI policy is necessary, but not sufficient • Providing a mix of incentives and policies that induce solutions from ‘close-to-market’ up to ‘breakthrough’ • Providing policy predictability in conditions of imperfect and changing information • Breakthroughs emerge increasingly from multi- and interdisciplinary research • Apollo- or Manhattan-like projects can suppress innovation • The effectiveness of depends on strong science-industry collaborations

28. ChallengesforPolicy-makers STI Governance Directing technological change onto a green trajectory without being “unduly” prescriptive

29. Source: IEA (2010), Energy Technology Perspectives

30. STI Governance Directing technological change onto a green trajectory without being “unduly” prescriptive Building international cooperative solutions for environmental problems which stretch widely across space and time

31. THANK YOU For further information: www.oecd.org/greengrowth or daniel.kupka@oecd.org