Stark Choice: Rejuvenate Global Energy Innovation or Fail to Meet Climate Goals
At last year’s Glasgow Climate Conference, countries pledged to increase public and private finance, set common targets under the Breakthrough Agenda, and accelerate electric vehicle deployment, among many other goals. But after riding high amidst this whirlwind of promises, the world must now turn ambition into reality. As ITIF’s latest report shows, the global energy innovation system is too fragile at the moment to fulfill these commitments. It’s a wake-up call to the public and private sectors—policymakers and business leaders alike—to collaborate on rejuvenating global energy innovation.
It isn’t all doom and gloom. COP26 did yield an array of pledges to mobilize public sector funding and private sector finance to fund climate solutions for mitigation and adaptation. As ITIF has long argued, the follow-on steps must focus on accelerating innovation, which bolsters mitigation and ultimately reduces the need for adaption. An innovation policy that will achieve deep decarbonization requires both proactive public investment in research, development, and demonstration (RD&D) and the creation of markets to hasten early adoption and ignite private sector innovation and competition. As it stands, public RD&D investment in clean energy has only risen tepidly since the Paris Agreement in 2015. It’s past time for leading nations to significantly increase these investments.
New initiatives that target economic sectors where emissions are traditionally hard to abate are also good-news stories coming out of COP26. Hydrogen and steel are focal points for the Glasgow Breakthroughs, the first set of global leader-led common targets under the Breakthrough Agenda. Mission Innovation (MI), which entered its second phase in 2021, has turned its attention to clean hydrogen, net-zero industries, and zero-emission shipping. Partnering with the World Economic Forum, the United States introduced the First Mover Coalition, which aims to spur innovation in emergent technologies that help decarbonize aviation, aviation, trucking, and steel.
These new directions are promising but have not yet received the support they will need to succeed. Public investment and private venture capital (VC) investments, as well as patents, have been mostly absent for these technologies. Public RD&D investments in hydrogen and fuel cells and industrial energy efficiency, for instance, made up just five percent and seven percent of total investments, respectively, over the past several years. Investments in the other sectors targeted by these initiatives are even lower. On the private side of the ledger, less than two percent of global venture capital investment went to hydrogen and fuel cells between 2015 and 2020. The number of high-value patents for hydrogen and fuel cells, aviation, industrial processing, chemical, and petrochemical technologies combined (5,800) were fewer than that for road transportation alone (7,500).
Electric vehicle deployment is indeed accelerating, with global sales in 2021 expected to break six million units, doubling the total for 2020. Innovation policy’s role in this success story should not be overlooked. Consistently strong public and private RD&D investments in transportation electrification helped drive down battery costs and charging time. As EVs have become compelling choices for more consumers, early adoption policies have kicked in, with many committing to phasing out internal combustion engine vehicles by 2035.
The EV transition is still in its early phases and is confined so far to the United States, Europe, and China. Nonetheless, the success to date highlights innovation policy’s crucial role in fighting climate change. Now that success must be emulated across a wide range of other technologies.
Accelerating global innovation is more important than ever to deliver the promises made at Glasgow and for subsequent efforts to fight climate change. World leaders should reach for the stars by aggressively investing in applied RD&D as well as basic research, along with policies that hasten early adoption and ignite the private sector.