Green tech: disrupting the status quo to slow climate change

The UN United in Science 2024 report estimates that there is only a 14% chance of limiting global warming to 1.5°C above pre-industrial levels. Further, it suggests that there is a “large possibility” of a more ominous future scenario of 2°C or 3°C, which scientists warn will lead to catastrophic consequences.

This is where we are nine years after 195 countries and the EU signed the Paris Accord at COP21, committing to take action to keep global warming below 1.5°C. The accord was an important milestone. But so far, the multinational action plans developed have fallen short of the step change needed to collectively reach this goal.

Not surprisingly, the discussion is starting to shift to adaptation measures, like building sea walls and early storm warning systems. In the US, recent hurricanes Helene and Milton are estimated to have cost more than USD 50 billion in damages, making a compelling case for shifting resources toward these types of measures. Indeed, adaptation measures are important for protecting those communities most vulnerable to climate change.

However, we cannot turn our back on mitigation. The costs of adaption will only rise in a rapidly warming world. We must continue to invest in new, alternative technologies that reduce global carbon emissions. Incremental improvements in efficiency are not enough to move the needle on climate change. Drastic shifts in behavior and consumption, building, and manufacturing will be required to change the emission trajectory. Multi-sector, disruptive technological innovation is needed to get us there.

Disruptive innovation: a framework for climate action

Disruptive innovation is when a new product or service displaces an existing one. History abounds with disruptive innovations such as the steam engine, automobiles, and the personal computer. Recent examples include smart phones, streaming services, and electric vehicles (EVs). These disruptive technologies create new markets and often change the way we live our lives.

However, with climate change, we do not have the luxury of time. Disruptive innovations can take years, if not decades, to reach their full potential where they replace incumbent technology and become ubiquitous. The first EV was built in the 1880s. The first commercially viable solar panels were deployed in the 1950s. Only now are they realizing their full disruptive potential.

So, how can we accelerate clean technology diffusion, prioritizing scarce resources to achieve the desired outcome of decarbonizing our global economy? There is no simple answer. We need to steer investments where they are most effective with the technology life cycle in mind. Here are some factors to consider based on the phase of the technology life cycle:

Emergent phase

In this phase, new technologies are introduced to the market often by intrepid entrepreneurs. At first, the new technology may not match the performance or price point of existing offerings. Investment is directed at research and development (R&D) to improve product design and to drive down costs. As performance improves and adoption begins, more companies enter the space, spurring further innovation. Government can help incentivize entry by driving demand (for example, through subsidies) and underwriting R&D (for example, with research grants).

Growth phase

As the technology improves and costs decline, adoption begins to grow exponentially, prompting a flood of new market entrants. Incumbent firms begin shifting resources toward the new technology to try to stay relevant. Government incentives can help firms scale by driving down the costs of manufacturing and by building out the infrastructure and supporting the industries needed for widespread adoption. Eventually, a shakeout occurs where multiple firms are either put out of business or acquired.

Mature phase

After the shakeout, the industry begins to mature, with growth of the new technology slowing down as it becomes dominant. Interventions are no longer needed to transform the market. The rate of innovation slows, and the marginal impact of each dollar spent on R&D declines. The old technology fades while the number of firms in the market shrinks. This is where government attention may be most effective by regulating laggards.

Different industries, different solutions

Disruptive innovation must happen across major industry sectors to move the needle on climate. We need disruptive, clean technologies in transportation, energy, industrials, buildings, and agriculture. There is no single technological solution. The interventions needed to quickly shift markets will be varied and specific to each industry.

Consider the built environment. Market viable alternatives exist for decarbonizing heating and cooking such as electric heat pumps and induction ovens. The attractiveness of these technologies may vary based on location, but there are reasons for hope. Arguably, this is a relatively mature industry. The biggest challenge is retrofitting existing infrastructure still reliant on fossil fuels. As a matter of government intervention, the focus should be on how to accelerate capital investment in new, economically desired, decarbonized technologies.

EVs are in the growth phase. Every major car company now offers at least one EV model. According to the International Energy Agency (IEA) Global EV Outlook 2024, global electric car sales in 2023 were more than six times higher than just five years earlier – representing 18% of all cars sold, compared with 2% in 2018. A shakeout may be imminent as some legacy automakers struggle. Government incentives to purchase EVs and fuel efficiency regulations may help accelerate these trends, but a market transition seems to be proceeding apace. Government investments may be better placed in building out charging infrastructure.

Compare this to industrials, where clean alternatives are more nascent. Cement and steel are particularly challenging as it can take years to demonstrate the performance of alternative building products with limited room for failures. Here, government investment can focus on R&D and large project demonstration efforts for decarbonized alternatives.

For agriculture, emissions come from livestock, food waste, and the use of nitrogen-based fertilizers. Increased interest in regenerative agriculture and other nature-based solutions is encouraging. Yet, to decarbonize this sector we need to think differently about how we produce, distribute, and consume food. The truth is we need to feed another two billion people by 2050 while guarding against drastic changes in weather patterns. This is a sector that is ripe for innovation. Government investment in scaling technological solutions like precision agriculture, alternative proteins, vertical farming, and plant and livestock sciences will help to meet climate and humanitarian goals.

Critical to all our decarbonization efforts is greening the electric grid. IEA estimates that by 2028, renewable energy sources will represent 42% of global electricity generation, with the share of wind and solar reaching 25%. The continued growth of wind and solar energy, intermittent by nature, will be dependent on a nimble and flexible grid supported by energy storage solutions. For developed countries like the US, this will require significant grid modernization, which will in turn need massive investments from both the private and public sectors.

We need a nuanced technology policy

In the US, the Inflation Reduction Act, the Infrastructure Bill, and the CHIPS and Science Act have brought newfound attention to technology policy. What role should the government play in driving markets to socially desired technologies? The old libertarian response of “none” is unsatisfactory and ignores the numerous ways that the state has helped spur innovation – from the internet to early-stage drug discovery. However, we should well heed the concerns about the state “picking winners and losers.” The nature of innovation is exploratory. We need to foster more exploration, not constrain the search for future technologies to presumed (and potentially incorrect) best paths.

We need a nuanced technology policy that:

• is designed to spur innovation and unleash the creative and disruptive potential of markets
• recognizes the state of the technology life cycle in each critical sector
• targets the specific state of technology in each industry, recognizing whether disruption is still nascent, has already begun, or is nearing completion

We also need a technology policy that recognizes that advances in one sector may benefit another. Take batteries, where improved efficiencies and chemistry due to EVs will certainly help with energy storage on the grid. More broadly, efforts to electrifying existing sources of emissions – whether cars, heating, or industrial processes – depend on decarbonizing the electrical grid and dealing with intermittency due to renewables.

Decarbonization remains imperative. We cannot decarbonize without fundamental and disruptive shifts in technology in many critical industrial sectors. These shifts will only occur when market forces can be unleashed to speed improvement and diffusion. We need a broad, nuanced technology policy to catalyze innovation and the advancement of disruptive clean technologies.

Rebecca Duff and Michael Lenox are co-authors of The Decarbonization Imperative: Transforming the Global Economy by 2050 (Stanford Press, 2021). The book is a 2022 Axiom Business Book Award winner for Economics.