Climate Change: Innovation vs. Deployment

In Paris last week, Bill Gates and Barack Obama made headlines when they announced two new initiatives to fight climate change. The governments of 20 countries announced “Mission Innovation” where they made a commitment to double their energy research, development, and demonstration (RD&D) budgets over the next 5 years. (Bill Gates made a similar announcement earlier this summer, where he pledged to put $2 Billion of his own money to work in the sector.) The group of 28 billionaires, for their part, announced the “Breakthrough Energy Coalition” as a vehicle to invest in early-stage companies that have the power to transform the clean energy landscape.

The worldwide headline-grabbing attention that these announcements received reignited the ongoing debate over innovation vs. deployment. It prompted energy innovators, entrepreneurs, and investors alike to rehash the debate. Even Energy Secretary Ernest Moniz weighed in on the topic.

The “with us or against us” split

You could imagine a spectrum with two extreme positions. At one extreme, the deployment straw-man would say all available resources — public and private — should be spent on deploying existing technology. At the other extreme, the innovation straw-man says the existing technology isn’t cheap enough, so we shouldn’t bother installing it and all resources should be spent on next generation technologies.

To be clear — no serious voices are arguing for either of these extreme positions. This is like saying we must make a binary choice between either only researching cures for cancer, or only using our current drugs to treat patients. Nevertheless, there are constraints on time and money, and there is a debate brewing about which part of the climate change problem public funds, private investment, philanthropic grantmakers, and public policy should be focusing on.

How do we reduce our CO2 emissions?

De-carbonizing the world’s electricity supply can broadly be separated into two categories: replacing existing dirty generation, and building new renewable capacity for first-time electrification. There are, of course, other sources of greenhouse gas emissions — notably transportation, manufacturing, agriculture, and changes in forest cover — which all need to be addressed.

When it comes to providing new electricity to the developing world, Jigar Shah has been making the case that all of the renewable technology we need already exists, and can be deployed more cheaply than fossil-fuels. On the heels of the recent announcement, the veteran solar developer and founder of SunEdison wrote a post on LinkedIn that was viewed by more than 10,000 people, where he made the case that in order to deploy this cleantech infrastructure, we need to divert only 25% of the $10 Trillion that would be spent on energy infrastructure anyway. As Carl Pope wrote in a 2014 response to a previous Gates-Shah back and forth, in some parts of the world, new wind and solar projects are cheaper than new fossil fuel generation. Pope and Jigar point out that for the developing world, the price difference is even greater because new distributed renewable resources can reduce the need for building the transmission infrastructure that would be required with centralized fossil fuel generation.

While the new announcements were trending on traditional media, Rob Day, an experienced cleantech venture capitalist, volleyed dozens and dozens of tweets back and forth where he asked the world to give business model innovators more credit. Rob agrees that we already have ready-to-go fundamental “deep tech” built on years of previous R&D (innovations in Materials Science, Chemical Engineering, Information Technology) and he argues that what we need most right now are creative new business models to get this technology adopted. In some cases, those new business models are creative new ways to finance the transitions. In other cases, progress comes from adding sensors, software, and services to existing technology — think smart lighting and smart energy storage.

So how did an announcement about strengthening R&D rekindle a debate that pits climate change fighters against each other? Where did this debate come from, and how did it get so politicized?

The Debate

First, let’s be clear about what this debate is not about:

The debate is not about whether technology R&D is important (no serious voices are claiming that it isn’t). Neither is the debate about whether government policy plays a role in deployment (both sides agree it does).

It is important to consider the pipeline of technology development. Fundamental research leads to new discoveries. Sometimes, a market need arises for those discoveries. In some cases, this “market pull” happens 20 years or more after the initial discovery. Then, a new wave of research and development is needed to bring that discovery and the manufacturing processes to create it to commercial scale. Next, a different sort of innovation is needed to demonstrate, market, and sell the new innovation. As the technology is deployed, manufacturing experience, the strengthening of supply chains, and R&D investments by the manufacturers all help bring the costs down further.

So, since all of these pieces are necessary for widespread adoption, why would R&D stand in opposition to deployment?

The Innovators

In the mid 1990s, scientists, engineers, and policy makers were looking at the magnitude of the climate challenge and realized that the problem was much bigger than people understood. Alex Trembath has written a detailed history of these voices, that you should definitely read here and here.

These thinkers made the case that new energy consumers in the developing world would demand electricity much faster than energy efficiency upgrades could keep up. By being more efficient, we would not break even, much less reduce our emissions. New technology would be needed to decarbonize the world affordably. Note here that none of these innovation advocates suggested that we shouldn’t deploy existing solutions, and that’s an important distinction.

Unfortunately, these thinkers didn’t quite get as much press as Bjørn Lomborg, a Danish political scientist.

The Skeptical, but wrong, Environmentalist

In 2001 Bjørn Lomborg, a Danish political scientist, published the English-language version of his book, The Skeptical Environmentalist. Lomborg is clearly passionate about saving the planet, and especially about looking out for the global poor. His book drew inspiration from other sources, but, perhaps because of the recent Kyoto Protocols (COP3), it garnered more attention than those prior volumes. The publication of this book was met with a healthy dose of praise from newspapers including the New York Times, the Washington Post, the Wall Street Journal, and the Economist. The book was welcome news to those who didn’t want another global threat to worry about. It’s just too bad so much of it wasn’t true.

Publications with a higher level of scientific rigor, including Nature and Science, wrote harsher reviews, accusing the work of selectively including references and even of falsifying data in order to deliberately mislead readers. Scientific American published several rebuttals by prominent scientists, followed by Lomberg’s response, and another set of rebuttals to the response.

In one chapter, Lomborg suggested that while he believed that climate change was real, he doubted the extreme temperature predictions, and claimed that his own cost-benefit analysis indicated that it was not the most pressing problem facing the world compared to poverty, disease, and global development. Instead of deploying existing clean technology, resources should be spent on directly fighting disease and lifting people out of poverty, and some funds should be spent on R&D for future clean energy solutions. The scientists who reviewed this section found that he failed to include the most recent scientific studies, and misinterpreted others. His calculations led him to the conclusion that the climate worries weren’t as large as others feared.

Environmental scientists worried that Lomberg’s book had the appearance of legitimacy, and therefore would be used as evidence for those who opposed any action on climate change. Clean energy advocates, meanwhile, worried that if the world perceived that next year’s clean tech would be cheaper and better than what’s available this year, they would perpetually hold off on making the conversion. As Jesse Jenkins summarized it: in order to say that R&D is needed, you have to admit that the current technology can be improved. That is not the same as saying today’s technology isn’t worthwhile.

The richest man in the world enters the fray

In 2011 Bill Gates gave a talk in which he said that the climate benefits of energy efficiency technologies would be wiped out by increasing fossil-based energy use in the developing world. In the summer of 2014, Gates weighed in on his blog by posting two of Lomborg’s videos. In those two videos, Lomborg starts with reasonable arguments: the world’s poor need access to energy in order to lift themselves out of poverty and that indoor cooking fires are terrible for human health. No one could disagree. But then he continues by making the unsubstantiated case that these two problems can only be solved by fossil fuels, ignoring the many cases where renewables can cost-effectively play a role.

In discussing these videos, Bill Gates made four proclamations:

  • The rich world should not put emissions constraints on the developing world if that would harm their ability to fight poverty.
  • Developing countries should be given access to the cheapest sources of energy they can find, in order to accelerate their development.
  • The poor countries wouldn’t contribute enough emissions, even with dirty energy, to make a significant difference.
  • To fight climate change, rich countries should spend more money on R&D for technologies that will make clean energy more affordable to everyone.

On their face, all of these statements are reasonable, and I believe even the staunchest deployment-only advocate would agree with all four. The problem here is that, even though his blog post says he “doesn’t agree with everything Lomberg says,” Gates both tacitly and explicitly agrees that the clean alternatives are too expensive. Gates also did a disservice to the clean energy industry and the global poor by failing to acknowledge the many cases where clean alternatives are both cheaper and more reliable. This is perhaps a little surprising, considering that during Gates’ tenure as Chairman at Microsoft, the company signed huge wind power deals.

Innovating vs. deploying in established markets

Now, on to the second part of the debate — innovating in established markets.

Rob Day has made a strong case for business model innovation as the economic driver for deploying existing solutions. The question has been: with all of the clean energy solutions available today, what can we do to get them to market quicker, and how do we ensure that there are businesses focused on this?

These technologies fall into two categories. First, technologies that are cost-effective over the long term, but require substantial up-front costs or long payback periods. For example, installing rooftop solar may save thousands of dollars a year, but might cost up to $20,000 to install and have a payback period of 10 years. This is the problem SolarCity is solving, by providing home owners with the benefits of solar on their rooftops without the burden of paying out of pocket for installation or maintenance.

The second category is technologies that have a smaller financial benefit, but where additional value streams can rapidly increase uptake. Simply swapping out inefficient lighting for LEDs, for instance, has a payback period of about 2 years for industrial customers. Manufacturing and selling commodity LEDs is a tough business, and not likely to attract risk-tolerant early-stage capital. One of our portfolio companies, Igor, connects the lighting to sensors and control systems, allowing the system to automatically dim or shut off the lights in response to ambient conditions.

The path forward

Suggesting that more R&D is needed is not the same as saying today’s solutions aren’t worth deploying. There is little question that next year’s automobiles will be always be better than the ones on the lot today, but that doesn’t stop people from buying. At the same time, anyone who is active in the clean energy space has to remain vigilant against opinions about the relative costs and benefits that aren’t supported by robust data.

Most people who support R&D for the next generation of technologies are not doing so in order to block or delay the transition away from fossil fuels. Instead of telling Bill Gates he’s wrong to invest his money in next generation technology, our community needs to show him that by also focusing on deploying current technology, we can save the lives of those he is trying to help.

So what’s the path forward? First, there is no question that regulatory barriers to deploying existing, cost competitive technology should be broken down. Second, government policies around the world should continue to support the roll-out of deployment-ready technologies to help those solutions come down the learning curve.

Finally, research and development for the next generations of energy technologies and climate mitigation technologies must be supported. But R&D alone won’t be enough. Companies formed around new materials, chemicals, and manufacturing processes face immense hurdles on the road to commercialization. These companies are not a good fit for traditional risk capitalists who need substantial returns and short investment timelines. Successful venture-backed companies must multiply the investment 10- to 100-fold in 3–5 years. New models are arising to help fill this gap, in the public, private, and non-profit sector. In another piece well worth reading, Teryn Norris has done a great job of summarizing these models here.

The hope is that Bill Gates and the rest of his coalition will find ways to support and commercialize the new innovations that we need to win the fight against climate change, and will make money while doing so.

This will be a long battle, but it is one that the entire cleantech community needs to fight together.