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A once-in-a-generation opportunity to reshape the future

Highlights
  • This report makes clear the importance of accelerating clean energy innovation to give the world the best chance of achieving energy and climate goals, including net-zero emissions. Without a strong continuing focus on clean energy innovation, our chances of success are shrinking. The opportunity offered to governments, industry and clean energy investors is enormous. In the Sustainable Development Scenario, annual average investments in technologies that are currently only at prototype or demonstration stages total around USD 350 billion through to 2040, and they reach nearly USD 3 trillion in the 2060s.
  • We identify five key principles for compressing the innovation cycle and delivering net-zero emissions. They focus on areas of particular relevance to clean energy technology that often lack attention from energy policy makers or need strengthening. They build on the analytical findings of this report:
  1. Prioritise, track and adjust. Selecting a portfolio of technologies to support requires processes that are rigorous and flexible and that factor in local needs and advantages.
  2.  Raise public R&D and market-led private innovation. Different technologies have differing needs for further support: from more public R&D funding to market incentives.
  3. Address all the links in the value chain. In each application, a technology is only as close to market as the weakest link in its value chain, and uneven progress hinders innovation.
  4. Build enabling infrastructure. Governments can mobilise private finance to address innovation gaps by sharing the risks of network enhancements and demonstrators.
  5. Work globally for regional success. The technology challenges are urgent and global, making a strong case for co-operation which could draw on existing multilateral forums.
  • Covid-19 means that some of these key principles deserve immediate attention from governments looking to boost economic activity. In particular, it is important to maintain R&D funding at planned levels and to consider raising it in strategic areas. Current clean energy demonstration projects should not be allowed to fail. Market-based policies and funding could help scale-up value chains for modular technologies like electrolysers and batteries, significantly advancing their progress. Measures to spur innovation could be taken forward alongside related measures such as infrastructure investments in wider stimulus packages.
  • Economic recovery measures also present new opportunities for innovation to reshape the future towards cleaner energy in the longer term. Innovation policies themselves – including technology prioritisation processes and tracking and evaluation systems – could be renewed and aligned with long-term goals. Investments in key demonstration projects in heavy industry and long-distance transport, which have often been neglected, could make low-carbon options available earlier and in time for scheduled investments cycles around 2030, avoiding “locking-in” significant emissions. Co-ordinated investments in R&D and enabling infrastructure for electrification; carbon capture, utilisation and storage; hydrogen; and bioenergy could also significantly boost clean energy transitions.


Introduction

This is an unprecedented moment in energy history. The world may currently be at an inflection point in the development of a clean energy technology portfolio that matches net-zero emission ambitions. The awareness of the importance of innovation and its role in transforming energy systems has never been higher. It has been brought into sharp focus by the ambitious targets for emissions reductions by 2050 which have been set by countries and companies alike. Major industrial sectors – including iron and steel, cement, fuels production, aviation, shipping, gas supply – that don’t yet have commercially available solutions for deep decarbonisation are engaged in project and policy development. Emerging economies, such as Brazil, the People’s Republic of China (hereafter “China”) and India, are strengthening their innovation systems for home-grown technologies appropriate to their contexts.

Government policy will determine whether these positive trends translate into a faster pace of innovation more closely aligned with a clean energy transition to net-zero emissions, and the advent of the Covid-19 pandemic makes the role of governments more important than ever. At the outset of the current crisis, investment in R&D was not sufficient to meet the scale of the challenges, especially in sectors that currently have limited available commercial and scalable low-carbon options. There is an opportunity now to address this, including through measures that form part of economic recovery packages. Maintaining and increasing the rate at which promising new technologies enter the energy system is not only critical for meeting energy policy objectives, but also has the potential to drive future economic growth: this report points to a wide range of investments that make the longer term transition to net-zero emissions more likely, while at the same time spurring near-term economic recovery.

There is, however, also a risk that the economic damage done by Covid-19 may lead to reductions in R&D budgets and investment. That would be deeply damaging to clean energy innovation and to the prospects of achieving net-zero emissions. Innovation is a process that spans decades and, while many of the technology types deployed in the Sustainable Development Scenario are already advancing towards maturity, some key technologies still have a long way to go. Delayed demonstration of the competing options for decarbonising industry in particular would make it harder to meet climate goals, with delays to low-carbon hydrogen demonstration projects alone potentially leading to 1.5 Gt of additional CO2 by 2040 (see Chapter 4). Value chains for new technologies are fragile, and global clean energy innovation systems could take years to recover from cutbacks in spending.

This final chapter draws together the conclusions from the analysis throughout this report into recommendations for policy action. The chapter begins by presenting five key principles for compressing the innovation cycle and delivering net-zero emissions. This focuses on areas of particular relevance to clean energy technology that often lack attention from energy policy makers or that need strengthening in the context of net-zero emissions ambitions. In response to the additional and equally urgent policy context of the Covid-19 pandemic, the subsequent sections of the chapter highlight more specific elements of the policy package that can address both near‑term and long-term goals. They consider immediate actions to keep clean energy innovation on track through to 2025 and beyond, and new opportunities for innovation-related economic recovery measures to reshape a cleaner energy future. They then look at these actions and opportunities in terms of their relevance to key technology families for achieving net-zero emissions, giving concrete examples of what needs to be done.

Five key principles to accelerate clean energy technology innovation for net-zero emissions

This report brings out that innovation policy and energy policy need to be considered together, and that clean energy technology innovation should be seen as a core element in energy policy decision making. There has been a tendency in the past to treat R&D and innovation policy separately from energy policy. Feedback loops between energy strategy and the learnings from technology innovation programmes are sometimes not formalised. In some countries they have been housed in different ministries, while in others the links between the relevant divisions within a single ministry have been weak. Regardless of what organisational arrangements are in place, the two areas of policy need to be considered together, and those working on them need to collaborate closely.

The recommended policy actions in this section are grounded in the findings of the earlier chapters of this report. For example, the recommendation for governments to look more closely for synergies between technology types across sectors is based on the acceleration of innovation progress seen in historical cases such as solar PV and semiconductors and our identification of technology clusters that are central to achieving net-zero emissions, while the recommendation to look at value chains as a whole and identify the weakest links in value chains for a given technology design is based on analysis of areas where progress has been uneven, such as synthetic fuels.

The recommendations are made with national governments and supranational authorities in mind, although many of them are also relevant to action by authorities in cities and other subnational authorities, and to companies too. Different governments will, of course, select portfolios and policy instruments differently according to their individual circumstances. From a global perspective, the adoption of different R&D portfolios by different countries, regions and companies is a strength, as long as all key innovation gaps are addressed in total: it supports competition and diversity in the face of uncertainty.

The recommendations do not attempt to provide a single technology portfolio that is suitable for all. Indeed, in general they are not technology specific, focusing instead on good practices that can guide technology choices and be adapted to unanticipated breakthroughs. As highlighted in the findings of Chapters 3 and 4, however, four cross-cutting technology areas underpin most of the long-term emissions reductions in the Sustainable Development Scenario and are therefore key to faster innovation. These are: 1) electrification of end-uses; 2) CCUS; 3) hydrogen and hydrogen-based synthetic fuels; and 4) bioenergy. All four are particularly relevant to sectors where reducing emissions is hardest, and face challenges in co-ordinating innovation across their value chains in a timely manner. For this reason, examples involving these areas of technology are used to illustrate the recommendations wherever possible.

While the focus here is on public policy, the role of private sector entrepreneurs, companies and financers is also critical. Private sector participants in the innovation system greatly outnumber those from the public sector, with public sector employees representing just 5-25% of R&D researchers in most OECD countries (OECD, 2020). Success will depend upon the public and private sectors working closely together to agree the way ahead, identify projects and metrics, and learn together from past successes and failures.

The list of elements set out in this chapter for inclusion in a policy package to accelerate clean energy technology innovation is aimed at maximising the likelihood of a successful transition to net-zero emissions. It is not exhaustive: a successful clean energy innovation system needs various kinds of support, many of which are not energy specific (see Chapter 1). Rather, it focuses on areas of particular relevance to clean energy technology that often lack attention from energy policy makers or need strengthening for meeting net-zero emissions ambitions. These recommendations represent a package of good practices at any time, not just in the context of the repercussions of the Covid-19 pandemic. They are grouped under five core principles.


Key principles to accelerate clean energy technology innovation for net-zero emissions

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Key principles to accelerate clean energy technology innovation for net-zero emissions

Innovation systems are stronger and have more impact if participants are working towards the same overarching goals. Visions of the future can be formulated and consensus promoted by using roadmapping processes that also identify realistic target markets for local technology development. Given the challenges of decarbonising certain end-use applications, there are strong arguments in favour of developing such visions on a sectoral or application-specific basis – such as supply of low-carbon steel or building heat – and not just at the level of technology type – such as biofuels, wind power or heat pumps. While multi-year priority setting is well established in places including China, the European Union and Japan, there is less experience with complementary processes to ensure flexibility and evaluation of outcomes against policy objectives. The key requirements are to:

Establish and publicise clean energy visions for key sectors in the long term, and at interim milestones, in co-operation with technology experts, civil society and market analysts. Good roadmaps describe the journey and the destination in qualitative as well as quantitative terms: they also look at how the activities of the people and companies involved might change over time, so as to provide a foundation for a conversation about opportunities and trade-offs between all relevant stakeholders.

Identify the technology needs and innovation gaps to get from here to there. Clean energy visions can be mapped onto the existing technology landscape to identify where improvements in cost and performance are needed, and where there are cross-sectoral interactions. Tools such as the ETP Clean Energy Technology Guide can be used to help in this process (see Chapter 3). Technology needs assessments as promoted by the United Nations and as undertaken for the UK Energy Innovation Needs Assessment exercises are examples.

Prioritise a set of R&D topics, taking into account local expertise, local R&D capacity, comparative industrial advantage, and potential for spillovers. Selecting the areas to prioritise is a difficult but essential exercise, and there is significant scope for governments to share good practice in this area. Based on the analysis for the Sustainable Development Scenario, we specifically highlight the importance of considering cross-sectoral spillovers. For example, cross-sectoral technology clusters that support “electrochemistry” or “lightweight materials” might accelerate innovation faster in some countries than clusters for applications such as “energy storage” or “mobility”. Governments of smaller economies have particular incentives to prioritise R&D and select the technology types that they are best placed to contribute. Japan’s Environment Innovation Strategy is an example of a priority-setting document, while Korea’s technology cluster for batteries, solar PV and electronics is an example of clustering.

Track progress towards stated policy goals, embed evaluation ex ante into policy design and establish processes for regular review of priorities. Committing to innovation means taking a long-term view and embracing uncertainty, but that does not diminish the importance of regular assessments of progress and policy orientation. There is considerable potential for better data to help governments assess how their clean energy innovation policies are performing, including by ensuring that the information needed for ex post evaluation is gathered along the way. Canada and Italy are examples of countries that collect data on private sector energy R&D to support policy making, while independent programme evaluations are well established in the United States, one example being the 2017 review of ARPA-E (Advanced Research Projects Agency – Energy) by the National Academies of Sciences, Engineering, and Medicine.

Communicate the vision to the public and nurture and build socio-political support. Energy innovation takes time and there is little room for manoeuvre if net-zero ambitions are to be realised. Compressing the timetables for scale-up and continual improvement requires mobilising all stakeholders. In practice, this demands transparency about the process and the identification of possible areas of public concern (and enthusiasm) in advance. The European Commission, for example, conducts regular Eurobarometer surveys of public opinion on energy.

Aligning innovation with the opportunities for a clean energy transition to net-zero emissions requires more resources than are currently devoted to clean energy R&D and innovation by both the public and private sectors. While it is not possible to specify the precise amount that should be spent, or who is best placed to spend it in each country, the innovation system needs sufficient funding to generate a steady pipeline of new ideas that align with sectoral net-zero emissions visions, and the proponents of these ideas need to be able to access funding to reach prototype scale, demonstration and scale-up into successive market niches, if their potential is proven at each stage. The key requirements are to:

  • Mix public funds and market mechanisms to maximise the contribution from private capital. Depending on the technology areas prioritised, different mixes of instruments will be appropriate – including research grants, standards, deployment incentives, loans, prizes and project grants. For each concept or project, the level of maturity, unit size, modularity, value chain complexity and value for customers should influence programme and policy design. The history of the development of solar PV shows how research grants were followed by public procurement and then market-pull policies combined with manufacturing support, with the latter stimulating private sector innovation to drive down costs. Several governments have been adapting their energy innovation policy instruments to raise the efficiency of public funding, including through ARPA-E in the United States, InnovFin in the EU and National Major S&T Projects in China. Canada and India are among the countries seeking to enhance incentives for venture capital finance to encourage a vibrant start-up community with longer time horizons.
  • For each priority, support an evolving portfolio of competing designs at different stages of maturity, and favour options with rapid innovation potential. Diversity and competition help to spur progress and leave some space for unexpected developments, while small, modular, mass-manufactured technology designs with high spillover potential offer rapid innovation dynamics. These types of technologies can be found among the proposed solutions for many of the current energy challenges and there is an emerging body of work that supports their inclusion in technology portfolios. While solar PV and lithium-ion (Li-ion) are exemplars of how this kind of approach accelerated progress in the past, electrolysers, fuel cells, heat pumps and smart-home technologies could all benefit in the future.
  • Ensure that knowledge arising from publicly funded R&D is rapidly and openly shared with the research community and taxpayer value is maximised. This is good practice for knowledge-sharing purposes – open access publishing is a condition of receiving EU R&D grants, for example – and can also raise public support.

Delivering energy services to a specific end-use involves different technologies for supply, distribution, storage and use, and value chains spanning the process are only as strong as their weakest link. Individual countries and companies need not contribute technology improvements to all steps in a given value chain (indeed most countries don’t have the capacity to do so) but, by considering the full value chain, they can more easily identify areas where faster progress is needed for deployment. In keeping with the findings about the importance of key end-use sectors in the Sustainable Development Scenario, an approach focused on value chains starts from the needs of each application rather than focusing on supply. The key requirements are to:

  • For each technology area, identify the position(s) in the value chain that present(s) the greatest opportunity for local innovators. Energy-related equipment is a global industry, with countless specialised components and intermediates traded internationally. As part of the consideration of comparative advantage during technology prioritisation, governments should consider where their comparative advantages might lie in future trade networks, alongside strategic considerations about energy security, technology clusters and integration. For example, a small highly-skilled economy might prioritise hydrogen for industrial use, but recognise that its relative strengths relate more to project integration and gas handling than electrolyser manufacturing.
  • Ensure adequate support for all elements of the value chain. Four of the key technology areas for net-zero emissions energy systems – direct electrification, CCUS, hydrogen and bioenergy – all have value chains that are advancing unevenly (see Chapter 3). For some, the issues relate to upstream supplies, for example in biomass production, while for others the issues are downstream, for example in CO2 storage availability or smart grids. While uneven progress is inevitable to a large extent, all elements must reach sufficient maturity by the time the full value chain needs to be deployed. In the meantime, innovation in the more mature elements can be taken to the next level by using market-pull policies to support niche markets. Early niche markets are often those requiring the shortest new value chains and therefore have the lowest risks: examples include the sale of captured CO2 for enhanced oil recovery and the use of geothermal CO2 for synthetic fuels production. Importantly, the best niche markets may not be in the same sectors as the future markets with the highest potential: for example, blending low-carbon hydrogen into gas grids or its use in refineries could be an invaluable springboard for its use in transport.
  • Co-operate regionally and internationally with developers of other elements of the value chains. Multilateral and bilateral co-operation can help ensure timely and targeted investment in individual elements of value chains. International projects can help channel funds to where they are needed most.


Maturity level of technologies along selected low-carbon value chains

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Maturity level of technologies along selected low-carbon value chains

Several key areas that need to see rapid technical progress for reaching net-zero emissions require new infrastructure or upgrades to existing networks. Such infrastructure includes major demonstration facilities for industrial processes. Among the network needs are smart electricity grids, hydrogen-ready gas grids, low-temperature district heat networks, CO2 storage infrastructure, and communications networks for connected appliances and vehicles. These types of investments have strong public good elements by virtue of being natural monopolies and having large returns to adoption, meaning that later adopters often face lower costs and obtain higher benefits. Once infrastructure is in place, it can be a platform for innovation, encouraging new ideas for how to make best use of it, especially if third-party access is guaranteed. On the other hand, it can be a major barrier to adoption if project promoters have to bear the risks of new infrastructure at the same time as they are bearing the risks of developing other elements of the value chain. There is therefore a strong rationale for governments to ensure that enabling infrastructure is put in place in line with demand for the new technology. The key requirements are to:

  • Incentivise network owners and operators to test and deploy enabling infrastructure for new technologies to integrate into existing grids, pipelines and communication systems. Regulated network operators and utilities are usually obliged to minimise risk, which reduces their capacity to incorporate new enabling technologies into network infrastructure. New regulatory models are emerging to provide more scope for experimentation. For example, the RIIO 2 (Revenue = Incentives + Innovation + Outputs) price controls in the United Kingdom include provisions for network operators to access innovation funds and trial technologies with appropriate regulatory exemptions.
  • Take the initial investment risk in large-scale demonstrators that present a high-cost barrier to scale-up. Technologies like CCUS for industrial facilities, fossil fuel-free iron and steel processes, new nuclear designs, and floating offshore wind all face high capital costs for the first commercial projects. These projects have the highest costs and risks, with subsequent entrants benefiting from the learnings. This provides a rationale for direct government investment in this phase of development, in tandem with action to create more market value for products such as low-carbon steel. Public funding for such projects could be conditional on the learnings from the projects being widely shared. For example, CCUS projects that received public support in Alberta (Canada), the European Union and the United Kingdom had their findings published for the benefit of the technical community. In some cases, the facilities can be made “open access” for testing of different designs, as has been done for CO2 capture at the Technology Centre Mongstad in Norway and the US National Carbon Capture Test Center.

The innovation gaps to be filled for a net-zero emissions future are global, reflecting the global nature of the climate challenge, and innovation will be most efficient if countries are able to share some of the burden internationally. Multilateral platforms for co-operation between governments already exist and can be strengthened as necessary to ensure that global innovation systems work as efficiently as possible. Appropriate intellectual property regimes also have an important role to play in maximising the innovation benefits of trade. The key requirements are to:

  • Work across borders to ensure that no essential technology areas remain underfunded because of high development risks that cannot be borne by one country. Learnings and experiences in each country are global public goods because they advance the innovation frontier for all regions. In most cases, this contribution, coupled with the first-mover advantages for local innovators, justifies public financial support for R&D, demonstration and early adoption in a given economy. However, the risks can sometimes be too high for a single country to fund if the market players are multinational, the outlook uncertain and the project particularly costly – as is the case for CCUS, including for low-carbon hydrogen, and low-carbon industrial processes. Countries with smaller R&D budgets and companies with weaker balance sheets are likely to find collaboration especially attractive if it keeps local innovators from moving overseas. Pooling of innovation resources in this way is rare, but not without precedent, as the size of the budgets for EU energy R&D and cross-border nuclear fusion campaigns attest. As a recent example, the French and German governments announced co‑financing of a floating offshore wind project in early 2020.
  • Exchange experiences with other clean energy innovation policy makers about good innovation policy practice. Several of the recommendations in this list are for actions that would have positive impacts but for which there is not yet consensus on the best approach. R&D prioritisation, funding instrument design and evaluation fall within this category and could benefit from an exchange of experiences between governments.
  • Support networks for the rapid exchange of knowledge between researchers in overlapping fields and cross-fertilisation between sectors. The benefits and speed of knowledge and application spillovers can be maximised by exploiting synergies internationally. International networks for knowledge exchange can also help avoid duplication of effort and identify innovation gaps not yet addressed. Existing multilateral platforms for co-operation provide a sound basis for deepening collaboration. They include the IEA technology collaboration programmes, which facilitate co-operation across 38 technology areas, Mission Innovation and the Clean Energy Ministerial, among others.


Covid-19: The case for rapid implementation of innovation policies to maintain momentum and accelerate the transition

Covid-19 does not change the elements of the net-zero emissions innovation policy package, but some of the elements deserve immediate attention as governments prepare policies to repair, stimulate and recover economic activity. The central role of government in supporting energy innovation is well established, especially in relation to the public good nature of R&D, and tackling the greenhouse gas externality is widely agreed to need strong government action over the coming decades. Energy innovation offers an opportunity to boost economic activity damaged by the Covid-19 pandemic and at the same time to help with the transition to net-zero emissions. It supports a sizeable workforce, including around 750 000 R&D personnel, and is a driver of economic growth: it is also essential to addressing climate change and other long-term energy and sustainability challenges. By the same token, reduced investments in energy innovation because of Covid-19 would have short-run economic costs as well as long-run costs for energy transitions, and would increase the difficulty of meeting mid-century climate goals.

When designing stimulus packages, it is critically important to consider overarching energy policy objectives such as improving energy sector resilience and addressing climate change, as set out in the IEA World Energy Outlook Special Report on Sustainable Recovery. The recommendations in that report identify the areas of energy investment where short-term and long-term interests converge.

Policy actions for a sustainable recovery plan for the energy sector beyond clean energy innovation

Buildings

  • Implement large‑scale retrofit programmes for public buildings, provide subsidised financing for private retrofits
  • Implement appliance turnover schemes to replace inefficient appliances, install heat pumps and renewable energy systems that use solar water heaters and biomass boilers
  • Support clean cooking access by offering modern stoves, and developing advanced biomass and liquefied petroleum gases delivery systems

Transport

  • Implement vehicle turnover schemes to accelerate efficient car and electric vehicle adoption
  • Boost high-speed rail and incentivise the purchase of new efficient trucks, airplanes and ships
  • Accelerate deployment of recharging networks for electric vehicles, upgrade public transport, and improve walking and cycling infrastructure

Industry

  • Incentivise industrial energy efficiency, especially light‑industry electric motor and process heat pumps upgrades
  • Improve waste collection and recyclable material recovery rates, especially where waste collection processes are informal
  • Upgrade to efficient agricultural pumps

Electricity

  • Invest in electricity network upgrades, particularly distribution system strengthening and modernisation
  • De-risk and fast‑track new wind and solar PV deployment
  • Extend lifetimes for nuclear plants near their end of life and repower existing hydropower facilities

Fuels

  • Support for biofuel industries if they meet appropriate sustainability criteria
  • Implement methane leak detection programmes to address fugitive methane from upstream oil and gas operations
  • Reform inefficient fossil fuel subsidies without increasing end‑use prices

The following sections of this report follow the same logic, identifying elements of the net-zero emission innovation policy package that could be included in recovery measures for their potential to meet two crucial objectives in the current context, one short-term and one medium-term:

  • keep the whole innovation system on track
  • invest strategically and ambitiously to reshape the economy towards net-zero emissions in the period to 2030.

Analysis throughout this report indicates that there are significant benefits to renewing support for clean energy technology innovation out to both these time horizons and indeed beyond. There are two main reasons for this. The first is that the world cannot afford to drift further off-track in its capacity to tackle emissions in certain end-use sectors. The second is that the investment opportunity presented by stimulus funding and new market realities is unique: it could potentially carry some key technologies across the “valley of death” much faster than anticipated.

In the short term, governments are looking to boost economic activities that are labour intensive, can be rapidly deployed and have large economic multipliers. Maintaining spending across the economy on innovation meets these criteria. Research, including public sector R&D, is a labour-intensive activity that underpins future productivity and growth. Manufacturing plants for new technologies and demonstration projects that are already at an advanced stage of planning are likely to be ready for rapid deployment, i.e. they are “shovel ready”. R&D projects that had already started or were ready to start but now face funding uncertainty can be begun or ramped up quickly.

Each measure should be considered within the context of a systematic approach to maintaining momentum in the face of serious risks. Disruption to any of the key functions of the clean energy innovation system could choke the pipeline of new technologies, and it might take years for it to be replenished. This is a further argument in favour of a value chains approach, as highlighted in the recommendations below, and in favour of integrating support for clean energy innovation with other elements of stimulus funding, including infrastructure investments and corporate support.

The recommendations below are all elements of the five key principles introduced above. They have been selected for the contribution they make to counteracting short-term risks. They also incorporate lessons learned from the stimulus measures implemented in 2009 after the 2007-08 financial crisis.

Raise public R&D and market-led private innovation

  • Maintain public clean energy R&D programmes already planned for 2020-21.
  • In major economies, give early signals that budgets in 2021-25 will be raised counter‑cyclically, consistent with the increases seen in 2009-11 (these were 100% or USD 4.7 billion in the United States, and 60% or USD 1.8 billion in other major economies).1
  • Take low-cost measures to raise R&D productivity by enhancing professional networks, ensuring that results are published with open access and by enforcing existing regulations, for example in relation to intellectual property.
  • Explore international finance options to avoid further widening the gap between emerging markets and global leaders in R&D and innovation.
  • Make support for distressed companies conditional on commitments from them on clean energy innovation. Conditions in bail-out agreements for companies in energy supply or heavy industry and long-distance transport sectors where reducing emissions is hardest, could require purchases of new technologies, investments in enabling infrastructure or temporary reinvestment of profits in R&D. Conditional loans or tax incentives for corporations could require them to increase spending on clean energy technology R&D to counteract R&D spending cuts, following the example set by the European Investment Bank when it provided funding to car companies for electric vehicle (EV) R&D in the 2010s. Capital – such as short-term grants and loans or loan guarantees – can be provided to viable and innovative start-ups and SMEs, especially if it is administratively possible to target those in strategic areas.

Address all the links in the value chain

  • Act across value chains for mass-manufactured technologies on the cusp of rapid scale‑up by co-ordinating support for market demand, factory completions, field trials and R&D. This action applies particularly to new Li-ion battery designs, electrolysers, fuel cells, heat pumps and highly efficient air conditioners.
  • Build on existing instruments to create niche markets and avoid the need for complex new regulations. Market-based support is likely to attract more private capital and have a long-lasting effect on developing new businesses. In 2009, US American Recovery and Reinvestment Act (the “Recovery Act”) incentives leveraged the tax system, while the possible use of the EU Emissions Trading System to issue “carbon contracts-for-difference” that guarantee revenue to low-carbon hydrogen consumers in industry has been proposed in Europe.
  • Give preferential treatment to innovative low-carbon solutions in major public procurement programmes within stimulus packages. Examples include low-carbon building materials, smart controls for energy management and novel approaches to manufacturing energy efficiency retrofits, such as off-site prefabrication and standardisation.

Build enabling infrastructure

  • Ensure that major technology demonstrations and large-scale field trials proceed to completion if they are at an advanced stage of planning and if follow-on commercial investments are still expected. Projects with simple value chains and infrastructure requirements are most attractive for rapid spending and job creation. In the area of CCUS, several of the 15 projects seeking support from the so-called 45Q tax credit in the United States are well advanced in their planning and have reasonable certainty about their CO2 storage contracts; the Northern Lights project in Norway is also close to a final investment decision. In the area of smart grids, demonstrations of different implementation contexts for demand-response, load aggregation and electricity storage would build regulator confidence in faster/wider adoption.
  • Network infrastructure is likely to be a target for investment by governments due to its economic multiplier effects, providing an opportunity to make it more compatible with a net-zero emissions future. In some cases, relaxation of certain regulatory provisions may be needed to allow regulated entities to make widespread investments in key enabling technologies. Examples include smart grid upgrades, EV charging, district heat modernisation and hydrogen-ready gas pipelines.



Governments around the world, faced with the predicted severe negative impacts of the global financial crisis of 2007-08, passed wide-ranging economic stimulus packages by 2009. Among these, several major governments with sufficient economic resources chose to channel money to clean energy innovation. The rationale was generally to pair short-term stimulus measures with longer term investments in increased productivity and technologies that could reduce CO2 emissions once the economy recovered.

The largest and most wide-ranging example of this approach was the 2009 US American Recovery and Reinvestment Act, which provided more than USD 90 billion in support of clean energy activities. Within this envelope, USD 7.5 billion was allocated to energy R&D and major demonstration projects, and other funds were directed to scaling-up value chains for early-stage technologies. By the end of 2010, an estimated 32 200 job-years through 2012 for innovation and job training had been created by the Recovery Act (CEA, 2010). In the three years from 2009 to 2011, federal R&D on energy efficiency was raised by over USD 1 billion per year compared to 2006-08, or 160%. Funding for carbon capture, utilisation and storage R&D and demonstration also rose by over USD 1 billion, a nearly 600% increase. Although smaller in absolute terms, the near trebling of funding for electricity grids and storage was also striking and came at an opportune moment for batteries development.

US federal funding for applied energy technology R&D and demonstration, 2000-2019

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The Recovery Act made a notable contribution to the development of Li-ion battery technology. The funding it provided for US battery R&D funding represented a significant increase in global R&D at a time when EVs were primed for market entry but needed better batteries, and when the United States produced less than 2% of the world’s batteries for hybrid vehicles (Walsh, Bivens and Pollack, 2011). With new battery designs, the cost of EV batteries fell by 70% and the number of electric cars sold in the United States rose from 1 500 to 114 000 between 2008 and 2015 (US DoE, 2015; IEA, 2016). Not all of this can be attributed to the Recovery Act, but there is no doubt that the sector benefited from the timely allocation of resources to different parts of the value chain, not just R&D. The Act allocated USD 140 million to 12 grid‑level demonstration projects; USD 400 million to 8 demonstration projects for EVs and chargers, plus workforce training and R&D; USD 160 million to 60 novel battery development projects under ARPA-E by 2015; USD 2 billion to 30 manufacturing facilities for batteries, battery components and EV drivetrain components; USD 33 million in tax credits to battery factories; USD 2 billion in loans to EV and battery manufacturing; and USD 2.2 billion to tax credits for EV purchases (US DoE, 2020a, 2020b, 2020c; Walsh et al., 2011). Twenty-six of the 30 manufacturing projects receiving grants were in construction by 2011; 2 of the battery factories were already in production.

Although the sums spent on clean energy innovation outside the United States were generally much lower than for the Recovery Act, Germany also allocated around EUR 0.5 billion to R&D for mobility (Deutscher Bundestag, 2009; Schmidt et al., 2009), and annual clean energy R&D budgets were increased around 60% in 2009-11 in other large economies that used stimulus in this way. In these countries, the increases in funding were often lasting, whereas many of the areas funded by the Recovery Act are today at near pre-2009 levels of funding, having fallen back after 2011.

Public energy R&D and demonstration funding in selected countries that used stimulus money for this purpose, 2000-2019

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A common feature of several of the largest economic recovery packages was investment in large-scale technology demonstration in complex engineering projects. The large sums of money unlocked by stimulus funding packages offered a welcome opportunity to get these financially risky, capital-intensive projects built. All projects generated valuable experience in relation to project permitting, regulatory challenges, financing and business models – which was sometimes shared publicly as a legal condition for receiving funding – but their success was mixed.

In 2009, USD 12 billion was made available for CCUS, concentrating solar power, offshore wind, smart grid and energy storage projects in Canada, the European Union and the United States. In Canada, this represented 1.2% of the total stimulus package and 59% of the energy-related budget, alongside funding for smart grids and renewables R&D. The EU and US levels were lower, at 0.7% and 33% for the European Union and 1.2% and 9.3% for the Recovery Act. Of the 58 projects that received funding, 40 were commissioned and have generated operational experience. Many of these were smaller smart grid and electricity storage projects in the United States. CCUS projects had a lower success rate, with 5 out of 19 commissioned to date, including one that started operations in 2020.

Demonstration project funding from economic stimulus budgets approved by governments in 2009

Programme

 

CCUS

CSP

Electricity storage

Offshore wind

Smart grids

Canada: Economic Action Plan Clean Energy Fund

Budget
(billion USD)

0.41

-

-

-

-

Projects

3

-

-

-

-

Commissioning of first project

2015

-

-

-

-

Projects operating by 2020

2

-

-

-

-

European Union: European Economic Programme for Recovery

Budget
(billion USD)

1.46

-

-

0.35

-

Projects

6

-

-

6

-

Commissioning of first project

-

-

-

2011

-

Projects operating by 2020

0

-

-

5

-

United States: American Reinvestment and Recovery Act

Budget
(billion USD)

3.37

5.8*

0.14

-

0.42

Projects

10

5

12

-

16

Commissioning of first project

2013

2013

2011

-

2010

Projects operating by 2020

3

5

11

-

16

* Loan guarantees. Note: CCUS = carbon capture, utilisation and storage; CSP = concentrating solar power. Sources: US DoE (2020a; 2020d); Herzog (2016); EC (2018); Government of Canada (2014).

Certain combinations of scale and complexity presented significant risks to projects aiming to spend capital quickly and mobilise employment in the value chain. Challenges included:

  • Spending the money quickly enough. CO2 storage facilities can take several years to develop from scratch, leaving no room for delays in order to meet the legal timeline for spending capital quickly. But competitive mechanisms take time to implement, respond to and evaluate, and the US Department of Energy needed to hire new people after its civilian energy budget tripled in a year. Delays also arose from permitting processes and social concerns that had not previously been tested, as well as from technical issues.
  • Attracting co-financing alongside government funds at a time of economic difficulty, especially where the new technology was not a core business activity for the lead sponsors.
  • Adapting to an uncertain market environment, including falling CO2 prices and stalled regulation, within inflexible grant funding rules. Project sponsors sought certainty that new assets worth hundreds of millions of dollars would run for many years, not just the short time horizons of grants.
  • Co-ordinating entirely new value chains involving firms from sectors with different appetites for risk.

Project failures can cause setbacks for a whole technology field if they lead to that field becoming associated with ineffectiveness, high costs or immaturity, or for other reasons. In much of Europe, for example, efforts to quickly deploy large CCUS projects became linked to concerns about the sustainability of fossil fuels.

Learning from prior experiences suggests that factors that favour success include:

  • Plugging into existing infrastructure, such as electricity networks, fuel supply or CO2 pipelines.
  • Being the simplest and cheapest configurations to address technical or regulatory knowledge gaps.
  • Being at or beyond the front-end engineering design stage at the time of award.
  • Having dependable sales of output under existing market or bilateral offtake contract conditions.
  • Having funding flexibility that can manage limited cost or time overruns.

Today, governments appear to be better equipped to implement a green stimulus package as a result of increased public awareness and improved national and international frameworks for climate policy (Kröger et al., 2020). In addition, some of the lessons set out above have already been learned, including in the design of the forthcoming EU Innovation Fund, while others, such as the relative effectiveness of grants and tax credits compared with loans, have been documented by the relevant agencies (Aldy, 2013).

Invest strategically and ambitiously to reshape the economy towards net-zero emissions in the period to 2030

The sheer scale of the stimulus packages under discussion is striking. The US measures passed so far amount to USD 2 trillion, which in real terms is almost exactly the total sum authorised for the 2008 US Emergency Economic Stabilization Act and the Recovery Act in the midst of the 2007-08 financial crisis. Measures totalling around USD 850 billion have meanwhile been proposed for the European Union, but not yet approved. These two packages alone represent more than double annual capital spending on all energy assets worldwide each year. So far, governments have announced measures worth about USD 9 trillion (IEA, 2020b). By comparison, the total amounts of money that could underpin a leap forward in clean energy innovation outcomes are relatively modest. Large demonstration projects cost in the order of USD 0.5 billion to USD 2 billion each. Furthermore, not all costs need be borne by taxpayers: with anticipated declines in capital costs, co-investment by the private sector could represent a significant share of total clean energy innovation spending if public spending is combined with loans, loan guarantees and measures that provide more revenue certainty.

Investing in a strategic portfolio of R&D, demonstration and infrastructure projects today could put the world on a pathway for net-zero emissions. It could also secure new areas of industrial leadership for first‑mover economies and prevent a recovery that locks in high-carbon growth. In particular, there is a once-in-a-generation opportunity to unlock emissions for long-lived assets by avoiding a new investment cycle in high-emissions infrastructure occurring just at the wrong time. Making cost-competitive low-carbon technologies available earlier substantially reduces the future costs of early retirements and disruptive refurbishments in order to meet the net-zero emissions goal. It also saves CO2: the Reduced Innovation Case showed that there could be an additional 1.5 Gt of CO2 emissions by 2040 if hydrogen demonstration projects are delayed by the Covid-19 pandemic (see Chapter 4). It is vital, however, that such a portfolio prioritises promising solutions for sectors where technologies for deep decarbonisation are lagging behind and capital for major demonstration projects is especially hard to raise. Clean energy innovation spending would also create jobs in science and engineering as well as construction supply chains.

  • Review R&D funding and other energy innovation measures in the light of long-term goals. Many determinants of the effectiveness of public innovation policies are embedded in their frameworks and institutional processes, and relate to factors such as eligibility criteria, performance evaluation, progress tracking, dissemination of results, flexibility of funding instruments, intellectual property rights enforcement and competition law. New funding from stimulus funds could represent an opportunity to implement reforms, taking account of goals for the future and lessons from the past.
  • Update clean energy technology prioritisation processes to take account of new developments, including the possibility of long-term structural and behavioural changes triggered by Covid-19.
  • Where budgets allow, increase innovation funding for priority clean energy value chains that have been identified as having particular long-term strategic importance. While near-term actions to repair damaged innovation systems might concentrate on ensuring that the demonstration and early adoption stages continue to function, these longer term policies should be more focused on boosting the pipeline of new ideas reaching prototype stage. Technology areas that deserve more R&D attention than they currently receive include advanced battery chemistries, direct air capture (DAC) designs, algae‑based biofuels, electrification of heavy industrial processes such as iron ore electrolysis, electric aircraft designs and connected appliances for buildings energy control.
  • Look for the areas to focus on that are most appropriate for the post-crisis economy. If the global economy becomes more averse to putting large sums of capital at risk, this will strengthen the case for supporting smaller unit size, modular technologies. The appropriate support mechanism and potential contribution from private sector finance will depend on maturity, potential to scale-up quickly and ability to benefit from cross‑sectoral synergies with other technologies.
  • Allocate capital resources to bring forward the planning and operation of important large-scale first-of-a-kind demonstration projects and field trials with end-users, while ensuring that the market will support investment in a follow-on wave of projects if these projects are successful. Examples of technologies that are critical to net-zero emissions targets but face challenges scaling-up include hydrogen-based synthetic fuels, CCUS for hydrogen production, cement kilns, or steelmaking, and hydrogen-based steel production.
  • Deepen international dialogue on common missions and funds, especially for high-cost, high-reward technology programmes that may be hard to finance at a national level in the current economic climate. New low-carbon processes in heavy industry, DAC, BECCS (bioenergy with carbon capture and storage), international low-emissions shipping, and aviation and offshore CO2 storage all have strong global public good qualities. Many of them are “footloose”, i.e. they can easily relocate, or are expected to be situated in jurisdictions outside the regulatory regimes of their customers.
  • Participate in international dialogue on the timing of creation of additional, larger niche markets. This could help avoid gaps between programmes and corresponding disruption in global supply chains.

For some sectors, 2050 is just one investment cycle away. In others, the next new capital assets might reasonably be expected to still be operating in 2070, the date of net-zero emissions in the Sustainable Development Scenario. This means that the timing of investments and the availability of clean energy solutions at the right time is of critical importance. If innovation timelines can be aligned with net-zero emissions objectives, then this will unlock multi-billion dollar markets for new energy technologies and avoid the risk of billions of tonnes of “locked in” emissions.

In the Sustainable Development Scenario, new low-carbon technologies are adopted rapidly once they are mature enough for early adoption. They enter the market as new capacity is needed or existing equipment either reaches the end of its lifetime or is retired earlier if needed. This leaves little room for manoeuvre, especially in heavy industry. In the cement, chemicals, and iron and steel sectors, today’s lack of commercial low-carbon options means that technologies currently at the prototype or demonstration stage are starting to be deployed widely before 2030. This is because, despite most steel and cement plants being young and not reaching the end of their 40-year design lifetimes until 2045-55, they will face major refurbishment decisions in the next 10-18 years, which could lock in another 25 years of similar emissions if the same technologies are renewed. By changing the production technology to one compatible for deep decarbonisation after 25 years rather than 40 years, their owners reduce the cumulative projected emissions from the steel, cement and chemicals sectors by nearly 60 GtCO2 , or 38%, by 2070. Due to the size of the fleets and ages of the plants, these reductions would mostly occur in China and other Asian countries.

Unlocking CO2 at the next investment point in heavy industrial sectors by sector, 2019-2060

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Unlocking CO2 at the next investment point in heavy industrial sectors by region, 2019-2060

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Intervening at the end of the next 25-year investment cycle could avoid "lock in" of nearly 60 GtCO2 , or 38% of projected emissions from existing equipment in the steel, cement and chemicals industries.

2028-35 is the earliest that most technologies for net-zero emissions in these sectors could reach the early adoption stage. For example, demonstration trials of hydrogen-based direct reduced iron for steelmaking are scheduled to run from 2025 until 2035 (Hybrit, 2020). Not keeping to this timetable for this and other pilot and demonstration projects would mean many plants in the cement, chemicals, and iron and steel sectors would lose the opportunity to switch to low-carbon technologies at the refurbishment point in their investment cycles: this would entail higher emissions, and higher costs later on from a combination of early retirements and more disruptive refurbishments or replacements part way through the lifetimes of operating plants.

Recovery packages present a major opportunity to invest in the near term in projects that help ensure that these technologies will be available in line with the Sustainable Development Scenario – an opportunity that may not recur. Recovery packages could support the series of commercial-scale demonstration projects (each with a declining level of public support) that are generally needed to give the market confidence in a new technology. Funds could also make capital available for adapting equipment that reaches its 25-year investment decision before 2028 so that it is compatible with retrofit of the new technology, a strategy that is mostly relevant to European and North American plants. In the specific case of hydrogen-based direct reduced iron, conversion of blast furnaces to direct reduced iron processes that can handle hydrogen could be undertaken as a preparatory step. Early conversion plans to adapt an existing blast furnace to this process in parallel to the trials in the first demonstration plant have already been announced (SSAB, 2020).

This opportunity is most evident in heavy industry – a higher share of investment in heavy industry goes to the deployment of technologies that are not commercially available today than to transport, buildings or power generation – but is not limited to it. We estimate that operating existing energy infrastructure until the end of its lifetime would lead to nearly 800 Gt of CO2 emissions between now and 2070. While 150 Gt of this is from heavy industry, more is from the power sector, where 33% of the installed coal-fired capacity is under 10 years old. Technologies for retrofitting power plants with CCUS, and decarbonising long-distance transport need to be readily available to avoid a new investment cycle occurring just at the wrong time.

If these low-carbon technologies are successfully commercialised and supported by early markets, then they could open the way to enormous new commercial opportunities. Annual investments in technologies that are at prototype or demonstration stages today reach around USD 350 billion per year on average between 2020 and 2040 in the Sustainable Development Scenario. They increase to USD 3 trillion across all sectors by the 2060s, by when the market size for technologies of this maturity in heavy industry reaches almost USD 100 billion per year.

Average annual investment in technologies that are today at pre-commercial or early adoption stages by maturity level in the Sustainable Development Scenario, 2020-2070

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Average annual investment in technologies in long-distance transport that are today at pre-commercial or early adoption stages by maturity level

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Average annual investment in technologies in heavy-industry that are today at pre-commercial or early adoption stages by maturity level

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Investments in technologies that are today at demonstration or large prototype stage become important investment opportunities in the Sustainable Development Scenario, particularly in sectors with less readily-scalable low-carbon options today, such as heavy industry and long-distance transport.

Tailoring the package to the needs of technology families

It is critically important for a transition to net-zero emissions that all energy end-users have affordable clean energy solutions available to them in line with the timetables set out in the Sustainable Development Scenario, or sooner if possible. At a global level, the portfolio of technologies to be refined and developed is a broad one, and represents a much more diverse set of technology types than the energy system has previously had to manage. It includes a growing number of smaller scale, decentralised devices on the supply side of the equation together with more flexible technologies on the demand side to integrate new fuels. These can be grouped in technology families spanning different low-carbon value chains. It also includes technologies that sit outside traditional energy networks, such as BECCS and DAC, that will have an important future role because of their ability to offset CO2 emissions. Different technologies will be suited to different roles in economic recovery measures related to clean energy innovation.

This section regroups the policy measures in the previous section by families of key technologies based on similar technology attributes. Within each of these families, knowledge and application spillovers hold significant potential to accelerate innovation if linkages are exploited: against this background, the section provides some concrete suggestions for action for each family of technologies to help policy makers to integrate tailored approaches for priority technology areas into overall strategies.

Technology families:

  1. Electrochemistry: modular cells for converting between electricity and chemicals.
  2. CO2 capture: processes to separate CO2 from industrial and power sector emissions or the air.
  3. Heating and cooling: efficient and flexible designs for electrification.
  4. Catalysis: more efficient industrial processes for converting biomass and CO2 to products.
  5. Lightweighting: lighter materials and their integration in wind energy and vehicles.
  6. Digital: integration of data and communication to make energy systems flexible and efficient.

The list above is not intended to be exhaustive, but covers the types of solutions that hold the most promise for advancing value chains involving electrification, hydrogen and hydrogen-based fuels, CCUS and bioenergy. Among the other technologies that all have important roles to play in achieving net-zero emissions are large, scientifically complex technologies such as nuclear, including small modular nuclear reactors, and small-scale, consumer-led technologies such as flexible or buildings-integrated solar PV or high-efficiency motors. In between these extremes lie geological technologies to enhance geothermal energy, hydrogen storage or CO2 storage, as well as such high-potential areas as ocean energy, prefabricated net-zero energy building envelopes, and thermal and mechanical energy storage.

Selected technology families and their footprint in low-carbon value chains

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Selected technology families and their footprint in low-carbon value chains

Example technology types

  • Batteries, electrolysers, fuel cells, electrochemical iron reduction.

Relevant types of value chains for this family

  • Electrification, hydrogen and hydrogen-based synthetic fuels.

Relevant sectors where reducing emissions is hardest

  • Iron and steel, chemicals, long-distance transport.

Summary

  • Action is needed to maintain the significant recent investor momentum in these areas and invest in a cleaner economic recovery by accelerating the scale-up of manufacturing and innovation for new markets.

Key attributes

Unit size##32## Modularity Value chain complexity Value chain maturity Consumer value added
50 kW to 20 MW Very high Low
  • Low (e.g. hydrogen infrastructure and steelmaking prototypes) to
  • High (e.g. battery applications)
  • Low (e.g. electrolysers) to
  • Medium (home battery storage, fuel cell based micro combined heat and power)

Policy recommendations specific to this group

 

Keep innovation on track

Invest to reshape the future

Prioritise, track and adjust

  • Review priorities to focus on key net‑zero emissions priorities.
  • Commission studies on the industrial and R&D landscape for these technologies, and local skills and capacity gaps.
  • Identify R&D priorities for the next decade.
  • Support spillovers by creating research networks, exchanges and joint programmes.
  • Incorporate other applications of electrochemistry into R&D programmes, such as iron ore reduction and CO2 reduction.

Raise public R&D and market-led private innovation

  • Maintain R&D budgets and convene publicly funded researchers to exchange findings from the latest projects.
  • Support viable innovative start-ups and small and medium-sized enterprises to overcome liquidity challenges.
  • Embed conditions and decarbonisation targets in any support provided to companies in heavy industry, shipping, aviation, and oil and gas.
  • Consider loans to weakened large industrial companies in relevant sectors to maintain their R&D budgets and orient them firmly to electrification and hydrogen.
  • Significantly increase public R&D funding for novel battery chemistries that are beyond the immediate focus of corporations and venture capital investors, including solid state, lithium-air and long-duration storage concepts.
  • Support researcher exchanges between firms, countries and laboratories working on different applications.
  • Fund open access demonstrators (e.g. for testing configurations of fuel cells with high capture rates for CO2capture, including with direct air capture).
  • Support the development and upgrade of end-use equipment able to handle higher hydrogen blending shares.  

Address all the links in the value chain

  • Financial support to manufacturers to continue scale-up. Support the development of automated manufacturing processes for electrolysers and fuel cells.
  • Implement vehicle turnover schemes to accelerate EV  adoption, including plug-in hybrid.
  • Public procurement of low-carbon gases and municipal vehicles such as fuel cell goods vehicles or electric garbage trucks.
  • Set a vision for the role of national innovation in future value chains for these technologies by sector.
  • Establish standards and targets for deployment in sector to create successive niche markets.
  • Ensure timely investments that protect supply chains for critical materials (lithium, platinum, etc.) for electrochemical device manufacturing as it expands.
  • Support the development of automated manufacturing processes for electrolysers and fuel cells.

Build enabling infrastructure

  • Support deployment of batteries in grids.
  • Fund or incentivise the modification of gas networks to be ready to accept hydrogen. Expand EV charging and hydrogen refuelling.
  • Establish field trials to test the performance of batteries and electrolysers in different electricity market contexts.

Work globally for regional success

  • Accelerate efforts to harmonise standards, regulation and certification across borders.
  • Work regionally to ensure that purchase incentives in different jurisdictions reinforce market creation, increasing policy efficiency under budgetary pressure.
  • Explore international financing options to keep emerging market R&D and scale-up on track.
  • Build on existing multilateral platforms to enhance knowledge sharing between countries and sectors.

Example technology types

  • Natural gas reforming with CO2 capture, chemical absorption from fossil fuel flue gas, direct air capture, chemical absorption from cement emissions, process reconfigurations to raise CO2 concentrations, novel capture approaches.

Relevant types of value chains for this family

  • CCUS, hydrogen, electrification and bioenergy via CCUS-equipped plants.

Relevant sectors where reducing emissions is the hardest

  • Cement, iron and steel, chemicals, long-distance transport via hydrogen or offsets.

Summary

  • Act to keep projects on track wherever local conditions give them a high chance of success and raise industrial and investor expectations about future regulation of emissions.

Key attributes

Unit size

Modularity

Value chain complexity

Value chain maturity

Consumer added value

  • 50 MW to 500 MW
  • (15 kW for solid DAC)
  • Low
  • (though some DAC fuel cell options are more modular)
  • High (CCUS)
  • Medium (DAC)
  • Low (dedicated CO2 storage) to
  • Medium (enhanced oil recovery with long‑term monitoring)

Low

 

Policy recommendations specific to this family

 

Keep innovation on track

Invest to reshape the future

Prioritise, track and adjust

  • Commission studies on the industrial and R&D landscape for these technologies, and 0n local skills and capacity gaps.
  • Identify R&D priorities for the next decade.
  • Support spillovers by creating research networks, exchanges and joint programmes.

Raise public R&D and market-led private innovation

  • Maintain R&D budgets and convene publicly funded researchers to exchange findings from the latest projects.
  • Support viable innovative start-ups and SMEs to overcome liquidity challenges.
  • Embed conditions and decarbonisation targets in any support provided to companies in heavy industry, aviation or shipping.
  • Consider loans to weakened large industrial companies in relevant energy, industrial and transport sectors to maintain their R&D budgets and orient them firmly to commercial-scale CCUS, including DAC.
  • Increase public R&D spending on novel techniques for CO2 capture, especially modular approaches and those with very high capture rates.
  • Aim to enhance climate policies including carbon pricing systems, and expand their sectoral coverage, ensuring that they incentivise CO2removal via BECCS and DAC.

Address all the links in the value chain

  • Public procurement of low-carbon hydrogen, low-carbon building materials and bioethanol from plants equipped with CCUS.
  • Set a vision for the role of local innovation in future value chains for CO2 capture in industry and synthetic fuels by sector.
  • Ensure that CO2 capture from bioenergy and DAC are not laggards in the synthetic fuels value chain.
  • Establish standards and targets for deployment of low-carbon products and fuels in sectors (i.e. low-carbon fuel standards) to create successive niche markets.

Build enabling infrastructure

  • Consider plugging arising financing gaps for large-scale projects that risk delay or failure, and adjusting regulatory deadlines or addressing value chain risks if they threaten viability.
  • Extend funding to existing efforts to explore and commission CO2 storage facilities, and step up detailed studies of CO2 storage options near all relevant industrial facilities and of CO2 transport infrastructure.
  • Modify gas networks to be ready to accept hydrogen.
  • Invest to bring new CO2 storage facilities and pipelines to market near industrial clusters.
  • Provide operational support (tradable credits, tax credits, contract-for-difference) to projects that are ready to operate large‑scale CO2 capture plants in key sectors for net-zero emissions including bioenergy.
  • Provide capital support for DAC scale-up.

Work globally for regional success

  • Work regionally to reduce the market risk of delays to CO2 storage availability, for example, via co-ordinated storage sites in the North Sea.
  • Establish international “missions” and prizes for CO2 capture that recognise it as a global public good challenge.
  • Build on existing multilateral platforms to enhance knowledge sharing between countries and sectors.
  • Reinforce efforts to develop international markets for low-carbon products that align differential emissions pricing regimes.
  • Co-operate on international DAC projects in emerging market locations with suitable energy resources and CO2 storage potential.

 


Example technology types

  • Methanation, methane splitting, liquid fuel synthesis, polysaccharide hydrolysis, algae processing, chemical hydrogen storage, bio-based and CO2-based bulk chemicals, ammonia cracking, artificial photosynthesis.

Relevant types of value chains for this family

  • Bioenergy, chemicals, hydrogen-based synthetic fuels.

Relevant sectors where reducing emissions is hardest

  • Long-distance transport; high-temperature industrial processes.

Summary

  • Intensify efforts to find breakthroughs and direct the tremendous R&D capacities of the chemical and biotech sectors towards net-zero emissions challenges.

Key attributes

Unit size

Modularity

Value chain complexity

Value chain maturity

Consumer added value

50 MW to 100 MW

Medium

High (dependence on uncertain developments both upstream and downstream)

  • Low (CO2-based products and fuels) to
  • Medium (advanced biofuels)

Low to Medium

 

Policy recommendations specific to this family

 

Keep innovation on track

Invest to reshape the future

Prioritise, track and adjust

  • Commission studies on the industrial and R&D landscape for these technologies, and on local skills and capacity gaps.
  • Communicate the importance and profitability of energy-related R&D challenges compared with those of other sectors competing for biotech talent.
  • Identify R&D priorities for the next decade in collaboration with the chemical catalysis and biotechnology expert communities.
  • Support spillovers by creating research networks, exchanges and joint programmes.

Raise public R&D and market-led private innovation

  • Maintain R&D budgets, support graduates and convene publicly funded researchers across sectors to exchange findings from latest projects relevant to CO2 and energy. Consider funding cross-sectoral exchange of research personnel.
  • Support viable innovative start-ups and SMEs to overcome liquidity challenges.
  • Embed conditions and decarbonisation targets in any direct support provided to companies in fuel supply and transport sectors.
  • Increase public R&D spending for energy at centres of excellence in chemical and biochemical catalysis with strong industrial links.
  • Establish inducement prizes for catalysis performance for key challenges, for example in CO2reduction, methane cracking or cellulose hydrolysis.
  • Establish standards and targets for deployment of low-carbon liquids (sustainable biofuels and synthetic hydrogen-based fuels) in fuel supply and low-carbon gases (including biomethane, hydrogen and synthetic methane) in gas networks to support niche markets.

Address all the links in the value chain

  • Retain existing successful policies to ensure demand for sustainable biofuels to support existing production facilities during the current period of low oil prices and reduced mobility.
  • Look for efficiencies and synergies between projects under development for CO2 capture, electrolysis and synthetic fuels production (including ammonia) to manage higher value chain risk.
  • Ensure that slow CO2 capture from bioenergy and DAC development do not impede progress in synthetic fuels deployment.
  • Support new demonstrations of ammonia use as a power generation fuel and hydrogen storage medium.

Build enabling infrastructure

  • Consider plugging arising financing gaps for construction of advanced biofuel facilities that risk delay or failure.
  • Fund test facilities to trial competing options for methane cracking, ammonia cracking, algal biofuels and others and publicise the results.

Work globally for regional success

  • Establish international “missions” and prizes for key innovation gaps that recognise them as a global public good challenge.
  • Support knowledge exchange programmes between researchers and start-ups working in different countries on similar technology problems.
  • Build on existing multilateral platforms to enhance knowledge sharing between countries and sectors.
  • Reinforce efforts to develop international markets for low-carbon fuels and gases that align differential certification and emissions pricing regimes.
  • Ensure that R&D for sustainable biofuels is focused on the types of feedstocks that have the most significant availability and therefore ability to contribute to net-zero emissions.

 


Example technology types

  • Heat pumps, high-efficiency air conditioning, advanced refrigerant-cooling, district heating and cooling, thermal energy storage.

Relevant types of value chains for this family

  • Electrification, digital.

Relevant sectors where reducing emissions is the hardest

  • Buildings, industry.

Summary

  • Stimulate R&D and spillovers to deliver more efficient and flexible designs that are adaptable to a wider range of applications, services (including flexibility) and climate conditions.

Key attributes

Unit size

Modularity

Value chain complexity

Value chain maturity

Consumer added value

1 kW to 5 MW

High (except district energy)

Low

High

Medium to High

 

Policy recommendations specific to this family

 

Keep innovation on track

 

Invest to reshape the future

Prioritise, track and adjust

  • Commission studies on the industrial and R&D landscape for these technologies, and on local skills and capacity gaps.
  • Identify R&D priorities for the next decade.
  • Support spillovers by creating research networks, exchanges and joint programmes.

Raise public R&D funding and market-led private innovation

  • Maintain R&D budgets and convene publicly funded researchers to exchange findings from latest projects.
  • Consider loans to weakened large industrial companies in relevant sectors to maintain their R&D budgets and orient them firmly to improved energy efficiency.
  • Embed conditions for building renovation in any support for deployment of efficient heating and cooling equipment.
  • Establish or reinforce product labelling and performance standards to stimulate market adoption.
  • Increase public R&D spending on next‑generation components, membrane‑based evaporative cooling and desiccants, solid-state cooling technologies and compact, integrated heating, cooling, ventilation and thermal storage solutions, including products dedicated to fossil fuel boiler substitution.
  • Set long-term expectations for equipment performance standards and make available concessional loans or other forms of capital for scale-up or conversion of manufacturing for appliances with efficiency and performance that are beyond the regulatory frontier.

Address all the links in the value chain

  • Support deployment of smart controls and business models so that households, district energy network operators and industries could provide flexibility services to facilitate grid integration of variable renewables through demand-side response and thermal storage.
  • Fund purchase incentives for integrated designs, such as PV, heat pumps and storage.

Build enabling infrastructure

  • Upgrade existing district heating networks to improve performance and include alternative low-carbon energy sources.
  • Support pilot projects to test new regulations and business models for third-party access to district heat and cooling networks.
  • Establish standards and targets for super-efficient district energy networks deployment to create successive niche markets.
  • Fund field trials of heat pump and air conditioning operation in response to demand‑response incentives.

Work globally for regional success

  • Accelerate efforts to harmonise standards, regulation and certification across borders.
  • Work regionally to ensure that purchase incentives in different jurisdictions reinforce market creation, increasing policy efficiency under budgetary pressure.
  • Establish or reinforce international “missions” and prizes for super efficiency space heating and cooling that recognise it as a global public good challenge.
  • Build on existing multilateral platforms to enhance knowledge sharing between countries and sectors.
  • Explore harmonisation of standards and public procurement between neighbouring countries in similar climatic regions.
  • Instigate improved testing procedures and, potentially, smart meter data, to reflect actual-use operating conditions and to close the gap between stated and real performance of equipment.

 


Example technology types and materials

  • Carbon fibre reinforced polymer, 3D printing.

Relevant types of value chains for this family

  • Electrification, hydrogen and hydrogen-based fuels, and bioenergy (via more manageable costs of reduced fuel loads).

Relevant sectors where reducing emissions is the hardest

  • Long-distance transport, energy-intensive sectors (via lower cost wind energy).

Summary

  • Act to support R&D and foster spillovers across multiple applications to reduce costs and improve competitiveness along different value chains.

Key attributes

Unit size

Modularity

Value chain complexity

Value chain maturity

Consumer added value

Any

Not applicable

Low

High

Medium

 

Policy recommendations specific to this family

 

Keep innovation on track

Invest to reshape the future

Prioritise, track and adjust

  • Commission studies on the industrial and R&D landscape for these technologies, and on local skills and capacity gaps.
  • Identify R&D priorities for next decade.
  • Support spillovers by creating research networks, exchanges and joint programmes for actors relevant to different applications of lightweight materials.

Raise public R&D funding and market-led private innovation

  • Maintain R&D budgets and convene publicly funded researchers to exchange findings from latest projects.
  • Embed conditions and decarbonisation targets in any direct support measures for companies in road transport.
  • Maintain fuel economy standards in road transport and signal strengthened fuel standards for road transport and aviation.
  • Increase public R&D spending on novel precursors and alternative carbon fibre production processes, and rapid cure, automated processes for the conversion of carbon fibre into carbon fibre reinforced polymers and advanced recycling processes.

Address all the links in the value chain

  • Support exchanges and joint programmes that connect research on electric vehicle designs by manufacturers or wind turbine designs by manufacturers, on the one hand, with R&D to improve material performance by material producers on the other.
  • Set a vision for the role of local innovation in future value chains for these technologies by sector including reductions in the CO2intensity of carbon fibre reinforced polymer production and recycling and other end-of-life management strategies.
  • Establish standards and targets that incentivise lightweighting in different sectors to create successive niche markets.

Build enabling infrastructure

  • Expand of electric vehicles charging and hydrogen refuelling to support electrification of transport.
  • Expand of transmission networks that can connect distant offshore wind turbines and incentivise lightweighting of blades.
  • Consider investments in new facilities and communication infrastructure for 3D printing as supportive of future lightweighting innovation.
  • Explore development of carbon fibre recycling networks, including collection, separation and processing facilities.

Work globally for regional success

  • Accelerate efforts to harmonise standards, regulation and certification across borders.
  • Build on existing multilateral platforms to enhance knowledge sharing between countries and sectors.

 


Example technology types

  • Sensors for energy efficiency monitoring, baselining and billing; smart home systems; emissions auditing; big data, machine learning and artificial intelligence for: processing for mobility and logistics management, smart charging, smart management of district heat systems, etc.; distributed ledgers and blockchain; smart contracts; distributed grid management.

Relevant types of value chains for this family

  • Electrification.

Relevant sectors where reducing emissions is the hardest

  • Buildings, industry, long-distance transport.

Summary

  • Steer the exponential growth in digital capabilities and creativity towards energy system challenges that can engage energy users and seamlessly connect them with markets.

Key attributes

Unit size

Modularity

Value chain complexity

Value chain maturity

Consumer added value

1 mW to 10 kW

High

Medium

Low to Medium

High

 

Policy recommendations specific to this family

 

Keep innovation on track

Invest to reshape the future

Prioritise, track and adjust

  • Commission studies on the opportunities for these technologies, and on local skills and capacity gaps.
  • Communicate the importance and profitability of energy-related R&D challenges compared with those of other sectors competing for digital talent.
  • Convene leaders in machine learning and artificial intelligence (in automated vehicles, for example) to create roadmaps for key energy innovation gaps.
  • Invest in technology tracking capabilities so policy makers and regulators can stay informed about the latest progress in data gathering and processing.

Raise public R&D and market-led private innovation

  • Maintain R&D budgets for enabling hardware such as sensors and power grid controls, and support graduates with valuable skills to remain in the sector.
  • Support viable innovative start-ups and SMEs to overcome liquidity challenges.
  • Assist regulated utilities to trial promising new digital technologies for network and market management, for example via regulatory sandboxes and innovation funds.
  • Establish inducement prizes for challenges that are under the radars of digital companies and researchers, such as decentralised grid control; distributed ledgers for mini-grids connected to larger grids; energy service contract performance and securitisation; demand response; emissions pricing and trading; and fuel carbon intensity accounting.

Address all the links in the value chain

  • Advance electricity market improvements to enable more locational and time-based price signals.
  • Identify gaps between physical performance and digital technology potential and, where appropriate, incentivise owners of assets to upgrade physical equipment such as power engineering equipment.
  • Advance market mechanisms that incentivise innovation in areas such as carbon intensity certification for fuels and demand response.

Build enabling infrastructure

  • Ensure that energy efficiency and energy network investments made as part of stimulus measures incorporate forward-looking digital equipment, such as sensors and high bandwidth communication.
  • Invest in the infrastructure to enable large open access demonstrators for public and private researchers of innovative smart hardware and software to run controlled trials enabling published comparisons of competing solutions. Smart charging, mobility, grid management, smart homes and distributed markets would all be appropriate applications.
  • Implement a multi-year plan for raising investment in enabling digital infrastructure for electricity, gas and heat networks.
  • Create incentives for regulated entities to rapidly test innovative solutions that could save money for consumers in the long run.

Work regional for local success

  • Support knowledge exchange programmes between researchers and start-ups working in different countries on similar technology problems.
  • Establish networks of demonstrators that enable like-for-like comparisons of performance in different sectors.
  • Build on existing multilateral platforms to enhance knowledge sharing between countries and sectors.
  • Reinforce efforts to develop international markets for low-carbon fuels and gases that align differential certification and emissions pricing regimes.
  • Co-ordinate work on open access protocols, standards and solutions for remote off-grid markets in developing regions.

 

References
  1. Canada, France, Germany, the Netherlands, Norway, Spain, Sweden and the United Kingdom.

Next References