The Cleantech Group’s Cleantech Forum San Francisco event, this year relocated to Palm Springs, attracts a vast array of senior players in the climate tech industry from large corporates to startups as well as government representatives from around the world. This year’s conference theme was “From Commitments to Actions: The Sprint to Net-Zero,” representing the defining challenge of the coming decade. And while the conference doesn’t aspire to be a policy-focused event, there was no escaping the importance of government support to achieve the transition to net-zero.
One panel, titled “Carbon Management: The Market Opportunities” brought up a lot of key policy aspects. It was joined by two renowned policy experts: Julio Friedman, senior research scholar at the Center on Global Energy Policy at the Columbia University School of International Public Affairs, and David Victor, professor of innovation and public policy at the School of Global Policy and Strategy at UC San Diego.
The panel highlighted the huge progress that had been made in the last few years, particularly since the 2014 IPCC report and the 2015 Paris agreement. The net-zero framework is now widely accepted and has pushed the conversation toward full economy decarbonization, moving the focus away from simply power generation. Countries and governments are putting net-zero targets and carbon management objectives in place, sometimes supported by binding policies and market support mechanisms. This (1) provides the required certainty for private investors to come in and (2) creates a global ecosystem within which technologies can evolve and ultimately helped spur the recent rush of capital into climate tech.
Good examples of credible and durable policies that have helped the deployment of clean technologies include the Investment Tax Credit, Production Tax Credit, 45Q and California’s Low Carbon Fuel Standards.
Infrastructure development is an example of how governments can help create the ecosystem required for new technologies. The obvious case study is the U.S. electricity grid, but we also need CO2 pipelines, hydrogen refueling, and EV charging stations, refurbished ports, and more. A lot of money is required, and private markets aren’t necessarily fit to do these kinds of investments. This is why the Infrastructure and Build Back Better bills, which directly tackle many of these examples, are key elements of the U.S. climate policy toolbox.
The panelists highlighted that policy and incentives were particularly important for hardware technologies. The long timescales and the large amounts of capital required to achieve deployment at scale make it harder for venture capitalists to invest. These therefore require non-dilutive capital from governments and strong incentives for early adopters. These policies should differ depending on the sector being decarbonized.
Where the market knows what the right technology or technology options are, then clearly the right policy approach is to price the externality (e.g. cap-and-trade or carbon tax) and let the market do the rest. This is the case for example in the power sector, where the decarbonization pathways are mostly known, and is the approach taken by the European Union with its emissions trading scheme.
In areas where we don’t yet know what to do, the right policy is industrial policy, i.e. identifying clusters of good ideas and backing those in a major way. A large part of the decarbonization problem is bringing into use nascent technologies, where the technological risks remain high— something not easily done by markets. Programs such as the Department of Energy’s loans program and Earthshot Initiatives are great examples of the government supporting the transition of key technologies from lab testing to pilot and into commercial deployment.
Finally, to have a real impact, all policies should have a focus on followership, not leadership. California, for example, is a world-leader in climate policy, however it represents under 1% of global emissions. So, if their policies focus on developing expensive solutions that are not replicable in the rest of the world, the impact is almost negligible. Everything we do from a policy strategy point of view should therefore be aimed at enabling followership, not just being green leaders.
Global policy making remains a barometer of “seriousness” as opposed to a pure driver of change. We should not sit waiting for policy to lead, but instead drive market change, which will ultimately facilitate the roll-out of more ambitious policies.
