Published: 4 November 2021 at 10:00
ARU sustainability experts are part of a major study into tackling climate change
Governments must intervene to shape markets for new clean energy technologies in order to drive the rapid change necessary to meet international climate targets, finds a report launched at COP26 by leading international economists and policy experts, including academics from the Global Sustainability Institute at Anglia Ruskin University (ARU).
It shows how targeted policy support and investment has led to dramatic cost reductions and huge market growth in wind and solar power and LED lighting, and it calls on governments to adopt the same approach to accelerate new low-carbon industries, such as electric vehicles and steelmaking.
It says market-shaping policies can play a key role in supporting global ambitions to accelerate new clean energy technologies, encouraging international collaboration to drive rapid innovation and scale this decade – a central pillar of the COP26 conference.
The New Economics of Innovation and Transition: Evaluating Opportunities and Risks finds that policy support and government-led investment in clean technologies shapes the growth of markets, unlocks further private sector investment, and can rapidly drive down costs. With the right policies in place, clean technology markets have grown and costs fallen much faster than most people expected.
Analysis of the growth of the wind, solar and LED industries shows that market shaping policies are at least as important as R&D in accelerating innovation. Yet these policies are often not supported by the cost benefit analysis commonly used by governments to appraise public policy. Some of the policies most critical to success were implemented despite, not because of, the predominant economic advice.
The report findings show that governments should be more aware of the potential for policy-driven innovation to drive economic growth as well as to meet the net zero commitments that now cover 75% of global GDP. It offers a new framework for government leaders and policy makers to guide decisions on how to stimulate clean energy innovation, considering not just costs and benefits, but also opportunities and risks. It also warns that while carbon pricing can be helpful in the right circumstances, it will not be enough on its own, and other policies may be more effective in bringing new clean technologies to market and driving innovation, investment and cost reduction.
Investment into clean energy sectors, including power generation, electricity grids, road transport, steelmaking and hydrogen, could support 65 million jobs and $26 trillion of benefits by 2030. The markets expected to grow most quickly and attract most investment will be those with clear, ambitious and supportive policies.
Michael Grubb, Professor of Energy and Climate Change at University College, London, and co-author of the report said:
“The policies that drove major breakthroughs in low-carbon technologies like wind and solar, were challenged by traditional economic advice, which ignored the role of innovation, framing climate policy as costly. We need to learn from these successes that delivering ‘net zero’ will require more sophisticated economic understanding of innovation and transition, more widely applied.
“This report provides a new framework to better assess new technology opportunities and the risks of inaction to inform smarter government interventions.”
“For developing countries like India, upfront capital costs can make new technologies unaffordable, even if their eventual benefits outweigh the initial investment. But we have seen technologies like solar power and LED lighting rapidly become cheaper, and may see the same with batteries, EVs and hydrogen electrolyzers. With early investments and sound policies, we can benefit from advances in low carbon technologies and avoid expensive shifts later.”
“When governments met in Copenhagen in 2009 for COP15 the world had done little to tackle climate change and leaders struggled to agree ambitious targets that would lead to the solutions needed. However, since then targeted policy support has led to the emergence of new global industries with massive growth in renewables such as solar and wind, as well as low carbon technologies like LED lighting and electric vehicles. This unlocking of innovation has led to the growth of jobs and new markets in many countries around the world.
“Policy development must now recognise that innovation can indeed lead to sustainable transformations as it has led to the transformation of energy, transport, and IT systems over the past 200 years. We need to move beyond assuming that our economy is as efficient as it can be and recognise that over the next 30 years it will be on a completely new trajectory which will bring new opportunities and rewards that don’t fit into traditional economic policy assessments.
“The science-policy interface needs to embrace as many different tools and models as it can to truly explore the different futures that are possible. Without fully grasping the scale of change and the innovation that this can unlock, governments run the risk of missing out on the returns on investment that will come through tackling climate change.
“Within our region we have some of the most innovative companies and universities in the world. There is a huge opportunity for us to play an important leadership role in designing and deploying the technology of the future. We also, as researchers, need to develop our understanding of how quickly innovation can create the transformation that we need to tackle climate change and work with policy makers to better design the frameworks that will underpin this change.”