Innovation in the energy sector: advancing or frustrating climate policy goals?

Abstract

The energy sector is well known for the relatively modest level of resource that it devotes to research and development (R&D). However, the incremental pace of energy innovation has speeded up in the last decade as measured by public sector R&D budgets, deployment of alternative technologies and novel institutional arrangements. While much of this effort has been targeted at technologies that promise to reduce carbon dioxide (CO2) emissions, there have also been major innovations that extend the fossil fuel resource base and reduce the cost of extraction. The last decade’s developments can be seen in terms of a challenge to the existing energy paradigm in parallel with a renewed innovative response focusing on conventional fuels and technologies. This paper examines this tension, by exploring the expectations of a variety of organisations in both the public and private sector regarding energy sector developments and by analysing private sector expenditure on energy research and development (R&D) and public sector budgets for energy R&D and demonstration (RD&D). Scenarios and outlook exercises that have been published since 2013 reveal a wide range of beliefs about the future development of the energy system. The contrasting views underpinning the different scenarios are reflected in divergent patterns of R&D investment between the private and public sectors. There appears to be a tension between the drive to transform energy systems, on the part of public bodies, mainly motivated by the need to combat global climate change, and private sector activity, which tends to reinforce and extend existing patterns of energy provision. The paper addresses, but not answer definitively, the key question as to whether technological change is enabling or frustrating ambitious carbon goals.