The Innovation Challenge Presentation on behalf of the EU Dr. Karsten Sach German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety Version of 13 May 2005 – check against delivery

Need for technological change Prevention of dangerous climate change implies move towards a low-carbon economy Some technology change will occur in any event – but substantial additional technology change is needed in all sectors Combating climate change requires substantial changes in how the world produces and uses energy As world-wide demand for energy and transport services will continue to grow, the reduction of greenhouse gas emissions will need to be realised through technologies based on much lower carbon intensity per unit of service than current technologies. Innovation is also required in other important sources of greenhouse gas emissions such as land use change and direct emissions from sectors. Innovation involves both hard and soft technologies, including management practices Sustainable technologies need a local base of human resources. This requires research and education, labs and post-docs and increased international cooperation in the relevant fields. ⃕ How can this necessary technology change be brought about?

Bringing technologies to the markets Many technologies to reduce greenhouse gas emissions, e.g. renewable energy technologies or combined heat and power production, exist already Both existing technologies and new advanced technologies have to be brought to the markets Technological innovation needs to be linked with investment cycles – to avoid lock-in effects into high-emission pathways Many technologies to reduce greenhouse gas emissions, e.g. combined heat and power production or renewable energy technologies, either exist already or are at an advanced stage of development. Wind energy alone prevents 50 million tons of CO2 in the EU. Currently, 70.000 people work in the European wind industry with an annual turnover of 5.7 billion €. However many promising technologies face very limited market up-take. Technological innovation needs to be linked with investment cycles, therefore tackling climate change needs to be integrated in ongoing investments. Long lasting effects of today’s investment decisions could cause lock-in effects into high-emission pathways. ⃕ What are cost efficient options to avoid this? How can be ensured that low-emission technologies are taken-up by mainstream markets?

Technology innovation needs ‚push‘ and ‚pull‘ policies To foster technologies across the innovation chain (see graph) requires combination of policies Pulling technological change: to ensure the right incentives to bring technologies into the markets: Bringing technologies to the market will bring down the cost. Establishing a market value for greenhouse gas reductions through market based mechanisms, such as cap and trade systems Broadening financial incentives to increase demand for low-carbon technologies Market based instruments can be complemented with smart and cost-effective policies that encourage the adoption of existing and new technologies, promoting their early deployment, such as feed-in tariffs Pushing technological change to facilitate technological breakthroughs: Additional technologies need to be developed for widespread use, beyond the many existing technologies. Further development can push technologies that are not yet near competitiveness but perhaps only a few years from the market. More international coordination of science, research and product development is needed to speed up technology innovation. How can we enhance international co-operation to develop breakthrough technologies? How best to involve public-private partnerships? Budgets for climate, energy, transport and production and consumption research need to be increased significantly. Source: Michael Grubb (2004)

Example: Renewable Energy European Experience: Cost reduction 1980 – 1995 through active support policies: By 65% for photovoltaics By 82% for windpower By 85% for electricity from biomass Technology costs will further decrease - continuing learning curves and accelerated mass production Active support policies have helped to radically reduce unit costs of producing electricity from renewable energy sources between 1980 and 1995 Standards/regulation such as quotas and feed-in tariffs for renewable energies have proven successfull in several EU member states. Such efforts must continue at accelarated speed Multiple co-benefits of renewable energies: Inexhaustible, available energy source Economic development e.g. in rural areas Creating jobs and income Enable diversification of energy supply and increasing energy security Contributing to sustainable development and poverty reduction Example of international cooperation: International Action Programme of the renewables2004 Conference: States, international organisations and financial institutions committed to measures that will increase the use of renewable energies. According to recent analysis by the year 2015, the CO2 saved by the implementation of the Bonn commitments will amount to 1,2 billion tons annually! [Figures on the slide are taken from the background paper to the European Commission Communication „Winning the battle against climate change“]

Faster deployment of climate friendly technologies is possible IEA alternative policy scenario: No increased overall investment needed. Gradual transformation requires a predictable and stable long term policy framework and political commitment. The latest IEA alternative policy scenario (World Energy Outlook 2004) indicates that, provided the right policy incentives are put in place, faster deployment of clean and efficient technologies is possible and affordable. Increased investment on the demand side is compensated by less investment on the supply side. Gradual transformation and investments in markets with long business cycles, such as energy and transport, require a predictable and stable long term policy framework and political commitment. Many investment decisions have to be taken very soon. Given the need for the renewal and expansion of the global capital stock in the electricity industry in the coming three decades, such a framework needs to be established as early as possible. The Kyoto-Protocol is such a framework. We need to build on this basis – without a gap beyond 2012.

Questions for SoGE: Role of UNFCCC process How can we secure a stable long-term policy framework? to drive technology policy opportunities to facilitate and enhance international synergies to facilitate the implementation of ‚push‘ and ‚pull‘ policy approaches to ensure broad and fair participation with regard to technological change Role of the UN FCCC: how can we ensure a stable long-term policy framework? What role does a broader participatory framework play with regard to technological change?