In an article posted at Die Klimazwiebel, Eduardo Zorita asks where environmental and energy innovation ought to come from. One question he has in mind is whether governments may successfully induce innovation. He is doubtful, though:
In my personal experience, I do not have the feeling that forced innovation, i.e. a deliberate search for new inventions, has been very successful in the past.
He can only think of the Apollo Project, but there’s definitely more. Jänicke and Lindemann recently published a helpful overview paper about the various instruments regulators can use to encourage environmental innovations.They have come up with a matrix where market-based, regulatory, and supporting instruments can cover the invention, the innovation (market launch), and the diffusion phase of a new technology. Overall, this leads to a quite complex picture of how governments may cover the various phases of innovation, and employ different types of instruments in order to achieve the goal of having new environmentally-sound technologies developed and distributed.
In short: There’s no silver bullet in innovation and environmental politics, but rather necessary to establish a well-targeted and integrated approach. Otherwise you’re going nowhere.
Some instruments may be confined to only one of the phases described above, like direct R&D expenditure (invention phase) or direct subsidisation of entry-into-market measures (innovation/market-launch phase). Others may spread over the entire innovation-cycle. Jänicke and Lindemann came up with “market-based trend steering” as one of a few examples. I would add feed-in-tariffs, since they are primarily aiming at the diffusion of existing technologies, but have a strong innovation aspect due to the degression of revenues built in the law.
One fascinating instrument that has at times come to play is called technology forcing. If a government wants a certain, say, emission standard to be met, yet this cannot be done with existing technologies (or only at unacceptable costs), the solution may be as brute as pragmatic: Simply set the standard anyway and see what industry can come up with. Thereby, the regulator forces companies to innovate, since otherwise they can’t sell their products anymore. Gerard and Lave, in a study published in 2007, assessed the two examples are quite famous for successful and failed technology forcing: The 1970 Clean Air Act that forced industries to invent low-cost catalytic converters (success), and the 1969 airbag mandate that would need 20 years to come up with something fairly useful (failure).
A set of instruments aiming at the diffusion phase does not need to go beyond existing technologies, but rather sets the best available technology (BAT) as a standard and requires other market players to quickly adopt it. This is done, for example, by the EU in its Integrated Pollution Prevention and Control Directive (IPPC). A more fascinating example is the top runner program employed by Japan. It has been introduced by the Japanese government in 1998 and has been very successful since. The top runner scheme works by first assessing the market for certain appliances, then identifiying the most energy-efficient product available, and finally setting its efficiency level as the standard to be met by the whole industry in a number of years. Today, it covers 21 product categories from air conditioning devices to computers, TVs and water heaters, and is considered a major pillar of Japan’s climate policy mix. It gives companies an additional incentive to innovate, because they know in advance that if they come up with an even more efficient fridge, 5 years from now all other companies have to do just as good.
Eduardo’s example of the internet as a technology that nobody foresaw in its potential to change the world is a good starting point for mentioning how important it can be to spend money on things you don’t know what they may be good for in the future. It reminds me of the story that throughout the 1950s, the US military would buy off nearly the whole production of newly developed transistors in order to work on missiles and such stuff. This gave the new microelectronics industry the necessary profits to grow, and ultimately it would lead to all of us using a PC to reading this. Of course nobody could foresee this in 1950 – that’s why transistors are a good example to not dismiss a seemingly strange new technology on the grounds of its present value. Feel free to enhance on this idea with regards to, uh, renewable energies.