Environmental sustainability: policy issues from an innovation perspective

1. Environmental sustainability: policy issues from an innovation perspective DIMETIC, Pecs, 12 July 2007 Keith Smith Australian Innovation Research Centre Hobart, Tasmania, Australia

2. Environmental sustainability as a policy issue • IPCC reports represent major scientific background analysis, with strong consensus emerging • Policy initatives: Montreal protocol, Kyoto • Significant policy analysis efforts, in particular Stern report to UK Treasury

3. Structure of the Stern Report • Scientific evidence and scale of challenge • Costs of climate change and costs of mitigation • Policy responses for mitigation and adaptation

4. Costs Key considerations: • Climate change results from an externality associated with emissions • Impacts are long term and persistent • Uncertainties and risks in impacts are pervasive • Serious risk of major irreversible change with non-marginal economic effects

5. Assessing costs • Major ethical considerations which affect calculations - big intra- and inter-generational impacts • Cost-Benefit analyses good for analysing marginal changes, but not for differing non-marginal paths or trajectories • Complex argument for using very low discount rate • Costs depend on effects which have big uncertainties (at 1 degree small, at 5 degrees catastrophic)

6. Cost of climate change • “Using an Integrated Assessment Model, and with due caution as to the ability to model, we estimate the total cost of BAU climate change to equate to an average reduction in global per-capita consumption of 5% at a minimum, now and forever” (p.161)

7. Abatement strategies • Reduce demand for emissions-intensive goods and services (via carbon taxes) • Fuel efficiency gains (replace coal power with extra 2 million windmills plus 7GW more nuclear) • Low-carbon power, heat and transport technologies (cut carbon emissions by 25% in building, raise car fuel efficiency from 30 to 60 mpg) • Reducing non-fossil fuel emissions (reduce deforestation)

8. Policy methods: Target: range 450-550 ppm CO2e Basic instruments are economic: Taxes: carbon price is established that reflects full social cost. Then market decides how much carbon is emitted. Tradable quotas: government caps quantities, then lets emitters trade. The market decides price of emissions.

9. Technology policy options: big weaknesses… • Stern Report uses linear model of innovation • Essentially recommends R&D and commercialisation strategies (note: these already in palce in most countries) • Sees problem as low level of R&D in energy and transport sectors • Recognises ‘lock-in’ but has no approach to resolving it. • Uses technological paradigm concept, but does not make it part of the argument • Assumes that increasing carbon costs will lead to adequate substitution behaviour

10. The real innovation policy problem: • How to initiate and sustain environmental innovation when change is constrained by the embedded technologies of existing innovation systems • Need to distinguish clearly between localised change, disruptive change, regime or system change • Localised change can be generated via taxes etc, but disruptive or regime change cannot

11. The innovation background  Environmental problems spring from innovation in a dominant energy regime, and its long-run trajectories. It has embedded incentive and externality structures, and will require further innovation if current problems are to be resolved.

12. The Lock-in issue At least part of an innovation-based solution will have to be ‘radical’ in character.  But radical innovation is rare, and is constrained by lock-in effects.  In turn, lock-in effects derive from integrated, interlocking, systemic character of technology. Two dimensions to this: •   Technical integration and complexity • Technology is integrated with socio-economic frameworks: energy technologies are part of a dominant regime or paradigm

13. Technology systems, regimes, paradigms A "technological regime" refers to the whole complex of scientific knowledge, engineering practices, process technologies, infrastructures, product characteristics, skills and procedures that make up the totality of a technology. The problem facing us is ‘regime change’…

14. How to shift a technological system or paradigm? Policy problem: This is not a market failure problem but a more fundamental coordination problem involving large-scale ‘lock-in’. That is, it cannot be solved by the creation of markets, the assignment of property rights, taxes and subsidies etc. It requires the creation, survival and growth of comprehensive alternatives.

15. Elements of ‘regime change’ • Patronage of early-stage technologies • Long-term development trajectories • Institutional changes (in property rights, regulation, risk management, role of governments, cooperation mechanisms, consumption patterns) etc • Investment trajectories and financing • Managing globally: status of international organisations

16. System-level mission-oriented innovation policy: what is necessary? • Specialised task forces around specific problems: e.g. energy storage, transport infrastructures, high-input solar, changes in city design, nuclear, sustainable hydrogen • Creation of time-limited cross-functional agencies • Adoption and diffusion policies; procurement • International collective action in finance, development and adoption: design, incentives etc (free transfer may be necessary)