A wealth of untapped potential: How low-carbon innovation can fuel economic growth

Marion Davis, Stockholm Environment Institute (SEI) and Tan Copsey, The New Climate Economy

Innovation is the driving force of modern economies. In today’s world: the companies, cities and countries that thrive are those that keep moving forward, developing new products, materials, services and business models.

Low-carbon innovation is occurring at a rapid pace. Digital technologies are reshaping entire industries and enabling us to use our time and resources far more efficiently. Advances in materials science have enabled us to build wind turbines that are four times larger and can generate 25 times as much power as they did in 1995. They have also given us more fuel-efficient cars, versatile LED lights, and better-insulated, far more energy-efficient buildings.

In the coming decades, we will need to make the most of this potential, because the challenges we face are enormous. Not only do greenhouse gas emissions continue to rise, but 2.4 billion people still live in extreme poverty, and urbanisation, rising consumption and population growth are putting pressure on natural resources. The choices we make in the next 15 years can put us on a path to low-carbon prosperity, or lead us far astray.

How do we move forward?

A key first step is to recognise that “business as usual” is an illusion. In our report Better Growth, Better Climate, we note that major structural and technological changes are already unfolding around the world. The global economy is expected to grow by half by 2030, and an estimated US$90 trillion will be invested in urban, land use and energy infrastructure alone over the next 15 years. Technology continues to advance rapidly, transforming our lives and businesses.

Thus, the choice we face is not between “business as usual” and a low-carbon future, but between alternative pathways of growth: one that exacerbates climate risk, and another that reduces it. Extensive evidence suggests that a low-carbon growth path can lead to as much prosperity as a high-carbon one, especially if we consider its multiple additional benefits like cleaner air and more habitable, vibrant cities.

But the world will not automatically move in a low-carbon direction; there are real barriers. Fossil-fuel technologies, for example, are deeply entrenched in most countries’ economies, with huge amounts of capital invested and policies that support them. Building standards often discourage the use of low-carbon materials. A key task ahead is to change policies, standards and regulations that now favour incumbent technologies and practices, to create a more level playing field.

Governments also need to invest in low-carbon research and development (R&D), particularly in energy. Energy-sector public R&D is now half what it was in late 1970s. Yet we know that clean-tech innovations have very high spillover benefits for societies, comparable to those from robotics, information technology, and nanotechnology. We have recommended that the major economies at least triple their public energy-related R&D by the mid-2020s, to well over US$100 billion a year.

Policy interventions are also needed to help build demand for low-carbon innovation. Commonly used tools include carbon prices or taxes, regulatory standards (such as for vehicle fuel-efficiency or appliance energy-efficiency); in some cases, encouraging demand requires removing barriers such as regulations that inhibit the shared use of capital-intensive goods. Public procurement can also play a key role; US innovation in semi-conductors, for example, was driven by military procurement.

International-scale efforts, meanwhile, will be crucial for bringing the benefits of low-carbon innovation to the world’s poorest people. Strong intellectual property rights are essential to promote low-carbon entrepreneurship, but greater efforts are needed to ensure that poor countries can still access those technologies. Patent pools may offer a potential solution: consortia created by owners of similar technologies pull together, and sometimes cross-license, common or complementary technologies. The poorest countries will also need technical capacity-building and support for adapting and adopting new technologies; to address costs, a mechanism could be set up in conjunction with the Global Environment Facility or the new Green Climate Fund.

Low-carbon innovation holds enormous promise not only for the climate, but for economic prosperity. As we come together in Lima this week, let’s work to ensure we make the most of it.

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This article is drawn from the work of the Global Commission on the Economy and Climate. Their report, Better Growth, Better Climate: The New Climate Economy Report can be found at www.newclimateeconomy.report.