ECC Platform Library

 

The European Energy Innovation Imperative

08 June, 2016
Johannes Ackva (adelphi), Emilie Magdalinski (adelphi), Benjamin Pohl (adelphi), Dominic Roser (University of Oxford)

On June 3rd 2016, the European Union joined six of its Member States and 14 other countries – including China and the United States – and became the 21st member of Mission Innovation, an initiative of governments committing to double their clean energy research budgets over the next five years. This, we argue, is a vitally important first step of taking Europe’s energy innovation imperative more seriously.

The energy innovation imperative, accelerating the clean energy revolution through strengthened innovation policy,  should be a central guiding principle for European policy makers seeking to close the staggering ambition gap in the Paris Agreement.
The argument substantiating this recommendation has three steps:

 

I. Europe’s historical responsibility and the magnitude of the ambition gap imply a focus on global, not European decarbonisation

The main result of the Paris Agreement is the ambition to limit global warming to significantly below 2 °C. The collective national commitments (INDCs), however, are a far cry from what is needed to achieve this goal. Assuming optimistically that countries will indeed implement their INDCs in the conditional version by 2030, there will still be a huge gap – about 12 GtCO2E per year – to the 2°C emission trajectory. Even decarbonising Europe entirely would be far from sufficient to close the ambition gap. Indeed, to close the emissions gap in 2030 one would need almost four Europes less.

Figure 1: Four Europes less would close the ambition gap

This basic fact, illustrated in Figure 1, should make one point abundantly clear: Our ethical responsibility for curbing emissions, motivated either by past emissions and/or our capability to invest in mitigation, should lead us to focus our effort on those policies that best advance global decarbonisation, not merely Europe’s. This is a practical point but also a deeply ethical one: While there are no convincing ethical arguments why bearing historical responsibility implies a focus on local decarbonisation, the ethical imperative to minimise the negative consequences of climate change strongly suggests a focus on global decarbonisation when designing European energy policy.

Bluntly put: There are no brownie points for successfully decarbonising Europe when humanity fails at global decarbonisation. We thus need to ask: What are the best ways in which Europe can make global decarbonisation more likely?

 

II. The ambition gap in global decarbonisation requires closing the energy innovation gap

To answer this question, we need to understand the drivers of historical and current decarbonisations. The most significant decarbonisations in OECD countries between 1971-2006 that were not the result of economic change were the French and Swedish decarbonisations of the electricity sector in the 1970s driven by oil price shocks. Recently, the declining cost of wind and solar has driven decarbonisation efforts beyond those countries where it was massively supported by policy.

In those countries – such as Germany, South Korea and the US – where massive deployment subsidies created the economies of scale and incremental innovation responsible for cost declines, climate policy was one driver among many, with anti-nuclear sentiment and stimulus spending being other dominant national motivations. In contrast, the Kyoto Protocol and subsequent efforts to set internationally binding targets and compel countries through climate arguments alone have had little if any effect on decarbonisation.

The importance of incentivising climate mitigation and adaptation has been recognised in climate finance and European climate policy. Yet, it is not supported by European energy policy choices focusing on global decarbonisation potentials. Even if there is more climate ambition in the future, the availability of superior technological alternatives will make the politics and economics of international climate policy significantly easier.

Yet, technological progress is too slow and incremental. The decarbonisation of the electricity sector – generally considered easier than decarbonising other sectors – is still lagging behind and is hindered by storage costs that make renewables, even when competitive for electricity generation, uncompetitive at the level of the energy system (as expressed by the levelised cost of electricity (LCOE)). Moreover, as most recently demonstrated in an article in Nature Energy titled “Solar power needs a more ambitious cost target,” renewables still need to get continuously cheaper because each additional unit of renewable energy in a specific location creates less additional value since it will mostly generate electricity when it is not scarce (value deflation). Importantly, advanced solar and storage technologies will not necessarily be advanced by current market participants since such technologies draw on new materials, which is not in the interest of existing firms heavily invested into supply chains and manufacturing infrastructure for silicon solar and lithium-batteries.

Research into other decisive technologies, such as carbon capture (followed by utilisation or storage; CCUS) is still heavily underfunded (EUR 1.3 billion provided by EU policies so far), despite this technology having the largest expected returns across low-carbon RD&D opportunities and the fact that the cost of climate mitigation without CC(U)S would increase by EUR 1.2 trillion for Europe and double globally – making successful climate mitigation appear a distant and unlikely prospect.

Figure 2 schematically summarises the preceding discussion on the global energy innovation gap by highlighting five central challenges:

Figure 2: Five Energy Innovation Challenges

Despite a lot of progress, there is thus a tremendous energy innovation gap that hinders global decarbonisation. Furthermore, we are not on a trajectory where closing this gap is just a matter of time and business-as-usual. Instead, it appears that energy innovation is systematically neglected despite comparatively low costs and its necessity for global decarbonisation. It is this innovation gap we should close to enable the closing of the ambition gap.

 

III. Europe can and should do much more to close the energy innovation gap through dedicated innovation policy

While the EU and its Member States have some of the most ambitious climate policies in the world – displayed schematically in Figure 3 – they are primarily designed to drive European, not global decarbonisation.

Figure 3: An energy policy instrument triangle for decarbonisation

The European Emissions Trading System (EU ETS) fosters incremental and process innovation, but is unlikely to induce breakthrough technological innovation. The reason for this is that the price signal set mostly affects technologies that are on or close to market, whereas technologies that are further from the market may be ‘trapped’ in the ‘valley of death’, unlikely to come to market without public RD&D support (see Figure 4). While thus reducing European emissions, the EU ETS does relatively little to facilitate global decarbonisation.

Figure 4: The role of different energy policy instruments in the innovation process

Feed-in tariffs have been the most significant national energy policies providing massive deployment support for existing low-carbon technologies, particularly wind and solar. Arguably, resultant deployment contributed to economies of scale and incremental innovation that drove down the cost curve of these technologies. However, this has come at an extremely high cost, while explicit innovation policy (RD&D), generally considered to be much more effective in inducing innovation, has been extremely neglected. In 2014, for example, Germany alone spent over ten times more on deployment subsidies for renewables than all of Europe combined on renewable RD&D (see Figure 5).

Figure 5: Disorders of Magnitude

Since electricity is covered in the EU ETS, this deployment had no effect on European emissions, while its effect on global decarbonisation – through price declines and improved technologies – could most likely have been multiplied had a larger share been spent on RD&D rather than on deployment within an emissions-capped market. Furthermore, public RD&D would have benefited European high-tech industries whereas deployment subsidies mostly benefit renewable manufacturers outside the EU.

To summarise, there is thus a strong ethical imperative as well as an economic, political, and technological case for significantly scaling up the European energy innovation effort.

Besides scaling up the innovation effort – as committed to by joining Mission Innovation but moving beyond as well – we recommend five general principles on which European energy policy choices could be based to better reflect the energy innovation imperative:

  1. Make global decarbonisation potential a criterion: When selecting innovation priorities, not only focus on European (decarbonisation) benefits but on global decarbonisation potential.
  2. RD&D Cost Effectiveness: Given current levels of funding, the expected returns to additional innovation funding (public RD&D) are much higher than for additional deployment support. However, even within public RD&D there are differences in expected returns. Based on a meta-study aggregating a wide range of expert elicitations, the highest returns to RD&D are expected for carbon capture and storage (about twice higher than for other technologies), while RD&D into other technologies have fairly similar expected returns, motivating Principle 3.
  3. RD&D Portfolio Approach: The similarity of expected returns leads the authors of the meta-study to conclude that it’s “too early to pick winners”, which provides a techno-economic rationale for a broad innovation portfolio.
  4. Utilise Europe’s diversity...: Use Europe’s diversity of energy systems and policy priorities as a strength rather than a source of conflict to develop a broad set of crucial technologies for global decarbonisation.
  5. …while at the same time pooling resources: In case of shared innovation priorities, it is of course hugely beneficial to pool resources and pursue joint research programmes. This is all the more prudent for energy innovation because the spillover effects – those benefits from innovation that cannot be privatised / nationalised – appear even larger for clean than conventional energy technologies, making it unlikely that self-interested governments would invest in them optimally without cooperation institutions such as the EU or, globally, Mission Innovation.

As we have argued above, these types of measures contributing to an increased energy innovation effort are the most likely drivers of increased ambition for global decarbonisation. Closing the energy innovation gap should thus be a pragmatic and an ethical climate policy priority if Europe is serious about its historic responsibility.

ArticleClimate Diplomacy
Topic
Climate Change
Climate Diplomacy
Co-Benefits
Energy
Sustainable Transformation
Technology & Innovation

Region
Europe
Global Issues

Topics

Adaptation & Resilience

All countries will need to adapt to some of the environmental, social and economic impacts of climate change that are already unavoidable. Food security, livelihoods, water resource availability and public health are some affected areas. People living in poverty are more vulnerable, having a lower capacity to adapt. Thus, it is essential to promote resilience building. The adaptation and resilience aspects need to be mainstreamed into planning by policy makers and the private sector as well as integrated into development strategies.

Biodiversity & Livelihoods

Nature protection is most sustainable if it essentially contributes to the long-term stability of human needs. Today many regions around the world are confronted with increasing destruction of the natural foundations of life. The consequences of wide-ranging resource destruction are no longer regionally limited, but rather represent a global threat. Those affected are mainly rural populations, who find the sources of their income and the foundations of their way of life swept away. The depletion and destruction of natural resources goes hand in hand with decreasing agricultural yields and increasing poverty, which in turn forces the affected populations to deplete the remaining resources.

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Capacity Building

On the one hand, conflicts are caused by structural factors, such as economic and social inequality or environmental destruction. On the other hand, conflicts are fuelled by a lack of democratic structures, deficient mechanisms of non-violent conflict settlement, inadequate rule of law, the destruction of social and cultural identity and the disregard of human rights. Against this backdrop, development policies have been dedicated to a broad concept of security, which comprises political, economic, ecological and social stability. As a consequence, development cooperation agencies and actors have developed a broad spectrum of approaches for conflict prevention and transformation as well as for sustainable use of natural resources.

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Cities

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Civil Society

Civil society is the first victim of environmental pollution, under-development and conflicts. Economically disadvantaged and politically marginalized population groups are particularly affected by violent conflicts as well as increasing resource degradation. Simultaneously, civil society is a fundamental pillar for implementing sustainable development. It contributes in many ways to strengthening conflict prevention and plays a significant role in the peaceful and democratic development of states. It must be supported to strengthen civil rights, adherence to human rights in general and democratic participation.

Climate Change

Climate change resulting from the emission of greenhouse gases represents one of the vital challenges for international environmental policy. Flooding, droughts, shifting of climate zones and increasingly frequent and intense extreme weather events will have serious economic and social consequences for entire regions. The climate problem is also directly linked to the question of future energy generation.

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Climate Diplomacy

To address the challenges posed by climate change, a new profile of climate diplomacy is evolving. This utilises a full range of policies, including development cooperation, conflict prevention efforts, and humanitarian assistance, in addition to more traditional measures of climate change adaptation and mitigation. Moving from a risk analysis of climate-related threats to well-timed preventive action requires a greater commitment to integrating climate change concerns into development, foreign, and security policies. Examples include strengthening diplomatic networks, building new alliances with partners, and raising awareness – not only of potentially negative climate change impacts, but also of opportunities to embark on a sustainable transformation of our societies.

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Co-Benefits

Climate action entails an array of economic, social, political and environmental co-benefits. It provides an opportunity for economic growth and new jobs. Many investments can take into account climate considerations without becoming more costly. Further important co-benefits include: improved energy security, less local air and water pollution, health benefits as well as ecosystem and biodiversity protection.

Conflict Transformation

In order to overcome the structural causes of violent conflicts and thus bring about an improvement in the framework conditions for peaceful and fair development, it is essential to have long term and broadly planned peace development and peace advancement. Various governmental and non-governmental, national and international actors and groups are involved in these processes.

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Development

Climate change and development are inextricably linked. Climate change endangers the development agenda and has the potential to reverse development goals. Furthermore, successful mitigation of climate change heavily depends on development choices around the world. Therefore, development strategies need to be climate-compatible to provide long-term success, and there are viable policy options that support this compatibility. Many mitigation and adaptation activities can present development opportunities to developing countries and avoid the lock-in to environmentally damaging technologies.

Early Warning & Risk Analysis

The reasons for the development and escalation of conflicts and the incidence of risks are multifaceted and complex. Simultaneously, the assessment of the specific causes in the form of risk and conflict analyses can contribute to a better understanding of these processes and make it possible to provide warning of negative developments, or ideally help prevent them. In the context of natural resource use, risks and conflicts have gained increasing attention in the past years. The debate on possible future water wars is merely one example.

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Energy

The well-being of individuals, communities and nations depends on the availability of energy resources. The gap between energy supply and demand appears to be growing, making the world vulnerable to serious economic shocks. At the same time, the burning of fossil fuels causing climate change is one of the vital challenges of international environmental policy. So far, only rudimentary approaches exist for shaping climate and energy security in a sustainable way. The components of a strategy that can contribute to reducing vulnerabilities related to climate change and energy policy include a greater role for renewable energies, the improvement of energy efficiency and a stronger decentralisation of energy supply.

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Environment & Migration

The economic, social and environmental consequences of climate change aggravate the breakdown of eco-system-dependent livelihoods and are likely to become dominant drivers of long-term migration. Natural disasters already cause massive shorter-term displacement and the number of temporarily displaced people is likely to further increase with climate change. For vulnerable populations in vulnerable regions, such as the Sahel zone or the Ganges delta, migration often becomes the sole survival strategy. In order to address climate-related displacement and migration successfully, knowledge of effective adaptation and an improved understanding of how environmental change affects human mobility is essential. 

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Finance

Climate finance, from all sources, plays a key role in supporting and enabling adaptation and mitigation action as well as climate and energy innovation. The Paris Agreement ensured that the Green Climate Fund and the Global Environment Facility are at the core of climate finance architecture as entities entrusted with the operation of the Financial Mechanism of the UNFCCC. Increasing climate finance from all relevant public and private sources is crucial. Furthermore, much needs to be done to redirect finance flows to sustainable paths, e.g. reducing fossil fuel subsidies, introducing maritime and air transportation taxes. The conditions for green investment in developing countries should also be improved.

Forests

Forests are disappearing at an alarming rate. Competition for forest resources triggers, exacerbates, or finances numerous crises and conflicts in tropical developing countries. Illegal logging and timber trade foster instability and sometimes violent conflict by strengthening illegal and armed groups, increasing corruption and exacerbating use and claim conflicts among local communities, the state and the business sector. Forests are a vital resource to poor people but they can also become areas of conflict. Sustainable management of forest resources is therefore key to preventing violent conflict over and within forests.

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Gender

Gender plays an important role as a category of conflict for many reasons. The interlinkages between gender, environment and conflicts are complex and much research is still needed. Existing insights suggest that conflicts may worsen gender inequalities that existed before the outbreak of violence. The unequal distribution of land property rights in many parts of the world serves as an example. Moreover, women (and children) are among those most affected by both violent conflict and natural disasters. At the same time, women carry much of the burden of trying to implement rehabilitation measures after crisis events.

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Land & Food

Increasing water scarcity, desertification and crop failures due to extreme weather events are becoming more and more of a threat to global food production. While the world’s population continues to grow rapidly, food production is unable to keep pace. Due to the global food crisis in 2008, the number of hungry people reached the symbolic one billion threshold for the first time – corresponding to about 16 percent of world population. Food insecurity may be a consequence or cause of conflicts. Violent conflicts often lead to the destruction of agricultural infrastructure and means of production, as well as to the displacement of local communities.

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Minerals & Mining

In the past, the discovery and tapping of valuable or strategic resources like valuable minerals, oil and natural gas, particularly in developing and emerging countries, has often led to large scale environmental contamination and negative development. The "resource curse" of some countries shows that the wealth from resource yields is frequently unfairly distributed; instead of serving development it advanced the formation of corrupt elites and in some cases even led to conflicts and civil wars. Measures in various sectors and at all levels are important in order to use the potential of these natural resources in a manner that is sustainable and prevents conflicts.

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Private Sector

The spread of violent conflict not only affects people but also companies located in such regions. Destruction of investments and infrastructure, collapse of markets and trade partnerships, flight and expulsion of employees are phenomena of conflicts and environment-induced crises that directly affect companies in unstable regions. Almost all branches of the economy thus have a clear interest in a stable and peaceful environment for their activities. Conversely, the business sector plays an important role in the interaction of economic growth, social development and a healthy environment, all of which can advance peace and sustainable development. 

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Security

Environmental issues have a significant security dimension. Access to, and overuse of, natural resources often play a key role in civil wars or other forms of internal domestic conflict. This is compounded by climate change and environmental degradation. Climate change is now widely recognised as a non-traditional, risk-multiplying threat that will have increasing security impacts. Key risks with possible implications for human and national security include water scarcity, food crises, natural disasters, and displacement. More preventive diplomacy and advocacy is needed to address the strategic implications of climate and environmental change.

Sustainable Transformation

Sustainable Transformation allows societies to profit from a growing, environmentally sustainable and socially inclusive economy – especially in emerging and developing countries. This requires a higher up-front investment, but the benefits of a sustainable transformation in the medium and long term are significant. For instance, energy cost savings and reducing the impact of price volatility offer major incentives for deploying renewable energies and promoting energy efficiency. Such benefits exist in all key sectors of the economy.

Technology & Innovation

Innovations and technologies are already readily available and affordable but their global diffusion and uptake remains a challenge. Innovation and technology are crucial to achieving ambitious climate change mitigation and adaptation targets. However, research and development often do not receive appropriate public support. Developing countries can leapfrog high-carbon industrialisation phases by adopting, deploying and improving existing innovations and technologies. For this, it is essential to minimise financial, administrative and political barriers.

Water

The availability of freshwater resources in sufficient quantity and quality is essential for the preservation of human health and sound ecosystems. The use of water resources is also vital, however, for economic development: whether for agriculture, industrial production or for electricity generation. The world's freshwater resources are distributed very unevenly in terms of geography and seasons. In addition, water shortage is becoming more prevalent in several regions due to population growth, economic development, urbanisation and increasing environmental pollution. Thus, water resources can hold potential for conflicts between parties who have different interests and needs.

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Regions

Asia

The environment in Asia is already under tremendous pressure as a result of the unsustainable use of land, forests, water and even air in many regions. Climate change will only exacerbate these challenges. Rising sea levels will likely endanger densely populated areas, changes in the monsoon patterns can strongly impact agriculture, melting glaciers will increase long-term water scarcity, and extreme weather events such as heavy rainfall and cyclones can pose further hazards.

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Central America & Caribbean

Natural disasters and water scarcity are key challenges for most of Central America and the Caribbean. These challenges will become even more pronounced as the climate changes. Weak resource and disaster risk management and land disputes pose additional security challenges for large parts of the region. Several countries of Central America and the Caribbean have limited adaptive capacities as they face political instability caused by high social inequality, crime, corruption, and intra-state conflicts.

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Europe

As one of the most developed and most densely populated regions in the world, Europe makes heavy use of its resources, resulting in difficult trade-offs and negative consequences for the environment and ecosystems. Land is used for settlements, agriculture and dense infrastructure, creating problems of soil degradation. Water resources are stressed due to unsustainable agricultural practices. Despite nature protection policies, Europe continues to lose biodiversity at an alarming pace. Some of these trends are exacerbated by climate change, which is expected, for instance, to lead to shifts in water availability.

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Global Issues

Resource scarcities, environmental pollution and climate change are not limited by national borders, but often have a transboundary or even global impact. These issues interact with political stability, governance structures and economic performance, and can trigger or worsen disputes and violent conflicts. Exacerbating some of these trends, climate change is likely to lead to the degradation of freshwater resources, declines in food production, increases in storm and flood disasters and environmentally induced migration. All these developments pose potential for conflict.

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Middle East & North Africa

The geopolitical position of the Middle East and North Africa (MENA), its fossil fuel resources, high population growth and the political changes spurred by the Arab Spring all make the region one of the most dynamic in the world. Nevertheless, it is also one of the most arid and environmentally stressed. Dwindling water resources, limited arable and grazing land, high pollution from household and industrial waste, remnants of conflicts and increasing desertification are key environmental challenges.

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North America

Climate change has various impacts on the three North American countries of Canada, Mexico and the US. Canada and the US have well-developed adaptive capacities and foster the strengthening of capacities in other regions as well. With high per capita emissions, these two countries also bear a greater responsibility for a changing climate. Mexico has a sound national strategy for climate change adaptation, yet fewer capacities than Canada and the US. The poorer and rural populations of Mexico are especially vulnerable to climate change, due to an increased sensitivity and a lower adaptive capacity.

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Oceania & Pacific

In Oceania, population growth and economic development trends put a strain on oceanic and island ecosystems. Freshwater scarcity, overexploitation of fisheries, loss of land biodiversity, forests and trees, invasive species, soil degradation, increasing levels of settlement, poor management of solid and hazardous waste and disproportionate use of coastal areas are some of the problems. Climate change exacerbates most of these trends, while also raising questions about the future sovereignty of some island states.

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South America

South America has diverse and unique ecosystems and is very rich in biodiversity. Weak natural resource management, land disputes and extreme weather events bring about significant challenges for the region. While South America accounts for relatively few CO2 emissions, the changing climate will alter its ecosystems and greater climate variability will lead to more hurricanes, landslides, and droughts.

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Sub-Saharan Africa

In many African states, environmental security issues rank high on the political agenda. Throughout the continent, countries suffer from water scarcity, food insecurity and energy poverty. These chronic and worsening resource scarcities have severe livelihood implications and are exacerbated by political conflicts over access to and control over these resources. Climate change may seriously threaten political and economic stability in Africa. It may also put a severe strain on the capacities of states and societies to co-ordinate activities, to communicate and to organize.

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