Bloomberg Law
June 4, 2020, 8:01 AM

INSIGHT: Clean Energy Innovation Can Make Covid-19 Recovery Greener

Jacquelyn Pless
Jacquelyn Pless
MIT Sloan School of Management

The halt of economic activity in response to the global Covid-19 pandemic appears to be—unsurprisingly—helping the environment. As of April 2020, daily global CO2 emissions have fallen by about 17% compared to last year’s average levels. Photos revealing cleaner air in our otherwise most polluted cities are flooding social media feeds.

But this is not a silver lining. It’s a wake-up call. The air quality improvements and emissions reductions that we’re seeing today are undoubtedly temporary. Emissions will increase again once we return to work and businesses reopen, and shutting down the economy is by no means a long-term option. The distress sweeping communities globally—hitting the poorest and most vulnerable populations hardest—is far from what climate success looks like.

Climate change mitigation should improve quality of life, not harm it.

Environmental Impact of Everyday Activities Revealed

What short-term environmental benefits do reveal is just how much our everyday activities impact the environment and the air we breathe. They shed light on the scale of the challenge that climate change poses. In other words, we need more action—not less.

Governments globally are discussing massive fiscal stimulus packages to reinvigorate their economies. How they spend this money—and how they design policies moving forward—could influence infrastructure and emissions pathways for decades.

What trajectory do we want to be on? One that locks-in polluting assets for another generation, or one that accelerates social progress by improving environmental quality and public health while simultaneously driving economic growth and prosperity?

Stimulus packages can be designed to create a more sustainable, cleaner future that protects people. For instance, decarbonizing the energy sector will be critical for addressing climate change, but doing so cost-effectively will require substantial innovation in clean energy. Public spending supporting clean energy innovation, therefore, should be included in economic recovery plans.

Five Key Challenges to Evaluating Support Schemes

Governments also now have the unique opportunity to generate new—and much-needed—evidence on what energy innovation policies actually work best by building evaluation tools into support scheme design from the outset. However, it is important to keep in mind at least five key challenges to evaluating the effectiveness of such support schemes, as my co-authors Cameron Hepburn (University of Oxford) and Niall Farrell (Queen’s University Belfast), and I describe in our recent paper in Nature Energy. These challenges can be overcome if considered upfront.

First, the primary challenge for understanding the returns to public spending on energy innovation is quantifying how much subsequent innovation activity can be attributed directly to the policy or program as opposed to other factors. This requires having a control group to know what would have occurred without funding. Unfunded organizations with characteristics similar to those that are funded could be well-suited. Tracking innovative activity and outcomes for both funded and unfunded organizations that apply for a grant is therefore important.

The “gold standard” for policy and program evaluation is to implement a randomized control trial, but when this is not feasible, we can also embed other forms of “randomness” in the policy design to mimic the nature of an experiment. For example, certain requirements attached to funding can be randomized—like collaboration with specific types of companies, national laboratories, or universities. Examining whether such collaborations differentially impact outcomes can then shed light on their role in fostering innovation.

The second challenge is that there are often significant and uncertain time delays between funding and technology development. In some industries, like software or app development, technology can be developed and adopted very quickly—in a few days or weeks. However, in the energy sector, it can take up to 10 years from the time of funding until we see a measurable outcome. Data must be collected over long time horizons to evaluate impact, and whether intermediate milestones are achieved can be assessed in the meantime.

The third challenge is measuring “success.” Innovation inputs, like R&D spending, can be readily tracked. But what are the appropriate measures for capturing whether an organization translates such spending into innovation? New technology development and deployment? Cost and performance improvements of existing technologies? Organizations can also innovate by improving processes or management practices, which can subsequently enhance firm performance and productivity. In order to quantify such advances, we need access to granular, organization-level data, and possibly the development of new metrics.

The fourth challenge involves distinguishing the direction of innovation when assessing these outputs. Did the investments advance a clean energy technology or a carbon-intensive one? Did organizations improve their environmental performance as a result of new management practices?

Finally, the fifth challenge is disentangling the effects of policies and programs that are often layered on top of each other. Understanding independent effects as well as how they interact is critical to optimally designing policy.

As we move forward after the pandemic, governments have the opportunity to drive innovation in the energy sector. Doing so in a way that improves the energy sector’s environmental performance can help stabilize climate change, and carefully considering upfront how innovation funding packages are designed can allow us to continue learning what policies and programs work best.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Jacquelyn Pless is the Fred Kayne (1960) Career Development Professor of Entrepreneurship and an assistant professor at the MIT Sloan School of Management. Her research focuses on developing a better understanding of how to foster innovation for social progress, with a particular focus on clean energy innovation.

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