By Siddharth Singh, 26 May, 2011
Cornucopians have never been shy in dismissing what they call the “environmentalist hysteria” of climate change and resource crunch. In his article, Julian Simon once wrote that the “bad news” presented by several scientists and environmentalists about the environment and natural resources are contrary to available evidence. The claim made by all those who hold that view is that natural advances in technology can adequately tackle environmental issues such as climate change.
The IPCC argued in 2007 that greenhouse gas (GHG) emissions from industrialized countries must fall by 25-40% by 2020 compared with the 1990 levels to keep global warming to a maximum of 2 degrees Celsius. If technology alone cannot deal with climate change, the thrust by policymakers on technology alone could be detrimental. Indeed, prominent leaders such as the former US President, George W. Bush and the former Chief Scientific Adviser to the UK government, David King have held this view. Lawmakers in the US House of Representatives such as Sensenbrenner continue to actively propagate it.
In an attempt to analyse the role of technology in fighting climate change, this essay will first briefly look into the Cornucopian argument. It will then analyse the potential and readiness of technology in the near future to fight climate change. The essay will then describe the supporting policy infrastructure needed for such technology to flourish. Next, government policies that cut carbon emissions will be scrutinised, with focus on international climate change governance. Finally, a brief comment would be made on the issue of behavioural change.
The Cornucopian Argument
Proponents of the Cornucopian view include Matt Ridley and Bjorn Lomborg, who followed the footsteps of Julian Simon. Ridley writes that Lomborg exposed the “litany of environmental gloom” by showing how claims of climate change are grossly exaggerated in his book, ‘The Skeptical Economist’. Lomborg’s prediction of the indefinite improvement of the environment is based on a premise which is independent of human agency.
Ridley hence proposes that technological development will be able to deal with these issues adequately and that our concerns should instead be to “spread affluence” around the globe. It is important to note here that the basic premise of the “technology-only” argument in these cases comes from the claim that climate change isn’t as grave as it is made out to be, and the environment may in fact be improving.
The Potential and Competitiveness Of New Technology
Would markets be able to push out fossil fuel-based energy systems and replace them with renewables, as and when they become competitive? Reports by OECD (2003) have argued that it would be a grave error to believe that technical progress by itself can reduce Carbon dioxide (CO2) and other GHG emissions. In fact, technical progress can prolong emissions as there have been significant cost reductions in oil and gas explorations in the past few decades. This can be attributed to the research and development (R&D) and technical improvements in the fossil fuel sector. For instance, the cost of oil from deep-water platforms has fallen from US$25/bbl in the 1980s to US$10/bbl today.
CO2 emissions caused by energy-production can be reduced by technological improvements at different levels. These include end-use technologies in all sectors, fuel switching from coal to oil to gas, efficiency increases of energy conservation, phasing in non-carbon energy sources and CO2 capture and storage.
In particular, renewable sources of energy are a force to reckon with. Life cycle emissions of GHG are markedly low. Wind and solar GHG emission is 9 and 32 g CO2/kWh, as compared to a figure of approximately 1000 for coal. Solar and wind energy have the realisable potential of contributing around 40% by 2020 and by 2050 around 90% to the global energy mix.
In reference of the above, views on the readiness of low-carbon technology vary. The IPCC (2001) in its third Assessment Report asserts that technologies exist in pilot plant stage and these can be implemented successfully at a larger scale. In the USA for example, academic Makhijani has shown that it is possible to have a zero-CO2 producing electricity generation system within the next 30-50 years. A contrasting view held by Hoffert and others, who claim that low-carbon technologies aren’t ready to be implemented at a large scale and there is a need to intensify research on such technologies.
However, there is a widespread agreement that known technological options exist that could help reduce emissions significantly. The problem, however, isn’t of development but the dissemination of these technologies. Apart from solar and wind options discussed above, smart grid systems, also have the capacity to reduce GHG emissions. Automated distribution which match supply and demand reduces energy wastage, as does the use of super conducting materials. These and other features of smart grids make them an important innovation in the fight against climate change.
It needs to be borne in mind that the time frame to bring about meaningful cuts to fight climate change is only a few decades as per IPCCs recommendations. Hence, it is not only vital that the technology exists, but that it is successfully implemented around the world.
The costs of implementing non-carbon technologies are high, and often the underlying assumption is that these technologies will sooner or later become competitive on their own merits. This in turn will crowd out fossil fuel intensive technology.
The idea that R&D spending is the only form of intervention required is a form of the “technology-only” view, and it rests on an incorrect perception of the dynamics of markets and technology. To understand these dynamics, the next section will describe the evolution of technology, the concept of path dependence, and technology market creation.
The Process of Technological Change
Technological change is not a linear process but a cyclical one. The Schumpetarian theory of invention, innovation, diffusion and permeation of technology into the market place may not fully describe the mechanism of change. The process is cyclical because there is a feedback mechanism between the market experience and further technical development. Market development and technology development hence complement each other. In regard to this, Grubb has stated that endogenous (market induced) change in technology does accelerate development of low-cost solutions to CO2 emission abatement.
IEA (2000) illustrates that the costs of technologies fall as total unit volume rises. Technologies also learn faster from market experiences when they are new rather than when they are mature . Hence, new technologies become cost-effective over time if they benefit from dissemination. This can be seen in Figure 1 below, which shows the relationship between cost of electricity and cumulative production in electrical technology in the EU between 1980 and 1995.
Source: OECD, 2003
Projections have revealed that a break-even point would be reached by photovoltaics (PV) with fossil fuels by 2025 if historical growth of PV implementation continues at 15% a year. Such a break-even point may be reached even sooner for wind power, given how countries such as Denmark, Germany, Spain and India have been investing in it over the past several years.
The feedback from markets to technological improvements has several consequences. Technologies tend to get “locked-in” or “locked-out”. This happens not because an efficient technology has been adopted, but because it becomes efficient once it is adopted. This follows from the phenomena of increasing returns to scale (the more a technology is applied, the more it improves and widens its market potential). Hence, it is the very selection of technology which determines how competitive it becomes in the marketplace. Thus, Nakicenovic has taken the view that postponing investment decisions will not bring about technological change required to reduce CO2 emissions in a cost-effective manner.
Technological development is a multi-phase process that requires appropriate institutional framework, intellectual property rights protection, market-based licencing of those rights, innovative funding mechanisms and the removal of trade and investment barriers.
Figure 2 below shows how the phases of R&D, deployment and commercialisation are not linear. To induce private sector investment in innovation in the field of technology, governments will need to create a framework that will value the public benefits accrued.
Figure 2: Adapted from: CEE, 2008
Figure 3 below shows the framework conditions that influence successful technology development and deployment. Apart from the supporting infrastructure discussed above, governments also need to develop human capital and infrastructure in order to facilitate technical change.
Figure 3: Adapted from CEE, 2008
There are two important policy implications on account of this. First, R&D efforts are unlikely to be sufficient to produce sufficient progress. The second implication is that investment decisions in the energy sector over the next 2-3 decades will determine long-term technological options. This will impact how successfully climate change can be impacted.
Tools for Policy
The dynamics of the technological change discussed above give room to governments to facilitate the speed of technical change. There are five specific policy paths that can be taken. Importantly, these policy tools are most effective when used in unison rather than in isolation.
First, R&D can be funded or subsidised. This is the traditional area of government intervention. One of the primary reasons for under-investment in R&D is “spillovers”, i.e. firms aren’t able to appropriate adequate benefits from their investments. However, Clarke and Weyant show that in the case of environmental control technologies, international spillovers might be positive for R&D.
Governments can support research by, 1) cooperating with the private sector to develop and diffuse technology, 2) by facilitating public-private and inter-firm collaboration for cleaner technologies, and 3) by seeking greater international collaboration. Unfortunately, OECD (2003) claims that current levels of energy R&D investments are unlikely to be adequate given the magnitude of climate change. Furthermore, Fischer and Newell (2004) show that R&D subsidies may be inefficient since they postpone the majority of the effort to displace fossil fuel generation until after costs are brought down, thus requiring huge investments to reduce emissions.
Second, governments can put in place technology and performance standards as they prove to be effective tool to disseminate environmentally friendly technologies. A softer kind of standard is making it mandatory to give information to consumers about the efficiency of the product or service, and these have proven to be effective tools. However, imposing standards are often considered more costly than market-based solutions, and hence are scorned by the industry. One way around this issue is the creation of markets through performance-based standards. This can be done by making the performance obligations tradable. However, OECD (2003) states that they are ‘ill-suited’ to stimulate technical innovation on their own.
A third policy path would be subsidising technological dissemination. In the past, several approaches such as earmarked taxes to straightforward government subsidies have been taken up. Some of the instruments used include fixed feed-in tariffs (used by US, Germany, India), bidding process (Ireland, France, UK), and tradable green certificate schemes (Italy, UK). Governments however are increasingly looking at making consumers rather than taxpayers subsidise renewable energy technologies. One issue that crops up regarding the funding of new technologies is the picking of winner. Jacoby states that picking winners has proved to be difficult and daunting.
Fourth, Pigouvian taxes and cap-and-trade systems may be used as policy instruments. Even though they aren’t specifically designed to foster technical change, they do have innovation effects, as both systems modify the price of using the commodity that creates the externality. Fischer and Newell show that emission price is the most efficient at reducing emissions as it simultaneously gives incentives for fossil fuel energy producers to reduce emissions intensity, for consumers to conserve and for renewable energy producers to expand production and invest in R&D.
Finally, voluntary agreements including non-binding agreements on reporting emissions and progress to legally binding self-defined targets to negotiated agreements can be put in place. Although there is limited evidence of their effectiveness, they have effects on the dissemination of information and awareness among the public.
This essay has so far described the dynamics of technology and markets, their interrelationship, and the policy tools that can be used to foster them at a national level. This section will assess the role of international collaboration in facilitating this process.
Low or no carbon intensive energy technologies have characteristics that make it a public good. It is for this reason that they are likely to be provided in greater quantities through international collaboration. Moreover, countries are more likely to provide subsidies when there is a global agreement to do so. This is because innovations have a tendency to spillover to competitors and thus there is little incentive for any nation to move first. Additionally, international collaboration avoids the duplication of efforts. Barrett suggests an international agreement on R&D must be put in place which would eventually replace the Kyoto Protocol.
Over the past years, the primary tool for the promotion of technology in developing countries has been financial assistance by the means of preferential loans. The Climate Technology Initiative and the Global Environment Facility (GEF) have played important roles in this regard. GEF has given out $1 billion for climate change projects and has further assisted to an amount of $5 billion in co-financing. The programme funds technologies including photovoltaics for grid-connected bulk power, for advanced biomass power, solar thermal-electric technologies, wind power and fuel cells for mass transportation.
In addition to this, the Clean Development Mechanism (CDM) as proposed in the Kyoto Protocol is intended to facilitate the financing of emission reductions in developing countries and technology transfer from the private sector. However, the jury is still out on how effectively the CDM works, with CEE claiming that it hasn’t lived up to its expectations in bringing investments and technologies to developing countries.
Social and Behavioural Change
CO2 concentrations need to stabilise at or below 450 ppm by 2100 in case climate change is to be limited. This would require global per capita emissions to reduce to around 0.6tC from the current average of around 1.2tC. Rajan states that it is difficult to expect that incremental technological changes aided by policy framework alone would bring about major reductions in emissions relative to today’s levels.
Contrary to the technological-determination view as held by Hoffert and others, Rajan propagates a change in behaviour and consumption patterns to reduce emissions. This entails a social change leading to lifestyle and land-use changes.
It has been argued that gasoline or Pigouvian taxes would encourage people to take public transport and this would help reduce GHG emissions. However, such carbon taxes have been politically unviable, as there is great public resistance against them.
The willingness of people to transform their behaviour towards environment-friendly choices hinges on factors including availability of alternative modes, personal capabilities or skills, and attitudinal ones such as beliefs and values. These are not independent and indeed reinforce one another. In this regard, suggestions involving “push” and “pull” measures that provide behavioural incentives have been proposed, apart from cognitive-motivational ones which attempt to change people’s understanding. The former two involve having economic and legal frameworks to encourage people to cut down on carbon use, and the latter involves information provision and learning.
It can thus be concluded that policy making directed at curbing climate change must incorporate the development of technology markets, creating a framework for international cooperation, and bringing about behavioural change in consumers. In recent years, even Bjorn Lomborg has recognised the need for a low carbon tax to fund innovation in order to fight climate change.
Alternative sources of energy could provide a solution to curtailing CO2 emissions in the longer run. In the short run however, behavioural and structural changes need to be made together. The innovation of new technology alone will not be able to overcome the market inertia that prolongs the use of less effective technology. As this essay has shown, technological improvements result from a basket of policies which include market transformation. It is thus vital that the dynamics of technological development are well understood among policy makers in order to be successful in containing climate change to manageable levels.
Citations available on request.
By Siddharth Singh, who can be followed on Twitter @siddharth3