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G l o b e l i c s S e m i n a r : Le a rn i n g , I n n o v a t i o n a n d Lo w C a r b o n D e v e l o p m e n t , C o p e n h a g e n , A p r i l 4 - 5 , 2 0 1 3

HOW DO LCD INNOVATION DIFFER: SPECIF IC IT IES OF LOW CARBON

TECHNOLOGIES AND ENERGY SYSTEMS

Rainer Walz

Fraunhofer Institute for System and Innovation Research ISI

Karlsruhe, Germany

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Techno-economic specificities of energy and low carbon technologies

forms of co-evolution high importance of regulation structure of actors and ownership, and political economy The “energy efficiency paradox” and low speed of adapting

routines

Content

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Low carbon technologies low carbon energy supply

renewable energy carbon capture and storage (CCS)

energy efficiency buildings and appliances cross cutting and process specific

industrial technologies

Transportation and mobility low carbon vehicles and fuels modal shift towards rail and ships

material efficiency recycling material efficient products and processes

energy systems

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Techno-economic characteristics

high(er) capital intensity energy supply and related infrastructure energy efficient technologies compared to low

efficient technologies high asset durability

energy supply and related infrastructure buildings, some industrial technologies

Consequences high path dependency, because of limited opportunity for re-

investment capital availability a critical factor

asset durability coal fired power stations: 40-50 a

specific investment power stations:1000 € /kW for coal power plant3000 €/kW wind turbinefor comparison: installed capacity Germany =170 GW, China =1000 GW

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technological trajectory

beginning: many different concepts, until dominant design emerges

consolidation, economies of scale, incremental innovations

co-evolution: institutions are adapted, path dependency increases

lower innovation dynamics, competition with new technological paradigmthis kind of co-evolution not specific for LCD

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Co-evolution in a multi-level perspectivelow carbon innovation

specific co-evolution between

ecological system and technological system changing norms and values

on landscape level interaction with

technologies (e.g. emissions, environmental effects)

technological co-evolution due to systemness of electricity supply: niche and regime must co-evolve niche requires electricity

grid, which has to be adapted

meeting demand requires mixture of existing capacity and growing niche of renewables

systemness very high for fluctuating renewable supply

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Triple Regulatory Challenge 1st regulatory challenge (not LCD specific): government policies with

regard to R&D 2nd regulatory challenge: dealing with environmental externality

rationale for LCD are lower external costs without environmental policy only limited demand specificity: speed and direction of innovation

depends on governmental policy 3rd regulatory challenge

grid based infrastructure forms monopolistic bottleneck access and adaptation of grid key for renewables regulation of public utilities key for renewables and energy efficiency

(pricing, smart grids) different regulatory arenas must be integrated to enhance innovation

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Structure of actors and political economy Public utilities

regulated in some countries publicly owned=> impact on innovation behaviour?

other fossil fuel suppliers large companies, some multinationals some publicly owned

companies active in low carbon innovation first movers very often newcomers, SME followers sometimes spin-offs from

larger companies importance of NGOs, community groups for LCD

political economy of global warming: intertemporal and global externality!

powerful actors, very well integrated into power structure

actors less integrated into established power structure

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Areas most affected by climate change

degradation of water resources

increase in flooding

Reduction of agricultural output

migration

Main areas effected

Different constellations of conflict:

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Innovation system of low carbon technologies

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Demand for low carbon energy technologies

Public utility regulation

Inte

rnat

iona

l tec

hnol

ogy

trade

/ el

ectri

city

con

sum

ers

(inte

rnat

iona

l) po

licie

s

General framework conditions for innovations

Research System

Suppliers of technology

R&D Policy

Policy-coordi-nation

Environmental regulation

Context factors for policy design

and impacts

Transmission and distribution

Investors, financial sector

Conventional generation

Market Regulation

consumers and stakeholders

Environmental problemsresource availability

Industrial policy

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Energy Efficiency Paradox high path dependency and lock in into fossil fuel supply good

explanation for problems for renewables energy efficiency

can be better adapted to existing system, is, by and large, even more economical than some forms of

renewables, but seems to be much less dynamic than renewables

explanation based on perception of incentives information asymmetries, energy not visible part of product more emphasis on purchase price than on total cost of ownership

explanations with slow changing routines routines which are not tested every day are slower to be changed routines which are not part of key business are slower to be changed uncertainty reduces speed of change in routines energy issues are not part of key business, have to be decided on

very often on a irregular basis, and are shaped by historic experience of ups and downs of prices

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Summary and conclusions energy is a basic need, huge pressure to fulfill demand techno-economic specificities and co-evolution support high path

dependency => is carbon lock in less strong in the South? Opportunity for leapfrogging?

regulation a key factor integration of regulatory arenas, long-term policy commitment involvement of many actors intertemporal and global externality problem => new mission oriented approach beyond traditional “man to the

moon” projects=> need for new international cooperation schemes

political economy skewed in favor of fossil fuel incumbents => need that winners link up with NGOs

how does specific structure of actors affect innovation dynamics=> we need innovation studies of public dominated sectors

energy efficiency not main business of enterprises, or key product features=> need to study innovation process of such products

What are the economic opportunities for different countries=> connect to research on first mover early follower research

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Thank you very much for your

attention

Address further questions to:Rainer Walzrainer.walz@isi.fraunhofer.de

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Negative power price spikes

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Intertemporal marginal generating costs increasing or

decreasing capacity from existing power plant increases costs

inflexible demand: opportunity costs of taking off line (start-up costs, loss of revenue in subsequent time periods)

negative electricity prices can be profitable for inflexible supply

high supply from renewables plus low demand make negative power spikes more likely

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Technological advantage

traditional supply

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supply curve for energy efficiency

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spread in industrial energy intensity

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7koe/$0

5

Energy intensity of industry (in constant US$) (2009)

Energy intensity of industry (in constant US$, purchasing power parities) (2009)

Source: ENERDATA Global Energy and CO2 Database

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specific energy consumption for steel production

Algeria

Argentina

Austria

Brazil

Chile

China

Egypt

FinlandGermany

India

Indonesia

Iran

Japan

Kazakhstan

Mexico

Pakistan

Philippines

Poland

Russia

Singapore

South Africa

South Korea

Taiwan, China

ThailandTunisia

Turkey

Ukraine

United States

Venezuela

All countries

Most efficient BOF

Most efficient EAF0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

0% 20% 40% 60% 80% 100% 120%

toe/

t cru

de s

teel

share of electric steel in crude steel production

Distance to benchmark

Nigeria: 1.3 toe/t

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Cost share of industrial energy consum-ption in value added of manufacturing

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Technology characteristic eco-innovations

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 20070

50

100

150

200

250

300

350

400

450

500

all patents energy supply energy efficiency material efficiencytransport water waste

Eco-innova-tions are medium-high tech tech-nologies

Dynamics differs between fields

above average patent dyna-mics for some fields