Climate change policy, innovation and growth

At a Glance

Publication Date January 2016
Format pdf
Thematic Area Cross Cutting

Countries should set targets to increase public investment in low-carbon research and development (R&D) slowly and steadily beyond 2020, according to a report published on January 18 by the Grantham Research Institute on Climate Change and the Environment at London School of Economics and Political Science.

The report states that “while it is welcomed that countries like the UK have committed to double public funding for low-carbon R&D by 2020 as part of Mission Innovation; countries should be encouraged to set public R&D targets as far ahead as 2030.”

The authors of the report – Antoine Dechezleprêtre, Ralf Martin, Samuela Bassi – argue that “commitments to fund R&D should have a long-term component just like carbon emission caps”. However, they caution against a sudden increase in funding for low-carbon R&D, because the number of researchers is fixed in the short run and expanding research in clean technologies involves training new scientists to avoid crowding out other socially valuable R&D activities.

The report argues that “growth in low-carbon R&D budgets should be slow and steady, allowing time for the development of young researchers in the field.”

It adds: “Targets would vary between countries and may need to be set within a range, but such long-term targets would reduce public funding spikes and associated adjustment costs, and ultimately could reduce the overall cost of decarbonisation.”

Public spending on low-carbon R&D needs to increase significantly over the next few decades if the world is to realise the goals of the Paris Agreement to limit global warming to well below 2°C and to achieve net zero global emissions of greenhouse gases in the second half of this century. Some of the greatest funding increases are needed in low-carbon transportation, carbon capture and storage (CCS), smart grids and industrial energy efficiency.

The report states: “A crucial challenge for climate change policies is ensuring that low-carbon innovation activity is either additional to current research and development (R&D) expenditures, or at least displaces innovation in polluting technologies rather than other socially valuable innovation. Policies that change the relative price of low-carbon and high-carbon inputs, such as emissions permits markets or fuel taxes, can play this role effectively.”

The authors point out that “increasing public support for low-carbon R&D may also be politically attractive because low-carbon innovations have larger economic benefits than the carbon-intensive technologies they replace.”

Furthermore, in Europe, a large proportion of spillovers from low-carbon R&D tend to benefit inventors from other European countries, which creates a “strong case” for funding to be provided by the European Union.

The report states: “For Europe as a whole, 61 per cent of spillovers occur domestically. However, this share is much smaller for European countries with small or open economies: 28 per cent for France, 15 per cent for the UK, 10 per cent for the Netherlands. As such, coordination of European Union research policy is theoretically justified and there is a strong case for European institutions to fund R&D.”

The report also points out that R&D investment can be guaranteed to support domestic manufacturers, whereas investment in deploying technologies can see benefits go overseas.

It states: “European countries have been emphasising technology deployment through feed-in tariffs for renewable energy production over direct R&D support, but this approach may not provide sufficient stimulus to develop the next generation of low-carbon technologies.”

The report concludes that public investments in low-carbon R&D is most needed in areas that will deliver long-term gains but which are not yet commercially attractive.

The report states: “Currently, R&D support has been disproportionately low compared to deployment support, especially in Europe. There is strong argument therefore to increase the size of public R&D support.”

The report on ‘Climate change policy, innovation and growth’ was produced as part of the Grantham Research Institute’s programme on ‘Growth and the economy’, sponsored by the Global Green Growth Institute.