Accelerating technology transfer through new market mechanisms and services to help close the pre-2020

gap

Latin American & the Caribbean Carbon Forum

Colombia, Bogotà03-05 September 2014

Sébastien Raoux, President & CEOTranscarbon International

• The remaining gap to stay within the 2°C limit by 2020 is 8-12 GtCO2e/yr.

It is more likely than not that the gap in 2020 will be at the high end of the range.

• There is a disconnect between political ambition and practical reality.

Technologies to reduce the gap are available but implementation is lacking dramatically.

• A ten year delay in starting emissions reduction leads to more than doubling the probability of exceeding the 2°C target.

After such a delay, energy-related CO2 reduction rates until 2050 need to be on average 2.4% per year (of 2010 levels), rather than 1.5% per year.

The 2020 Emissions Gap

Source: The Emissions Gap Report 2013, a UNEP Synthesis Report

Annu

al G

loba

l Tot

al G

reen

hous

e G

as E

mis

sion

s (G

tCO

2e)

40

60

Time (years)2010 2020

Case 1: 12 GtCO2e

Case 2: 11 GtCO2e

Case 3: 10 GtCO2e

Case 4: 8 GtCO2e

Business as usual: 59 GtCO2e

2°C range

Median estimate of level consistent with 2°C: 44 GtCO2e

Remaining gap to stay within 2°C limit: 8 to 12 GtCO2e

• In principle: Adopting strict accounting

rules. Moving towards unconditional

pledges. Increasing the scope of current

pledges. Furthering national and

international action.

• In reality: Options to reduce the gap

under least-cost paths are closing.

Locking-in to carbon-intensive infrastructure will narrow the range of future options.

The transfer and implementation of low-carbon technologies is insufficient.

Options to Close the Gap

Sources: Wedging the gap (Block et al., 2012), UNFCCC technical paper (2013), IEA energy / climate map (2013)

• Existing market mechanisms have limited efficiency in promoting technology transfer, even for readily-known solutions.

Limited scope of CDM project types involving technology transfer.

The creation of capacity, in a recipient country, to adapt, produce or further develop low-carbon technologies is rare.

• Barriers to technology transfer are numerous: Information and awareness. Capacity, network, and human skills. Policy, legal, and regulatory.

The Technology Transfer (TT) Gap

Sources: Technology transfer in the CDM: an updated analysis (Murphy et al., 2013), Technology transfer under the Clean Development Mechanism (Das, 2011)

Technical (technology readiness level).

Financial (capital costs). Economic (abatement costs).

• Transfer of breakthrough technologies must be accelerated Innovation must be supported by national and international policies and

effective carbon market mechanisms to overcome key barriers to technology transfer.

• Two intrinsic barriers of (many) low-carbon technologies:

High upfront capital costs.• Even for some

technologies with negative abatement costs.

High abatement costs.• Cost of ownership.

• Innovation can help bring the marginal cost curve downwards and expand the pool of available low-carbon technologies. Reallocation of financial resources (R&D) and strong carbon price signals are

required.

Intrinsic Barriers to Technology Transfer

Source: Pathway to a Low-Carbon Economy, McKinsey & Company (2009)

10$/tCO2e

40$/tCO2e

Carbon Markets & Breakthrough LCTs

€/tCO2 ICE Certified Emissions Reduction (CER) futures front contract

Source: www.quandl.com/c/futures/ice-cer-emissions-futures

• Carbon markets should stimulate innovation and diffusion of technologies to lower marginal abatement costs…

• Carbon markets should stimulate innovation and diffusion of technologies to lower marginal abatement costs…

Carbon Markets & Breakthrough LCTs

Source: State and trends of carbon pricing, World Bank Group / Ecofys (2014)

but most carbon instruments are priced at <40$/tCO2e or even <10$/tCO2e...

• A next generation of carbon mechanisms is required to bridge the technology transfer gap.

< 10$/tCO2e

<40$/tCO2e

… at insufficient prices to offset abatement costs and provide incentives for research and development (R&D) and diffusion of breakthrough technologies.

Because the development of technologies involves sunk costs, uncertainty and high price volatility further delay investments.

• Carbon markets should stimulate innovation and diffusion of technologies to lower marginal abatement costs…

Carbon Markets & Breakthrough LCTs

Source for SREC historical price curve: SRECTrade (2013)

U.S. compliance market SREC weighted average price August 2009 to August 2013

• While a ton of CO2e should always be a ton, not all tons should be born equal.

Carbon instruments for priority breakthrough technologies should be priced commensurately with their abatement costs and their long-term benefits.

• Homogeneous carbon prices is not the solution in the short term to spur the development and implementation of breakthrough Low-Carbon Technologies.

Sectoral crediting mechanisms can be effective to spur industry-specific solutions.

Technology-specific crediting mechanism could be more effective in stimulating breakthrough LCTs.• Example of Solar Renewable

Energy Credits (SRECs).

LOW CARBON TECHNOLOGY MARKETPLACE & BROKERAGE SERVICES

• Provide knowledge of the IP and End-User markets• Identify and pitch promising technology transfer transactions• Support structuring of transactions• Provide financing & risk mitigation

• The private sector can help bridge the technology transfer gap by providing services to connect the Intellectual Property (IP) and end-user markets for breakthrough LCTs.

Bridging the Technology Transfer Gap

Source: Asian Development Bank (2013)

Technology end-users

Technology Holder (IP)

Technology manufacturer or service provider

Intellectual Property Market

End-User Market

Transfer the ability to produce the good or service

Transfer the good or service

itself

Crossing the

“Valley of Death”

Priority Low-Carbon Technologies

• Priorities for breakthrough LCTs: Renewable energy

• Solar • Wind• Hydro / tidal

Energy storage

Waste to energy

Energy efficiency

Biomass/biogas/biofuels

Agriculture• Biotechnologies• agricultural practices

Transportation • Fuel switching• Energy efficiency

Water technologiesSource: Third synthesis report on technology needs identified by Parties not included in Annex I to the Convention (FCCC/SBSTA/2013/INF.7)

• The 2020 gap is not closing. Technical options exist but political ambition is lacking. Existing measures do not sufficiently stimulate innovation and low-carbon

technology transfer.

• New market mechanisms and policy instruments must be implemented to support the emergence of breakthrough technologies.

Sectoral crediting mechanisms. Technology-specific crediting mechanisms (e.g. SRECs). Specific policies aimed at boosting climate-friendly technologies.

• Increase public R&D spending in priority areas, better international collaboration.• Removing subsidies for fossil fuels.• Increasing competition in energy markets.• Use of innovation prizes.

A STRONG CARBON PRICE SIGNAL IS REQUIRED.

• The private sector can help bridge the technology transfer gap by providing services to connect the Intellectual Property (IP) and End-user markets to facilitate implementation of breakthrough LCTs.

Conclusion