The case for government’s role in supporting innovation is clear. The Internet, smartphones, GPS, and canola oil are all examples of the public benefitting from government investment in technology and innovation. Governments have played key roles in the development and deployment of so many technologies we use today, in parts of the development cycle that the free market can’t address. The same is true for clean tech, where governments have an important role in enabling the success of technologies that will deliver both emissions reduction and economic benefit.
Alberta’s plan to invest revenue from the carbon levy into clean tech innovation is a sign Alberta understands this role. It also builds on Alberta’s long history of investing in innovation.
But to make the most of the investment, governments must provide this support wisely — based on an understanding of the ways in which this support provides returns to the public as opposed to simply benefiting private enterprises. One of the most valuable return on investments to the public is through knowledge spillover. Knowledge spillover refers to the additional benefits that come from knowledge created through the investment beyond the firms involved or original questions addressed, that could create additional economic activity, GDP, and jobs. This spillover can be as close as different firms within the same sector implementing new technologies, or as far removed as techniques or materials developed for one industry resulting in significant value when used in another.
Different types of clean technology
While it’s clear that supporting innovation is a winning idea, key questions remain: what types of innovation brings the highest value for the public? How does the value of investments in clean tech compare to other types of innovation?
It’s an over simplification to talk about clean tech like it is one type of innovation: in fact there is an important distinction within the sector.
In his work evaluating innovation at the London School of Economics, associate professorial research fellow Antoine Dechezleprêtre has put forward three categories for thinking about environmental attributes of innovation — in his language: “clean,” “dirty,” and “grey.” While dirty tech is simply innovation with no element of environmental improvement, and pure clean tech is defined by technologies that deliver the same service or function but with zero carbon, grey tech sits in between the two and is characterized by incremental improvements to the environmental attributes of the historically higher carbon technologies. These lower carbon innovations associated with grey tech are often included in the broad definition of clean tech.
For example, let’s look at the electricity sector. Within the sector, renewables like wind or solar are zero carbon; technologies that improve just the economics of traditional coal plants are dirty, and technologies that improve the energy efficiency of operations of a coal plant or to reduce emissions would be categorized as lower carbon. Similarly, within the auto sector zero carbon would include EVs, while lower carbon would include improvements to conventional internal combustion engine cars to improve kilometers per litre.
Both zero carbon innovation and lower carbon innovation can contribute to climate goals through emissions reductions, but in different ways. For Canada, as in most jurisdictions, the lower carbon technologies are insufficient to meet the countries’ commitments on their own.
The value of zero carbon vs. lower carbon technologies
Given this further distinction, what value does the public receive from improving the footprint of existing technologies as compared to developments that result in new zero carbon technologies?
What Dechezleprêtre and collaborators find through their research is the value of the knowledge spillover from innovations is highest for zero carbon technologies, lowest for dirty tech, with lower carbon technologies in the middle. This is true for both the quantity of and the ultimate economic value of the knowledge spillover.
This doesn’t necessarily mean that lower carbon or dirty tech itself is inherently less valuable, or that private enterprise shouldn’t invest in improving environmental impacts. Especially when policies are in place to price pollution, like carbon pricing, it is often economic for companies to invest in lower carbon technologies to improve their footprint. The key question Dechezleprêtre’s data answers is specifically what is the relative value to the public from these investments, which should be a key factor in how governments should prioritize innovation investments from public funds.
Where should investments go?
So what does this mean for governments looking to spend innovation dollars on clean tech, like the revenue from Alberta’s carbon levy that is budgeted for innovation?
First things first: the government is on the right track. In addition to the value of clean tech to help governments meet climate commitments, the direct return on investments to the public is high. And these returns are much higher compared to other support currently given to industries, for example through fossil fuel subsidies.
Secondly, they should distinguish between zero carbon clean tech and lower carbon clean tech improvements and invest more heavily in the former. Both technology areas have value (of varying degrees) in their ability to contribute to emissions reduction and return on investment. Other policies — such as a price on carbon — can incentivise spending on lower carbon tech. But the return to the public for zero carbon innovation investments is higher so decisions on how the funds are spent should reflect this different value.
