presentation_script (6).pdf

Module 04Supporting Innovation for Green Growth

Lesson 1Green innovation: An Introduction

World BankInstitute

Energy Sector Strategies to

Support Green Growth

Presentation Script

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Presentation Script Module 4: Supporting Innovation for Green Growth. Lesson 1: Green Innovation: An Introduction

Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth

Lesson 1: Green innovation: an introduction

This Lesson will address the following topics:

This lesson will explore the importance of innovation in the energy sector for

creating a greener economy and how governments can support innovation as

part of a broader green growth strategy.

More specifically, you will learn about;

• What green innovation is

• The types of innovation that can support sustainable energy development

• The rationale for governments to set policies to support green innovation

• We will also provide some links to references and resources for more

information.

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What is Green Innovation?

We start by defining green innovation. Green innovation can be defined as

“improvements to technologies (including products, processes,

organizational/management and marketing structures) by entrepreneurs that

are commercialized through markets to improve natural resource sustainability”

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In the context of the energy sector, innovation includes technology upgrading for

pollution and Green House Gas emissions reduction and resource efficiency that

will help improve energy access and rural electrification and the generation,

storage, transmission, distribution and energy use efficiency. It also includes

energy technology upgrading for reduced vulnerabilities and adaptation to

climate change, and for job and wealth creation, and poverty reduction. Some

technologies likely to be specific: for better photovoltaic cells, improvements in

energy use for households and industries. Others may be systemic and involve

broader technological improvements such as changes in transport systems, new

organizational patterns of cities and the production of goods and services, which

change the energy footprint of societies.

For developing countries, innovation can provide major opportunities. It can

contribute to satisfying the growing energy demand through a transformation of

the power sector while meeting development needs. Investing in innovation can

enable countries to develop their own domestic innovation trajectories. Hence,

there is a significant incentive for governments to create an enabling

environment for domestic research, innovation and entrepreneurship, and for

tapping existing global knowledge and research in order to capitalize on the co-

benefits from their needed energy build-out.

This module will challenge the common perception that innovation is focused

primarily in the industrialized countries. Rather, it is important to encourage

innovation in all development contexts.

The innovation process – National Innovation System

Before discussing specific innovations in the energy sector, let’s identify the

process of innovation at a National or Sub-National Level. The invention itself,

when it comes to technological change, has traditionally been thought to happen

in the Research step, but can actually take place anywhere along the stylized 5

steps: Research, Development of discoveries, Demonstration of discoveries

through prototypes, Market Transformation or adaptation to customer needs

through market testing, and Diffusion which includes commercialization of a new

product, process, organizational change or marketing technique in the

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marketplace. This process is not linear, and consists of overlaps and feedbacks

between the different steps, with new ideas often generated in the Diffusion

step from customer feedback or customer co-design, and then benefiting from

further Research and Development.

When we put this process into a bigger context, we see that there are many

factors impacting the innovation process. This figure now shows a “National

innovation system”. Systems for green growth build domestic capacity that

enables entrepreneurs within an appropriate innovation climate to choose,

absorb and promote the technologies that are best for improving the energy

sector.

There is need for innovation throughout the life cycle of the products and supply

chain. Innovation can for example include: Entrepreneurs can learn to ship products

more efficiently, learn how to source parts better, learn how to improve

manufacturing or the operation of a technology. Grid operators and utilities can

learn how to integrate a technology into the energy system more efficiently. And

policymakers can learn which policies and regulatory frameworks most effectively

support the use of the best technologies at the lowest cost.

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Another important factor to note is that the innovation climate in every country is

affected by social, cultural and historical factors that are unique to the country in

question and sometimes even unique to each region within a country.

3 Categories for Green Innovation: Consists of different technologies:

In order to explore the appropriate policies to foster green innovation for the

energy sector, we have divided innovation into two types, both requiring as a

pre-requisite sufficient absorptive capacity and driven by productive

entrepreneurs.

Frontier innovation, is the commercialization of new-to-the-world inventions or

discoveries. Adaptive innovation is the adaptation of already-existing

technologies to better meet local needs. And absorptive capacity is firm’s ability,

varying across countries, to make use of technologies, driven by productive

entrepreneurs. Frontier and adaptive innovations include different types of

technologies that can help improve and transform the energy sector. Please take

some tie to review them.

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In the next slides, you will learn more about these two types of innovation, and

the role of entrepreneurship and absorptive capacity. Later on, when we turn to

look at the policy options, they will be based on each of these categories.

3 Categories for Green Innovation: “New-to-the-world” innovation

Frontier innovation is also know as “new-to-the-world” innovation which means

that it is a discovery, often with some work taking place in the research phase of

the technology cycle. As the figure shows, frontier innovation can be seen as a

new technology curve. It can be new ways of improving energy efficiency or

generating power, allowing the production of more outputs with fewer or

different inputs. For example it can be a switch in how vehicles are powered or

how power is generated. Frontier innovation thus has the potential to make a

big contribution to transforming the energy sector.

To read more about a specific example of frontier innovation, click on the

example.

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3 Categories for Green Innovation: Top twelve inventor countries 2000-2005

Yet, since most frontier research on clean energy technologies is concentrated in

high-income countries, most frontier innovations on clean energy occur in

industrialized countries. One way to illustrate this is to look at where green

patents are registered. As the figure shows, a clear majority of green patents are

registered in high-income countries.

And as the next figure shows in fact Japan, Germany and the US account for 60

percent of total greenhouse gas mitigation innovations worldwide between 2000

and 2005.

Some important innovations occur in emerging economies. As the table shows

China, South Korea, Russia, and Brazil are particular important.

Other countries that are not shown in the table but that are also important

emerging economies of green innovations are Argentina, Hungary, India,

Malaysia, Mexico and South Africa.

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3 Categories for Green Innovation: “New-to-the-firm” innovation

We now move on to adaptive innovation. This is the diffusion of already-existing

technologies, allowing countries to adapt energy technologies to their local

conditions. Since there is significant potential for using and improving

applications of existing technologies that are not yet realized at their full

capacity, adaptive innovation is important for developing countries. Examples of

adaptive innovation could be ensuring that carbon storage systems work with

local fuel sources and geological conditions or adapting waste-to-energy

technologies to certain city contexts.

To read about an specific example of adaptive innovation, click on the example.

3 Categories for Green Innovation: Pre-requisites for innovation

Our third category, entrepreneurship and absorptive capacity differs from the

two previous categories. It does not refer to specific technologies. It is a pre-

requisite for the improvement and commercialization of all technologies. It is

firms’ ability to understand, adapt and make use of technologies, driven by

productive entrepreneurship. Innovation in the energy sector, like innovation in

general, depends not only on the inventions made but on people and firms that

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are able to generate and apply the knowledge in order to commercialize

technologies. This ability to absorb and commercialize technologies is

determined by the institutional environment surrounding the whole technology

cycle. This includes for example the regulatory and financial environment such as

the cost of capital, access to capital, and attitudes towards risk and reward: in

order for an entrepreneur to be willing to allocate his or her talent to productive

innovation, the environment should ensure sufficiently high rewards

commensurate with the risks, that will not be expropriated in some way in the

future. Improving the absorptive and entrepreneurial capacity of both public and

private small, medium and large businesses as well as consumers, producers and

the entire market is therefore crucial for commercializing and deploying energy

technologies.

To read about an specific example of absorptive capacity, click on the example.

Base of the Pyramid Innovation

After have learned about frontier and adaptive innovation and entrepreneurship

and absorptive capacity, we will now look at certain types of innovations that are

especially important for increasing access to energy in developing countries.

These are Base of the Pyramid Innovation, or also called BOP innovation. They

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include both formal large-step and informal small-step innovations, that can be

either frontier or adaptive, and are facilitated by entrepreneurship and improved

absorptive capacity. The benefits of them are that they are often co-created with

poor consumers themselves which means that they meet the needs of poor

households at much lower costs per unit. Examples could be to create cook

stoves at a small cost that are also easy to scale up and that would entail co-

benefits such as improved health.

They also include sophisticated high-tech vaccines for neglected diseases, or for

common diseases at significantly lower costs.

Yet, to date very few BOP (and related low-tech) green innovations have been

sufficiently scaled-up. This can be partly explained by the low profitability of such

innovations. Therefore, it remains essential for governments to create an

appropriate policy environment to support them. In the next lesson, you will

learn more about these BOP policies.

For now, click on the box to learn more about the challenges of base of the

pyramid innovation.

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Why lack of green innovation?

Before we can explore policy measures that can support innovation, we first

have to ask why there is a lack of green innovation? Well, it is due to the

inherent “double externality” of knowledge-related market failures

compounding environmental externalities and reinforced by traditional

government failures.

The combination of these failures requires a combined set of policy responses in

order to realize a country’s innovation potential. The environmental externalities

problem and the government failures have been analyzed in the previous

modules. We will therefore only take a closer look at the knowledge market

failures related to insufficient innovation.

Click on the box of knowledge market failure to learn more. When you are done,

proceed to the next slide to learn more about why governments should help to

correct these failures.

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Why lack of green innovation?

Having these market failures in mind, one can see that there is a rationale for

governments to give support throughout the whole innovation chain

First, to support basic research and development. Due to knowledge being a

public good, and private firms typically not being able to capture all the positive

spillovers of that knowledge, research and development should be supported by

public funding. Thereafter, when private funding increases, there will still be

market externalities, for example carbon costs or barriers in financing that

hinder ideas to be further developed and commercialized. There will often arise

a funding gap, usually referred to as ‘The valley of death”. Hence, the market by

itself does not generally fix this problem, but rather the role of government in

the market formation stage can be critical to overcoming barriers to market

formation and diffusion.

Another reason to why Governments should be is that innovation is affected by

policies for the whole society, and not just the energy sector. For example,

policies to promote sustainable energy development include various policy areas

such as trade, educational and industrial policies. And Government support to

innovation can create gains to society that go beyond the specific area of

intervention (so called “positive policy spillovers”).

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Policy instruments for innovation

You are now familiar with what green innovation is and therefore ready to, in

the next lesson, explore the policy instruments that can support innovation, so

called Innovation Policies.

In the next two lessons you will learn about policies to promote frontier

innovation, to strengthen adaptive innovation to improve absorptive capacity as

well as how to strengthen International collaboration.

Innovation policies for promoting frontier innovation

This slide is dedicated to summarizing key messages from this lesson. Please take

your time to go through them and in the next slide you will find references, in

case you wish to learn more about the subject covered in this lesson.

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References and Further Reading

Here are some useful references if you wish to learn more about the subject

covered in this lesson.

Documents

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