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Session 2 - Keynote Presentation by Gregory Nemet

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Session 2 - Keynote Presentation by Gregory Nemet

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Session 2 - Keynote Presentation by Gregory Nemet

  1. 1. Emerging Technologies & Firm Dynamics: Implications for Green Growth Challenges in Innovation and public policy Prof. Gregory Nemet December 2015
  2. 2. Gregory Nemet—innovation and public policy Characteristics of innovation: surprise and stationarity Emergent properties •Ex ante ignorance •Skewed outcomes •Pervasive spillovers •Combinatorial •Depreciating knowledge •Interaction w/ production Drivers of smoothness •long lifetimes •risk aversion •incremental improvement •aggregation 2
  3. 3. Gregory Nemet—innovation and public policy 1. Policy and Innovation: Technology push and demand pull Source: Nemet, G. F. (2009). "Demand-pull, technology-push, and government-led incentives for non-incremental technical change." Research Policy 38(5): 700-709. 3
  4. 4. Gregory Nemet—innovation and public policy 1. Policy and Innovation: Source: Nemet, G. F. (2009). "Demand-pull, technology-push, and government-led incentives for non-incremental technical change." Research Policy 38(5): 700-709. 4 Technology Push Demand Pull Reduces the cost of innovation Increases payoffs for success + knowledge + size of market • R&D • tax credits • education • Demonstrations • knowledge networks • IPR • price externalities • subsidize demand • govt. procurement • tech. standards GOVT GOAL FOR PRIVATE ACTORS
  5. 5. Gregory Nemet—innovation and public policy Two Policy Challenges • Fragile demand pull • Between technology push and demand pull 5
  6. 6. Gregory Nemet—innovation and public policy • Investment depends on expectations • Low-C: expectations about D-Pull policy • What happens to investment if expectations about policy are uncertain? Do we need additional incentives? 2. Fragile demand pull: government commitments are not fully credible 6
  7. 7. Gregory Nemet—innovation and public policy 1970 1980 1990 2000 2010 2020 0 5 10 15 millionbbl/day Actual Forecast (1973) Nixon Target (1974) Carter Target (1979) Forecast (2010) Obama target (2011) Source: Nemet, G. F., P. Braden, E. Cubero and B. Rimal (2014). "Four decades of multiyear targets in energy policy: aspirations or credible commitments?" Wiley Interdisciplinary Reviews: Energy and Environment 3(5): 522- 533. 2. Fragile demand pull: Evidence that commitments are not fully credible U.S. Oil import targets 7
  8. 8. Gregory Nemet—innovation and public policy Nemet question to venture capitalist: How do you value the benefits of policy in your decisions to invest in start-up companies? “We ignore it. What the government giveth, it can taketh away.’’ - venture capitalist in energy sector “It does not affect profit projections. It goes below the line.” – energy finance professional 2. Fragile demand pull: consequences of not fully credible commitments 8
  9. 9. Gregory Nemet—innovation and public policy How did solar PV get cheap? •Full answer: a combination of factors •Short answer: expectations 2. Fragile demand pull: importance of credibility to incentives 9
  10. 10. Gregory Nemet—innovation and public policy 80 years of PV prices 10
  11. 11. Gregory Nemet—innovation and public policy 80 years of PV prices 11
  12. 12. Gregory Nemet—innovation and public policy 2. Fragile demand pull: importance How did solar get cheap? …expectations of future demand Biggest reason: Economies of scale Nemet, G. F. (2006). "Beyond the learning curve: factors influencing cost reductions in photovoltaics." Energy Policy 34(17): 3218-3232. 12
  13. 13. Gregory Nemet—innovation and public policy 2. Fragile demand pull: A taxonomy for improving incentives • Strengthen commitment – Legally binding, drop safety valves, strict adjustment rules • Maximize flexibility – status quo(?), technology push, rely on niche markets, public sentiment • Enhance credibility via political economy – Create concentrated winners – Compensate losers • Make incentives robust to policy changes – overlapping policy regime, multi-level governance – Decentralized governance, uncoordinated governance • Implementation mechanisms – Tracking and transparency Nemet, G., M. Jakob and J. Steckel (in preparation). "Addressing credibility problems in climate policy.” 13
  14. 14. Gregory Nemet—innovation and public policy 3. In between Tech Push and Demand Pull: the “Valley of death” to pay even ve that soc private private- particul imperfe future p future m ered to typically change more ris Basic research Rateofreturn Social Private Applied research Demon- strations Early deployment Diffusion Saturation Figure 4 Illustrative social and private rates of return on investment at stages in the process of innovation. 112 Markets/Technology Innovation/Adoption/Diffusion | Technologic Author's personal Nemet, G. F. (2013). Technological change and climate-change policy. Encyclopedia of Energy, Natural Resource and Environmental Economics. J. Shogren. Amsterdam, Elsevier: 107--116. 14 • High spillovers • Large capital required • High technology risk • Uncertain market
  15. 15. Gregory Nemet—innovation and public policy 3. In between Tech Push and Demand Pull: the “Valley of death” Anadon, L. D. and G. F. Nemet (2014). The U.S. Synthetic Fuels Corporation: Policy Consistency, Flexibility, and the Long-Term Consequences of Perceived Failures. Energy Technology Innovation: Learning from Historical Successes and Failures. A. Grubler and C. Wilson. Cambridge, Cambridge University Press: 257—273. U.S. Synfuels Corp. (1979-86) $5b Goal: 2m bbl/day by 1992 (33%) 15 $0.5bThe “Technology Pork Barrel”
  16. 16. Gregory Nemet—innovation and public policy 3. In between Tech Push and Demand Pull: the “Technology Pork Barrel” 16 Cohen, L. R. and R. G. Noll (1991). The Technology Pork Barrel. Washington, Brookings. “American political institutions introduce predictable systematic biases to R&D programs so that on balance, government projects will be susceptible to performance underruns and cost overruns.” – Cohen and Noll “government should not pick winners” ...but what if scale, spillovers, and market uncertainty force a choice?
  17. 17. Gregory Nemet—innovation and public policy 3. In between Tech Push and Demand Pull: Bridging the “Valley of death” while avoiding the “Technology Pork Barrel” 17 Nemet, G., K. Neuhoff and V. Zipperer (in preparation). "The valley of death and the technology pork barrel: support for radical low-carbon innovation in the materials sector.” 1. On what factors does the case for government intervention rest? [appropriability, radicalness, scale, markets] 2. How to maximize the effectiveness of government support?
  18. 18. Gregory Nemet—innovation and public policy 4. Future research: missing perspectives on innovation 1. incentives in bureaucracies 2. knowledge dissemination 3. international cooperation 4. credibility of policy targets 5. public attitudes to novel technologies 6. characterization of the social returns to innovation 7. near-term metrics to orient innovation toward longer term human needs. Nemet, G. F., A. Grubler and C. Wilson (2015). "Re-orienting energy innovation to address human needs requires new social science." Nature Energy In review. 18
  19. 19. Gregory Nemet—innovation and public policy APPENDIX 19
  20. 20. Gregory Nemet—innovation and public policy • allow for policy experimentation • recover from policy mistakes • make use of new information • respond to unexpected events • account for changes in social priorities 2. Fragile demand pull: is there a case for flexibility? 20
  21. 21. Gregory Nemet—innovation and public policy 21

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