Making the Green New Deal Happen Blog Series, June 2021: Creating a demand-shock to Stimulate Climate Innovation

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Thomas Pellerin-Carlin from the Jacques Delors Energy Centre explains the vital role of regulation to accelerate clean energy innovation. As the European Commission promises a massive regulatory overhaul on July 14th, it should use this opportunity to create a demand-shock that stimulates climate innovation.

On July 14th the European Commission will present an overhaul of the European Union (EU) buildings, energy, industry and mobility regulatory frameworks. Officially, this so-called ‘Fit for 55 package’ will aim at implementing the new EU Climate target of reducing EU greenhouse gas emissions by 55% by 2030 and reaching net-zero emissions by 2050. But this package is so much more than just an exercise in regulatory maintenance. It is the litmus test of the European Green Deal, the moment when we will see if nice climate action talks and energy policy analysis are matched with concrete demand-side policy decisions that effectively increase humanity’s chances to avoid a climate disaster.

When it comes to delivering a net-zero emissions energy system, innovation is key, and the Fit For 55 contribution to clean energy innovation is therefore of the outmost importance.

We face two complementary clean energy innovation challenges.

The first is to innovate to deploy technical solutions that already exist on the market. Think for instance of the deep renovation of buildings. We currently can take an inefficient building and renovate it as a near-zero energy building. If we want to deliver net-zero by 2050, we need to deeply renovate around 3% of the building stock every single year. Today this deep renovation rate stands at 0.2%. Can we just multiply by 15 the amount of money and workers in this segment of the construction sector? Probably not. We need techniques, processes, business models, skills, financing schemes and social norms to transform the deep renovation of buildings into a mass-market. Many innovators and projects are going on, EnergieSprong top among them, but we need scale. (see our earlier blog, Making the Green New Deal Happen Blog Series, April 2021: Scaling Domestic Retrofits for Green Deal Success) EU buildings regulations have the power to deliver that scale.

The second innovation challenge is to create, test, demonstrate, scale and deploy solutions that currently exist on paper or in labs, but have not been tested at scale in real-life conditions. Think of producing steel using only renewable hydrogen as an energy source. This kind of innovation requires that the public sector plays its role: invest public money to support financially the researchers, engineers and innovators who will reduce the technology risk, and regulate to reduce the market risk and convince investors that clean solutions are not only good for humankind, but also bankable in the near future.

During the last months, at the Jacques Delors Institute we have led research to see how the EU can tackle both those challenges. Our conclusion is simple, to avoid a climate disaster, we need both a supply-shock and especially demand-shock measures for clean innovation. In practise, this means articulating five tools:

  • More public funding for green innovation. This will help invent totally new clean technologies and also help improve the clean solutions that already exist.
  • Adopt strict and ambitious regulations. Because you sometimes need very ambitious regulations to force change and stimulate innovation.
  • Make polluters pay for the pollution they create. Not punish them, but give them a financial incentive to adopt clean solutions and pollute less.
  • Regulate to exclude from the market all polluting products that can be easily replaced by clean ones.
  • Finally, deploy the right clean infrastructure.

Infographic depicting regulatory solutions to support the EU's pursuit of net-zero

 

 

 

 

 

 

 

 

 

 

 

Fit For 55 can help advance each of these five fronts.

  • In 2020, the short-sighted selfishness of five politicians (namely the prime ministers of the Netherlands, Austria, Denmark, Sweden and Finland) led to the EU cutting in its budget for research and innovation. Fit For 55 can partially address that problem as a forward-looking reform of the EU Carbon Market (EU-ETS) could increase the money this policy generates and earmarks for green innovation demonstration projects under the EU Innovation Fund.
  • The EU has the regulatory power to create niche markets for innovative clean solutions. One example would be to reform the Renewable Energy Directive by setting a target for renewable energy of 45% by 2030, and set a 1% sub-target for innovative renewable energy technology.
  • Carbon pricing on businesses works and leads them to shift their investments. We see it already in the electricity sector. The EU could progressively phase-out free ETS allowances to industrial sectors to increase demand for cleaner solutions.
  • Many politicians are ideologically opposed to bans. And many still oppose common sense measures like setting a date simply to ban the inefficient internal combustion engine technology for small vehicles, which would create a demand shock for cleaner vehicles.

That is just doing with vehicles what we have been doing for decades already with other products: we banned DDT and asbestos, and even harmless but very inefficient technologies like the incandescent light bulbs were banned to create market space for LEDs.

  • Infrastructure matters. A product like an individual car is only efficient because of decades of public investment allowing car users to benefit from roads paid for by taxpayers. Now we must deploy the infrastructure we need to survive the 21st century. And while much needs to happen at the local level (think city centres for pedestrian, biking lanes etc.), the EU should use its Alternative Fuels Infrastructure Directive to ensure each citizen can access an electric vehicle charging point at a maximum of 10km from where he/she lives/works.

As ENEL’s CEO recently stated “policy is a very powerful force to stimulate innovation (…) because it forces change”.[1] He is so right. Policy makers have the opportunity to create a demand-shock that stimulates climate innovation. Let’s ask them to take it.

[1] Francesco Starace, CEO of ENEL, “The importance of this is always underestimated. I think policy is a very powerful force to stimulate innovation. And it’s always encountering resistance from existing industries and established systems, because they force change. But that is sometimes necessary, for the better.” 7th April 2021 at joint Brunswick and Europe Jacques Delors webinar.


Thomas Pellerin-Carlin is the director of the Jacques Delors Energy Centre at the Paris-based think tank Jacques Delors Institute.

This blog is produced by TIPC and partner, EIT Climate-KIC

The editors of this blog series are Fred Steward, Emeritus Professor, School of Architecture and Cities, University of Westminster, London; and Jon Bloomfield, Systems Innovation Policy Advisor, Climate Innovation Ecosystems, the European Institute of Technology’s Climate Knowledge & Innovation Community (EIT Climate-KIC).

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