Environmental and climate innovation: Limitations, policies and prices

There is much hope that environmental innovation and green technologies will remove the threat of climate change. This paper offers a critical perspective on the role of technological innovation to solving environmental problems. To this end it will synthesize empirical insights about structural economic change, energy and environmental rebound, the energy return on energy investment of renewable energy technologies, and potential crowding out effects of climate policy. Distinguishing features of green technologies, and the diversity and motives of green innovators are briefly discussed to examine opportunities for environmental innovation. The desirable combination of environmental and innovation policies to assure effective environmental innovation is assessed. An extended argument is offered in favor of environmental (CO2) pricing to make sure that innovation effectively contributes to environmental aims. The timing of policy also receives attention.

► The contribution of innovation to solving environmental problems is modest.
► Various “innovation leakages” make environmental/climate strategies ineffective.
► Regulation and technical support are needed for sustainable technical breakthroughs.
► CO2 pricing is essential for environmental innovation to deliver definite solutions.
► Subsidy allocation to R&D and market upscaling of renewable energy is unsolved.