Innovation in the renewables sector is crucial to meet Paris targets

12 July 2018 4 min. read
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The world faces considerable barriers to keeping within the Paris Climate Accord upper limit of a 2.0 C rise in temperature over this century. A new report from the World Economic Forum and KPMG reveals that the renewable energy sector is growing rapidly in capacity, but lacks the innovative push to effect large-scale reduction of emissions .

It can be argued that the realisation around climate change and its impact has come late, which has made dealing with the phenomenon increasingly difficult, risky and laboured. The Paris Agreement, signed in 2016, has set a clear standard for meeting the challenge, aiming for an increase of no more than 2.0C by the year 2100, with a strong preference for 1.5C.

Achieving this target will require action across various segments of the economy, from energy decarbonisation and efficiency to more sustainable agricultural practices and the adoption of circular consumption models. Different segments across the world are variously prepared for the challenges, and the reliance is broadly on technological advancement to overcome old practices.

Annual added capacity in renewables

However, despite broad acknowledgment of the need to change, innovation remains lacking in some areas. To better understand the barriers, the World Economic Forum’s ‘System Initiative on Shaping the Future of Energy’ was set up as part of the 2017 Davos conference, securing participation from 22 governments globally as well as the EU. A recent report titled ‘Accelerating Sustainable Energy Innovation’ has been released by the WEF in collaboration with KPMG, which examines the status of innovation in the energy segment.

Renewable forms of energy such as solar and wind have gained momentum in recent years, indicated by a sharp increase in the total installed capacity across the globe. The shift reflects both the economics of renewable technology as well as its degree of maturity. Wind and solar technology is now considerably cheaper and investors are on firmer ground, having obtained a better idea of the risks associated with projects.

The Intended Nationally Determined Contributions (INDCs) laid down in the agreement have put us on a trajectory well above those of both targets. Nevertheless, annual global greenhouse gas emissions continue to trend upwards rather than downwards, which makes the enactment of an energy transition absolutely essential.

Annual global greenhouse gas emissions

While the economics of renewables are set to rapidly tip in their favour, innovation in the space has been relatively slow to build on existing technologies such as LEDs and heat pumps. The tardy progress in the space can be attributed, in part, to powerful vested interests that exist in keeping the world petroleum-dependent.

However, renewed urgency is seeing countries increasing their investments in R&D for renewable technology. The EU and US remain the major backers, with energy efficiency drawing $1 billion in investments from the EU and $1.25 billion from the US. In total, around $27 billion was invested in clean energy technology in 2015.

These figures are dwarfed, however, by the funds being invested by the private sector. Motor companies, as a comparison, spend up to $12 billion on R&D per year on average. The US defence budget, meanwhile, stands at more than $600 billion.

Investment in renewables from key countries

Boosting R&D development in the sector is likely to require a multi-faceted strategy. “The majority of experts who participated in the workshops and interviews for this paper agree that a credible policy framework requires a transparent and perceptible price for GHG emissions at levels that can impact investment decisions, as well as a repeal of subsidies for fossil fuels,” says the report.

Technology specific moves include feed-in tariffs – which create certainty for investors – and tax incentives that provide support for both businesses as well as consumers seeking to invest in electric vehicles and energy efficient homes and heating. Additionally, a clearly defined regulatory environment is essential to supporting investor concerns.