Technology Innovation for Climate Mitigation and Its Relation to Government Policies

1. Technology Innovation for Climate Mitigation and Its Relation to Government Policies Edward S. Rubin Carnegie Mellon University Pittsburgh, Pennsylvania Presentation to the UNFCCC Workshop on Climate Change Mitigation Bonn, Germany June 19, 2004

2. Motivating Questions • What kinds of technology innovations are needed to mitigate greenhouse gas emissions linked to global climate change? • What do we know about the process of technology innovation? • How do government actions influence the pace and direction of technology innovation? • What types of policies are needed to stimulate innovations that mitigate GHG emissions? • How does consideration of technology innovation affect climate policy analysis? E.S. Rubin, Carnegie Mellon

3. What technology innovations are needed to mitigategreenhouse gas emissions ?

4. Technology Innovations Neededto Mitigate CO2 Emissions • More efficient technologies for energy conversion and utilization in all end-use sectors (transportation, industry, buildings, agriculture; power generation) • New or improved technologies for utilizing alternative energy sources with lower or no GHG emissions (such as natural gas and renewables) • Technologies for CO2 capture and storage (for large-scale industrial processes like electric power generation and fuels production) E.S. Rubin, Carnegie Mellon

5. Scale of Deployment Needed • To achieve significant CO2 emission reductions, the U.S. alone will have to retrofit or replace: • Hundreds of power plants • Tens of millions of automobiles per year • Hundreds of millions of other end-use devices • Other industrialized and developing countries will have comparable requirements Requires deployment of new technology on a massive scale . . . This will not happen overnight! E.S. Rubin, Carnegie Mellon

6. What do we know about the process of technology innovation?

7. Elements of Technological Change • Invention - discovery; creation of knowledge; new prototypes • Innovation - creation of a commercial product or process • Adoption - deployment and use of the new technology • Diffusion - increasing adoption and use of the technology E.S. Rubin, Carnegie Mellon

8. Adoption Diffusion Innovation Invention The Linear Model of Technological Change E.S. Rubin, Carnegie Mellon

9. A More Realistic Model Adoption (initial design) Diffusion (improved technology) Innovation (new or better product) Invention Learning By Doing Learning By Using R&D E.S. Rubin, Carnegie Mellon

10. How do government actions influence technology innovation?

11. U.S. “Technology Policy” Tools Direct Government Funding of Research and Development (R&D) • R&D contracts with private firms • R&D grants and contracts with universities • Intramural R&D conducted at gov’t laboratories • R&D contracts with consortia (2 or more of the actors above) Direct or Indirect Support for Commercialization and Production; Indirect Support for Development • Patent protection • R&D tax credits • Production subsidies or tax credits to firms bringing new technologies to market • Tax credits or rebates for new technology buyers • Government procurement • Demonstration projects Support for Learning and Diffusion of Knowledge and Technology • Education and training • Codification and transfer of knowledge • Technical standard-setting (non-regulatory) • Technology and/or industrial extension services • Publicity and consumer information • These policies influence different phases of the innovation process • Provide “carrots” to incentivize technological change & innovation E.S. Rubin, Carnegie Mellon

12. Detailed report available at: www. pewclimate.org E.S. Rubin, Carnegie Mellon

13. RD&D 20000 1981 Commercialization 1983 Photovoltaics 10000 USA 1992 Japan 5000 1995 1982 2000 US(1990)$/kW Windmills (USA) 1000 1987 500 1963 Gas turbines (USA) 1980 200 100 1000 10000 100000 10 100 Cumulative MW installed Source: IIASA, 1996 Technology Policies Have Reduced theCost of GHG-Friendly Energy Systems E.S. Rubin, Carnegie Mellon

14. Lessons Learned from Study ofU.S. Technology Policies • To realize the benefits of technology innovation, a balanced policy portfolio must support not only R&D, but also promotetechnology deployment and diffusion of knowledge • Technology innovations cannot be planned or programmed; because outcomes are uncertain, policies should support a suite of optionsand approaches rather than a specific technology or design • Gov’t support for education and training, as well as research, enhances the infrastructure necessary to support innovation • Competition among gov’t programs (as well as R&D performers) contributes to innovation by encouraging diverse approaches • Effective policies and programs require insulation from short-term political pressures that impede steady progress that is critical to long-term innovations E.S. Rubin, Carnegie Mellon

15. What types of policies are needed to foster innovations for CO2 mitigation?

16. Innovation Policies forGHG Mitigation • A combination of technology policies that provide incentives for R&D and deployment, together with environmental policies limiting GHG emissions, can foster most effectively innovations that mitigate GHG emissions E.S. Rubin, Carnegie Mellon

17. Importance of Environmental Policy for Technology Innovation • Well-designed environmental policies help create markets for the technologies needed to achieve environmental goals; this, in turn, spurs technology innovation • Especially critical for environmental technologies like CO2 capture and storage systems, that have no “natural” markets in the absence of environmental policies • Retrospective case studies offer useful insights about the government role in environmental technology innovation; at Carnegie Mellon we have recently been studying: • Control of coal-fired power plants emission (SO2 and NOx) • Control of automotive emissions (CO, HC, NOx) • Implications for CO2 capture and storage technologies E.S. Rubin, Carnegie Mellon

18. No Federal R&D CAA Regs + R&D Some Federal R&D U.S. Clean Air Act of 1970 U.S. Patenting Activity in SO2 Control Technology (U.S. Patents, Class-based dataset) E.S. Rubin, Carnegie Mellon

19. Historical “Learning Curve” for Flue Gas DeSOx Technology 100% 1980 1982 1976 1990 1995 -0.168 y = 1.45x 2 R = 0.79 Cost reduction = 11% per doubling of installed capacity; 50% reduction over 20 years FGD Capital Cost (% of base value) 10% 1 10 100 1000 Cumulative World Capacity of Wet FGD Systems (GWe) (Based on 90% SO2 removal, 500 MW plant, 3.5%S coal) E.S. Rubin, Carnegie Mellon

20. Strict NOx regs in Germany First NOx regs in Japan Patenting Activity Index for Flue Gas DeNOx Technology E.S. Rubin, Carnegie Mellon

21. Historical “Learning Curve” forFlue Gas DeNOx Technology 100% 1983 1989 1996 -0.18 y = 1.28x 1995 1993 2 R = 0.75 Cost reduction = 12% per doubling of installed capacity SCR Capital cost (% of base value) 10% 1 10 100 Cumulative World Capacity of SCR at Coal-Fired Plants (GWe) (Based on 80% NOx removal, 500 MW plant, medium S coal) E.S. Rubin, Carnegie Mellon

22. Conclusions from Case Studies • The cost of environmental controls at coal-fired power plants declined significantly with increased technology deployment, accompanied by sustained R&D and “learning by doing” in a global marketplace • The stringency of emission reduction requirements was the major factor in both stimulating and directinginventive activities and the deployment of cleaner technologies E.S. Rubin, Carnegie Mellon

23. How does technology innovation for CO2 abatement affect climate policy analysis?

24. Conclusions from Modeling Studies • Consideration of technological innovation in climate policy analysis can have a significant influence on the projected economic and environmental impacts, and on the outlook for alternative technologies • The magnitude and timing of these influences depend strongly on the reference case assumptions and the policy scenario considered • Much more work is needed to better understand and model the key factors that influence technology innovation, especially for environmental technologies E.S. Rubin, Carnegie Mellon