Beyond 2015: An Innovation-Based Framework For Global Climate Policy

Download an excerpt: "Summary of Policy Reforms"

The international climate community is focused on completing negotiations on a new global agreement to address climate change, which will be decided by the end of 2015. Unfortunately, all indications are that negotiators will seek to simply advance many of the tried-and-failed approaches of the previous decades. It’s time for a fundamentally new approach to global climate change; one that looks beyond the staid approaches of years past and directly attacks the core problem: making clean energy cheaper than fossil fuels through proactive clean energy innovation policy.

The world faces two contradictory challenges: mitigating climate change by reducing the use of fossils fuels to bring down carbon emissions, and expanding affordable energy access and economic growth in developing nations. Unfortunately, prevailing climate policies, including carbon caps and pricing, regulatory mandates, and subsidies to deploy existing high-cost technologies, have failed to effectively address either challenge. As a result, fossil fuel consumption continues to increase, and clean energy, while growing slowly in market share, remains a higher-priced, luxury good incapable of cost-effectively replacing fossil fuel energy.

International climate negotiations, set to conclude in Paris in 2015, are focused on how to integrate countries’ past individual actions into a cohesive global agreement, but most of the policy proposals on the table mirror the unsuccessful approaches of the past 20 years. Rather than continuing down the same path, the 2015 agreement offers an opportunity to craft a fundamentally new approach to decarbonizing the global energy market that prioritizes innovation to make clean energy cheaper than fossil fuels without subsidies. This will enable energy consumers in high-income nations to voluntarily switch to clean energy for economic reasons and consumers in low-income nations to more easily afford clean energy to address energy poverty. Most importantly, it offers the best opportunity to rapidly transition to a global clean energy economy.

Achieving this goal requires the international climate community to support a new framework for clean energy innovation policy based on the following principles.

• Given expected growth in global population and per-capita GDP growth, the world will not reduce carbon emissions unless clean energy replaces most fossil fuel production. The paramount goal of climate policy should be to make the unsubsidized cost of clean energy cheaper than fossil fuels so that all countries deploy clean energy because it makes economic sense.
• Innovation of cheaper technologies, and not faster deployment of existing high-priced technologies in developed or developing nations, is the most important way to bring the market price of clean energy technologies below the market price of fossil fuel energy.
• Countries have differentiated policy responsibilities in achieving this goal, depending on their level of development.
• Robust government support, especially by developed nations, for significantly greater investment for clean energy research, development, and demonstration (RD&D), is necessary to make energy technologies cheaper than fossil fuels.
• Climate policy should provide emerging clean energy technologies niche market support to overcome inherent market barriers to commercialization through the use of smart innovation-driven deployment policies contingent upon continued price and performance improvements.
• Clean energy innovation depends on strong intellectual property protection for companies and entrepreneurs developing clean energy innovations.
• Unfair clean energy technology competition, including internationally-sanctioned compulsory licensing, limits innovation.
• Climate policy should not force low-income countries to pay more for clean energy to provide much-needed energy access in the name of global carbon mitigation.

The current approach to global climate policy is based on the notion that we can overcome climate change if all nations raise the price of dirty energy (e.g., carbon taxes or carbon caps), reduce the price of clean energy (clean energy subsidies), and/or simply mandate the use of clean energy. International climate negotiations aim to pressure countries to do so by committing to carbon reduction targets, even though past efforts to do so have failed to curb emissions growth.

International institutions, like the World Bank, have followed suit by increasing financing for clean energy projects in developing nations, but with no eye towards spurring innovation. And many emerging countries have implemented unfair “green mercantilist” policies—like discriminatory procurement and compulsory licensing—to build domestic industries, which have hurt the process of clean energy innovation globally.

With the lion’s share of national and international climate policy efforts focusing on ways to prop up today’s expensive technologies, there has been a declining interest in developing more competitive, next-generation clean energy technologies. Overemphasis on targets, pricing, regulatory mandates, and deployment subsidies has left few resources to support a dedicated innovation strategy built on support for clean energy RD&D. The world underinvests in clean energy RD&D by roughly $70 billion a year, which amounts to only 13 percent of what the world spends on global fossil fuel subsidies and 27.5 percent what it invests in clean energy deployment.

CCEI proposes a set of policy reforms to turn today’s limited climate approaches into high-impact clean energy innovation policies that give the world a fighting chance at addressing global climate change. When nations meet in Paris in 2015, negotiators should work to create an agreement that allows and encourages nations to the do the following:

• Instead of being presented with a “take it or leave it” option of signing on to an international agreement to limit carbon emissions, high-income and emerging countries should have the option to participate by committing to investing in clean energy RD&D at an agreed-upon share of GDP.
• High-income countries should adopt “revenue-raising” policies to support clean energy innovation, including implementing a modest carbon tax, increasing oil and gas drilling fees, and eliminating wasteful fossil fuel subsidies and use a portion of these revenues to support clean energy RD&D.
• Instead of simply subsidizing the deployment of existing, high cost clean energy technologies, high-income countries should implement “smart” subsidies that are contingent upon technology cost reduction and performance increases so that they support new technologies through commercial scale-up.
• The UN, the World Bank, and climate financing mechanisms like the Clean Technology Fund should redesign their investment portfolios to limit funding for deployment of existing clean technologies and energy efficiency projects, and instead prioritize supporting transformational energy technologies with financing for large-scale demonstration and smart deployment projects.
• Although low-income countries often lack the resources and infrastructure to support early stage R&D, they should collaborate with high-income countries and international institutions, like the International Energy Agency, to support the testing and demonstration of next-generation technologies in instances where it may be more affordable than fossil fuels. Engaging low-income countries as “test beds” for advanced energy technologies strengthens the global energy innovation ecosystem while increasing energy access in energy-poor nations.
• In absence of unilateral action by mercantilist countries to limit green mercantilist policies, including tariffs, forced localization, discriminatory government procurement and compulsory licensing, high-income countries and international organizations should work cooperatively to limit these policies.
• International institutions, including the World Bank and United Nations, should end inclusion of compulsory licensing in future international climate agreements and immediately stop supporting energy projects that include compulsory licensing of domestic content requirements.
• The UN should redefine “modern energy access” to the equivalent of what high-income countries benefit from today, sending a signal that much more effort and innovation is needed to advance solutions for global energy poverty.

In short, the world needs to give up the limited approaches of the previous decades and adopt innovation-based solutions as quickly as possible. These proposed policies offer a new start in global climate policy for the long-term, with the recognition that climate change is a technology problem requiring solutions that advance low-carbon technology options. With time running out, it is now or never to get serious about implementing an aggressive clean energy innovation policy.