AEIC Member Chad Holliday Emphasizes Innovation for the New Climate Economy

Today, AEIC member and former Chairman of Bank of America Chad Holliday was a featured speaker at the release of the Global Commission on the Economy and Climate report, Seeing is Believing: Creating a New Climate Economy in the United States. Mr. Holliday spoke to the numerous opportunities for economic growth through sustained technological progress on clean energy, as well as the policies necessary to facilitate investment and innovation, including:

• Reducing the carbon intensity of power generation
• Improving electric efficiency in the residential and commercial sectors
• Building cleaner, more fuel-efficient passenger vehicles
• Improving production, processing, and transmission of natural gas, and
• Reducing consumption of high global warming-potential hydrofluorocarbons (HFCs)

Mr. Holliday joined world leaders, including Felipe Calderon (former President of Mexico), Paul Polman (CEO of Unilever), Michel Lies (CEO of Swiss Re), and Ricardo Lagos (former President of Chile), to form the Global Commission on the Economy and Climate. Today’s panel and report release build on their flagship report, The New Climate Economy, which echoes the AEIC in arguing that transformation through innovation is critical to economic growth and meeting climate challenges:

Innovation is the fundamental engine of long-term growth, and is crucial to enabling economies to grow sustainably. Industrialised countries already enjoy the benefits of past innovations that have sharply increased resource efficiency. New and emerging technologies could allow them to go even further, while enabling developing nations to “leapfrog” to highly productive, low-carbon economies and improved living conditions.

Materials science and digitisation hold particularly great potential for economic growth and climate change mitigation alike. Combined with business model innovations, technological advances in these fields are driving rapid progress in renewable energy and energy efficiency. They are also transforming multiple other sectors in both rich and poor countries, including personal transport, buildings, manufacturing, agriculture and consumer goods.

One example is a shift to “circular” business models, which dramatically reduce the material and energy-intensity of production systems through greater durability and reuse of key product components, and could add up to US$1 trillion to the global economy by 2025.

The potential for innovations to accelerate the transition to a low-carbon economy is enormous, but there are real barriers, including the market scale, sunk costs and entrenched incentives for incumbent high-carbon technologies. For example, in the construction sector, leading players have shown the potential to achieve radical efficiency gains, but those innovations have yet to be widely adopted.

Energy-sector public research and development (R&D) is less than half of what it was in the late 1970s, in real terms, even amid growing concern about air pollution, energy security and climate change. Knowledge generated by clean tech R&D in particular has spillover benefits comparable to those from robotics, IT and nanotechnologies, and new patents associated with clean-tech R&D are much likelier to be used by other fields than those associated with fossil fuel-based technologies.

Stronger incentives for low-carbon innovation – including much greater support for R&D, which has social returns estimated at 30-70% – could lead to large economic benefits while lowering the costs of climate risk management. Support for market creation is also vital, but needs to be carefully tailored to overcome specific market barriers, and to avoid subsidies that are excessive or inhibit competition.

International collaboration, including financing, technical support and expanded use of patent pools, is essential to making low-carbon and climate-resilient technologies available to lower-income countries, and ensuring they have the capacity to adopt and adapt them.

The report’s recommendations on energy innovation parallels AEIC’s recommendations and includes:

• Create market pull for new technologies: To meet climate and economic growth objectives in the necessary time frame, every economy must put policy measures in place that help spur demand for clean technologies.

• Governments of major economies should at least triple their public energy-related R&D by the mid-2020s, to take it well over US$100 billion a year (exceeding 0.1% of their GDP), and target it towards game-changing technologies.

• Encourage new business models by removing poor regulations and other barriers to entry.

• Establish a robust system of intellectual property protection and sharing, while supporting poorer countries in accessing, adapting and adopting low-carbon innovations.

• Use realistic assumptions on cost trajectories for new technologies when making economic policy and public service and infrastructure investment decisions.