Innovating our way to net-zeroResearch and Innovation (R&I)
pathways for the energy transition
Elena Verdolini
Tokyo, 13 February 2020

ALPS International SymposiumOutline
The European Union is strongly committed to reaching a zero carbon economy by midcentury: deep transformations are required in all sectors and regions. Research andinnovation (R&I) investments and policies play a crucial role in the development andsuccessful uptake of the clean technologies necessary for the transition. This presentation
touches upon four topics.
••••

The EU strategy towards zero-carbon economy, and ways to implement it
Study on the value of R&I investments in key non-mature technologies: CCS, advanced
biofuels and batteries for electric vehicles
Insights on the ability of different policy instruments to promote innovation incountries at different level of specialization in renewable innovation
R&I investments for socio-economic research and social innovation.

EU strategy towards zero-carbon economy
2020 climate and energy package: a set ofbinding legislation for three key targets by
2020:

2030 climate and energy framework: EUwide targets and policy objectives for theperiod from 2021 to 2030:• 20% cut in greenhouse gas emissions(from 1990 levels)• 20% of EU energy from renewables• 20% improvement in energy efficiency• At least 40% cuts in greenhouse gasemissions (from 1990 levels)• At least 32% share for renewable energy• At least 32.5% improvement in energy
efficiency

Current policies to achieve emissions reductions will have to be strengthenedto achieve 2030 targets: EU emissions trading system (EU-ETS), National short terms andlong-term strategies, Innovation and financing

EU strategy towards zero-carbon economy
2050 long-term strategy(Nov 2018) the EU Commission calls for a
carbon-neutral EU by 2050. Key aspects:• Economic transition• Industrial transition• Societal transition (“Just Transition”)
EU Green deal“a new growth strategy that aims to transform theEU into a fair and prosperous society, with a modern,resource-efficient and competitive economy where
there are no net emissions of greenhouse gases in
2050 and where economic growth is decoupled fromresource use”

EU strategy towards zero-carbon economy

R&I pathways

R&I pathways

Key insights from EIEE’s researchMissionto improve environmental, energy and natural resource
decisions through impartial economic research and policy
engagement

Key insights from EIEE’s research

A transatlantic partnership between two leadinginternational research institutes on economics,
climate and the environment

Key insights from EIEE’s researchIntegratedAssessment Models
and low-carbon
scenarios
Econometrics anddata science
Experimental andbehavioral economics

Macro-economic implications of R&I investments
Study of optimal R&I investments inbiofuels, batteries and CCS
To reach 2°target, EU needs to invest
rump up investment starting from about2025 (compared to REF scenario)
To reach 1.5°target, EU needs to also
start investing sooner
This implies an urgent requirement forpolicies and governance that enables
investments of such magnitude

Macro-economic implications of R&I investments
The cost of mitigation for the 1.5°C target
is roughly double that of the 2°C target
 Such costs can be lowered throughoptimal R&I investment policies

Macro-economic implications of R&I investments
The cost of mitigation for the 1.5°C target
is roughly double that of the 2°C target
 Such costs can be lowered throughoptimal R&I investment policies

The carbon prices is lower under optimal
R&I investment.
Optimal R&I strategies increase thefeasibility of ambitious climate
stabilization targets: costs of mitigation
decreases, even if EU is the only region
undertaking R&I investments

GDP in 2050: 1% - 2.5%
higher if optimal R&I

Macro-economic implications of R&I investments
Optimal R&I expenditure can be financed through carbon tax revenues use ofcarbon tax revenues (1% - 8%). (!) But overtime diminishing carbon tax revenues
Yet, not all countries can achieve the same gains

Policy instruments to promote innovation
Environmental policies other than R&I investment generate incentive forinnovation (NB: in addition emission reduction)
Yet, it is widely known that not all policy instruments are equally effective inpromoting innovation for the low- and zero-carbon transition (market-based
versus command-and-control)

We show that the ability of different policy instrument to promote innovation
depends on the relative innovative capability/specialization of a given
country (renewables as opposed to fossil innovation)

Policy instruments to promote innovation

1st regime: No policy instrument iseffective in promoting innovation.
“Laggard” countries should invest in
R&D first to build competences
2nd regime: market based policies are
successful at promoting renewable
innovation, command-and-control atdepressing fossil innovation. A policy
mix required in the crucial phase

3rd regime: market-based polices very
effective to promote innovation. These
instruments can be used to reinforce agreen advantage when competencies
are high

Market-based policies

Command-and-control policies

Back to the future: EU strategy towards zero-carbon economy
2050 long-term strategy(Nov 2018) the EU Commission calls for a
carbon-neutral EU by 2050. Key aspects:• Economic transition• Industrial transition• Societal transition (“Just Transition”)
EU Green deal“a new growth strategy that aims to transform theEU into a fair and prosperous society, with a modern,resource-efficient and competitive economy where
there are no net emissions of greenhouse gases in
2050 and where economic growth is decoupled fromresource use”

The EU Green Deal requires a JUSTTRANSITION Crucial to understand the impacts ofdifferent policy instruments on key
societal outcomes including
competitiveness, distribution of wealth,access to resources, trade patterns,
demand for skills

Conclusions
Innovating our way to net-zero: effective way to reduce the costs associatedwith climate mitigation
Innovation investments should be coupled with the appropriate
combination of climate policies (command-and-control and market-based) toprovide even greater incentives for innovation
The zero-carbon transition is not only about bringing to the market newtechnologies, rather it is about radically changing financial flows which
support a carbon intensive society, as well as social and inclusive innovation
to change lifestyles

Thank you for your attention

elena.verdolini@eiee.org