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itif.org

Beyond Force: A Realist Pathway

Through the Green Transition

ROBIN GASTER, ROBERT ATKINSON, AND EDWARD RIGHTOR | JULY 2023

Trying to force adoption of clean energy with subsidies, regulations, and exhortations will fail.

The only realistic way to spur the green transition is to develop clean technologies that can reach

effective price and performance parity with dirty ones. Then markets will adopt them at scale.

KEY TAKEAWAYS

 Climate change is global, so solutions must be global. In particular, they must meet the

needs of low-income countries where demand for energy is rising fastest, and where

ability and willingness to pay a green premium is low to non-existent.

 There is no evidence that forcing change with regulation, subsidies, or exhortation will

work—and there is plenty of evidence it won’t. Low-income countries will not adopt clean

energy at the expense of growth. Neither will richer countries.

 The scale of the energy transition that’s needed is extraordinary: It requires a global shift

of energy production, distribution, and use across all industries. Estimates of the

investments required range from $84 to $275 trillion by 2050.

 The market is the only lever powerful enough to drive the transition at the scale needed—

and it will only work when clean energy technologies can outcompete dirty ones without

subsidies or regulation. So, they must reach price/performance parity (P3).

 Government’s main job is to help a wide array of technologies get to P3. Some solutions

require technological breakthroughs or scale to become competitive: Governments should

help those do so.

 Others will never reach P3; they are a waste of resources that should be invested into

innovation. Governments should recognize the difference.

 Governments must focus all their policy efforts and tools on getting key technologies and

solutions to P3. Everything else is a distraction. Without effective parity, all the

subsidies, regulations, and exhortations in the world will be for naught.

INFORMATION TECHNOLOGY & INNOVATION FOUNDATION | JULY 2023 PAGE 2

CONTENTS

Key Takeaways ................................................................................................................... 1

Introduction ....................................................................................................................... 2

Schools of Force ................................................................................................................ 7

Once P3 Is Achieved, Markets Are the Key Lever for Decarbonization .................................... 10

Climate Change Is Global, So the Green Transition Must Be Global ....................................... 12

We Have All the Tech We Need—Perhaps, But Not at P3 ..................................................... 15

Forcing Policies That Ignore P3 Will Fail ............................................................................ 19

Regulation.................................................................................................................... 19

Subsidies ..................................................................................................................... 22

Taxes ........................................................................................................................... 24

Exhortation ................................................................................................................... 24

Innovation to Get to P3 ..................................................................................................... 29

The Power of the P3 Lens ................................................................................................. 31

Conclusion ...................................................................................................................... 37

Endnotes ......................................................................................................................... 41

INTRODUCTION

The climate crisis has rightly galvanized policy and policymakers. Yet, most policy is based on

the core premise that governments must force the green transition within their respective

borders, because without that, the switch to clean energy will not happen. By “force,” we mean a

set of policies that seek to impose solutions that absent force would not be broadly adopted.

Thus, we have massive subsidies of clean energy; taxes and proposed bans on dirty energy;

regulatory mandates for clean energy; and exhortations on companies and consumers to “go

green,” including calls for “degrowth.”

If global warming were a set of national problems, especially where the main problems lie in rich

Western countries, perhaps this forcing strategy could possibly work, at least in some sectors and

some regions. Some countries might be willing to bear significant costs to transition away from

fossil fuels—although even in rich countries there is widespread opposition to policy-induced

cost increases.1 Even in the United States, there is no serious appetite to adopt more expensive

greener alternatives. But climate change is not a national issue; global warming is global, and as

such requires global solutions—specifically, solutions that work in all nations, especially low-

income countries where emissions continue to grow rapidly with an expanding population,

economic growth, urbanization, and electrification. So effective solutions can only be those that

all consumers, corporations, and nations can adopt with little or no extra cost or reduced

performance. The current strategy of forcing more expensive and often less functional clean

energy solutions onto users cannot, therefore, scale globally and is not even likely to scale in

INFORMATION TECHNOLOGY & INNOVATION FOUNDATION | JULY 2023 PAGE 3

wealthy countries that are most fervently committed to addressing climate change. This is not

pessimism; this is realism.

It is time then for a fundamentally new strategy: We must use government policy not to force

change but to enable change through the widespread development of technologies that meet the

price and the performance levels of dirty energy (“price/performance parity,” or P3). (See box 1.)

That central strategy should be reflected in all climate policies. Without that, the world will not

transition to clean fuels, no matter how many severe weather events we get, how many roads

activists block, or how many speeches climate activists give. But once technology does get to P3,

then market forces, coupled with the willingness of most organizations and individuals to want to

help address climate change, will do almost all the work.

It is time for a fundamentally new strategy: We must use government policy not to force change but to

enable change through the widespread development of technologies that meet the price and the

performance levels of dirty energy.

Other policies, such as regulations, taxes, or selected subsidies, can still help (for specific

purposes, as we will see ahead), although the odds are against the further introduction of large

subsidies even in the United States. Most rich nations face deep fiscal holes because of the

expanding retiree population, past expansion of debt, and slow productivity growth. As such, the

odds of a fiscal surplus that could fund expensive green subsidies are minimal. And there is

opposition in most countries to higher taxes (e.g., carbon taxes), even if pitched as revenue

neutral.

Moreover, reliance on these mechanisms is based on a misunderstanding. The implicit question

behind almost all countries’ climate policy is simple: “Will this policy reduce emissions

nationally?” Unfortunately, that’s the wrong question. Instead, we need to ask, “Does this policy

help drive the supported technology getting to P3?” Because only P3 enables worldwide adoption

of clean energy and, after all, it’s

global

warming that matters, not

American

warming,

British

warming, or

Korean

warming. The dominant guiding narrative of climate policy is based on the

false presumption that all countries will take sufficient action to dramatically reduce emissions,

even with the higher costs involved.

Box 1: What Is Price/Performance Parity (P3)?

P3 means that for a given level of performance, a green technology has reached price parity with

an existing dirty technology without subsidies or taxes on the dirty technologies. So, for example,

P3 for electric vehicles (EVs) will be achieved when the lifecycle costs of EVs are the same as

equivalent internal combustion engine (ICE) vehicles, and have approximately the same

performance in terms of reliability, refueling, range, acceleration, cargo capacity, etc.

“Performance” captures the wide range of product characteristics beyond price—availability,

quality, terms and conditions of sale, delivery, reliability, and much more—from the perspective

of the end user. For example, if solar energy could be produced at the same cost as coal-fired

power, it would still not be at P3 if the electric grid became unreliable or if it could only deliver

power for eight hours a day. Factors such as availability and reliability play heavily in purchasing

decisions, so they must all be part of the parity equation. P3 therefore requires that green

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itif.orgBeyondForce:ARealistPathwayThroughtheGreenTransitionROBINGASTER,ROBERTATKINSON,ANDEDWARDRIGHTORJULY2023Tryingtoforceadoptionofcleanenergywithsubsidies,regulations,andexhortationswillfail.Theonlyrealisticwaytospurthegreentransitionistodevelopcleantechnologiesthatcanreacheffectivepriceandperformanceparitywithdirtyones.Thenmarketswilladoptthematscale.KEYTAKEAWAYSClimatechangeisglobal,sosolutionsmustbeglobal.Inparticular,theymustmeettheneedsoflow-incomecountrieswheredemandforenergyisrisingfastest,andwhereabilityandwillingnesstopayagreenpremiumislowtonon-existent.Thereisnoevidencethatforcingchangewithregulation,subsidies,orexhortationwillwork—andthereisplentyofevidenceitwon’t.Low-incomecountrieswillnotadoptcleanenergyattheexpenseofgrowth.Neitherwillrichercountries.Thescaleoftheenergytransitionthat’sneededisextraordinary:Itrequiresaglobalshiftofenergyproduction,distribution,anduseacrossallindustries.Estimatesoftheinvestmentsrequiredrangefrom$84to$275trillionby2050.Themarketistheonlyleverpowerfulenoughtodrivethetransitionatthescaleneeded—anditwillonlyworkwhencleanenergytechnologiescanoutcompetedirtyoneswithoutsubsidiesorregulation.So,theymustreachprice/performanceparity(P3).Government’smainjobistohelpawidearrayoftechnologiesgettoP3.Somesolutionsrequiretechnologicalbreakthroughsorscaletobecomecompetitive:Governmentsshouldhelpthosedoso.OtherswillneverreachP3;theyareawasteofresourcesthatshouldbeinvestedintoinnovation.Governmentsshouldrecognizethedifference.GovernmentsmustfocusalltheirpolicyeffortsandtoolsongettingkeytechnologiesandsolutionstoP3.Everythingelseisadistraction.Withouteffectiveparity,allthesubsidies,regulations,andexhortationsintheworldwillbefornaught.INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE2CONTENTSKeyTakeaways...................................................................................................................1Introduction.......................................................................................................................2SchoolsofForce................................................................................................................7OnceP3IsAchieved,MarketsAretheKeyLeverforDecarbonization....................................10ClimateChangeIsGlobal,SotheGreenTransitionMustBeGlobal.......................................12WeHaveAlltheTechWeNeed—Perhaps,ButNotatP3.....................................................15ForcingPoliciesThatIgnoreP3WillFail............................................................................19Regulation....................................................................................................................19Subsidies.....................................................................................................................22Taxes...........................................................................................................................24Exhortation...................................................................................................................24InnovationtoGettoP3.....................................................................................................29ThePoweroftheP3Lens.................................................................................................31Conclusion......................................................................................................................37Endnotes.........................................................................................................................41INTRODUCTIONTheclimatecrisishasrightlygalvanizedpolicyandpolicymakers.Yet,mostpolicyisbasedonthecorepremisethatgovernmentsmustforcethegreentransitionwithintheirrespectiveborders,becausewithoutthat,theswitchtocleanenergywillnothappen.By“force,”wemeanasetofpoliciesthatseektoimposesolutionsthatabsentforcewouldnotbebroadlyadopted.Thus,wehavemassivesubsidiesofcleanenergy;taxesandproposedbansondirtyenergy;regulatorymandatesforcleanenergy;andexhortationsoncompaniesandconsumersto“gogreen,”includingcallsfor“degrowth.”Ifglobalwarmingwereasetofnationalproblems,especiallywherethemainproblemslieinrichWesterncountries,perhapsthisforcingstrategycouldpossiblywork,atleastinsomesectorsandsomeregions.Somecountriesmightbewillingtobearsignificantcoststotransitionawayfromfossilfuels—althougheveninrichcountriesthereiswidespreadoppositiontopolicy-inducedcostincreases.1EvenintheUnitedStates,thereisnoseriousappetitetoadoptmoreexpensivegreeneralternatives.Butclimatechangeisnotanationalissue;globalwarmingisglobal,andassuchrequiresglobalsolutions—specifically,solutionsthatworkinallnations,especiallylow-incomecountrieswhereemissionscontinuetogrowrapidlywithanexpandingpopulation,economicgrowth,urbanization,andelectrification.Soeffectivesolutionscanonlybethosethatallconsumers,corporations,andnationscanadoptwithlittleornoextracostorreducedperformance.Thecurrentstrategyofforcingmoreexpensiveandoftenlessfunctionalcleanenergysolutionsontouserscannot,therefore,scalegloballyandisnotevenlikelytoscaleinINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE3wealthycountriesthataremostferventlycommittedtoaddressingclimatechange.Thisisnotpessimism;thisisrealism.Itistimethenforafundamentallynewstrategy:Wemustusegovernmentpolicynottoforcechangebuttoenablechangethroughthewidespreaddevelopmentoftechnologiesthatmeetthepriceandtheperformancelevelsofdirtyenergy(“price/performanceparity,”orP3).(Seebox1.)Thatcentralstrategyshouldbereflectedinallclimatepolicies.Withoutthat,theworldwillnottransitiontocleanfuels,nomatterhowmanysevereweathereventsweget,howmanyroadsactivistsblock,orhowmanyspeechesclimateactivistsgive.ButoncetechnologydoesgettoP3,thenmarketforces,coupledwiththewillingnessofmostorganizationsandindividualstowanttohelpaddressclimatechange,willdoalmostallthework.Itistimeforafundamentallynewstrategy:Wemustusegovernmentpolicynottoforcechangebuttoenablechangethroughthewidespreaddevelopmentoftechnologiesthatmeetthepriceandtheperformancelevelsofdirtyenergy.Otherpolicies,suchasregulations,taxes,orselectedsubsidies,canstillhelp(forspecificpurposes,aswewillseeahead),althoughtheoddsareagainstthefurtherintroductionoflargesubsidiesevenintheUnitedStates.Mostrichnationsfacedeepfiscalholesbecauseoftheexpandingretireepopulation,pastexpansionofdebt,andslowproductivitygrowth.Assuch,theoddsofafiscalsurplusthatcouldfundexpensivegreensubsidiesareminimal.Andthereisoppositioninmostcountriestohighertaxes(e.g.,carbontaxes),evenifpitchedasrevenueneutral.Moreover,relianceonthesemechanismsisbasedonamisunderstanding.Theimplicitquestionbehindalmostallcountries’climatepolicyissimple:“Willthispolicyreduceemissionsnationally?”Unfortunately,that’sthewrongquestion.Instead,weneedtoask,“DoesthispolicyhelpdrivethesupportedtechnologygettingtoP3?”BecauseonlyP3enablesworldwideadoptionofcleanenergyand,afterall,it’sglobalwarmingthatmatters,notAmericanwarming,Britishwarming,orKoreanwarming.Thedominantguidingnarrativeofclimatepolicyisbasedonthefalsepresumptionthatallcountrieswilltakesufficientactiontodramaticallyreduceemissions,evenwiththehighercostsinvolved.Box1:WhatIsPrice/PerformanceParity(P3)?P3meansthatforagivenlevelofperformance,agreentechnologyhasreachedpriceparitywithanexistingdirtytechnologywithoutsubsidiesortaxesonthedirtytechnologies.So,forexample,P3forelectricvehicles(EVs)willbeachievedwhenthelifecyclecostsofEVsarethesameasequivalentinternalcombustionengine(ICE)vehicles,andhaveapproximatelythesameperformanceintermsofreliability,refueling,range,acceleration,cargocapacity,etc.“Performance”capturesthewiderangeofproductcharacteristicsbeyondprice—availability,quality,termsandconditionsofsale,delivery,reliability,andmuchmore—fromtheperspectiveoftheenduser.Forexample,ifsolarenergycouldbeproducedatthesamecostascoal-firedpower,itwouldstillnotbeatP3iftheelectricgridbecameunreliableorifitcouldonlydeliverpowerforeighthoursaday.Factorssuchasavailabilityandreliabilityplayheavilyinpurchasingdecisions,sotheymustallbepartoftheparityequation.P3thereforerequiresthatgreenINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE4technologiesmustbeclosetopricecompetitiveonanapples-to-applesbasis;priceandperformancearebothessentialpartsoftheequation.Letusbeclear.Thisdoesnotmeanwearemarketabsolutists,orthatwebelievethatthemarketwillsolvetheclimatecrisisonitsown.Theenergymarketisprofoundlyinfluencedbynumerousfactorsbeyondthesimplecosttosupplyenergyandthepriceatwhichcustomerswillbuyit.Energypricesarethenetresultofallthosevariables,whichincludeavastpileofexistingregulations,subsidies,policies,andpreferences.Whatwedobelieveisthatthenetresultispoliticallysticky.Itishardtoshift,especiallyincountrieswhereprotestsarepossibleandpotentiallypowerful.Wearguethatitisveryhardtomovethepriceofdirtyenergyupwardinmostcountries,andhencethatsolutionswhichrequireupwardmovementinenergypriceswon’tbesuccessful.Thisisreality.It’snotnecessarilytheworldwewant,butit’stheonewe’vegot.Thecurrentpolicyenvironmenthasbeendrivenpartly—perhapslargely—bytheurgencyofenvironmentalists,whohavesuccessfullypitchedanarrativeof“emergency”and“climatecrisis.”Everyextremeweathereventisnowinterpretedasfurtherevidencethattheclimateecosystemisonthebrink.Andinthatcontext,activistdemandsareabouturgency(“Doitnow!”)andscale(“It’snotenough!”).Thesepressuresareusefulcounterweightstoastatusquostilldominatedbyfossilfuels,astatusquothat,afterall,hasenormousinertia.Butthisurgencyhassomedownsides.Ithasledtoa“kitchensinkproblem”inwhichwetrytodoeverythingeverywhereallatonce,withoutconsideringtrade-offs,cost,oreveneffectiveness.Ithasencouragedustobelievethattheclimatecrisisissocatastrophicthatwemustsimplyforcechangeasquicklyandwidelyaspossible,evenifdoingsowouldplacecompletelyunachievableburdensonoureconomiesandoursocietiesand,mostimportantly,adramaticallyreducedfocusongettingtoP3.Thedominantguidingnarrativeofclimatepolicyisbasedonthefalsepresumptionthatallcountrieswilltakesufficientactiontodramaticallyreduceemissions,evenwiththehighercostsinvolved.Incontrast,weproposearealistapproachtotheclimatecrisis,definedbyfivekeypillarsthat,together,willhelpusencourageprioritizationandacceleratethegreentransition:1.Allsolutionsultimatelymustbeglobal.MandatingthesaleofEVsintheUnitedStates,evenifsuccessful,isnotaglobalsolution.Largesubsidies(e.g.,the$7,500availableundertheInflationReductionAct)arenotfeasibleinpoorercountries,andotherrich-countrysolutionsthataddsignificantcostwon’tworkeither.So,theWestshouldfocusprimarilynotonimplementingexpensivesolutionsathomebutratherondevelopingtechnologyandsolutionsthatwillworkintheentireworld—especiallythelow-incomeworld.Thatmeanssolutionsthatwillreachpriceparitywithdirtyenergy,withoutrelianceonforcingmechanismssuchassubsidiesorcarbontaxes.2.Recognizethegrowthimperative.Whenallcountries—especiallylow-incomecountries—areforcedtochoosebetweengreenandgrowth,theywill(understandably)choosegrowth,productivity,andlowercosts.It’snosurprisethatIndiajustsoughtbidsfor121newcoalmines(seebox4).Tobeeffective,anyclimatesolutionmustensurethatthechoiceisnotbetweengreenandgrowth,butbetweencleangrowthanddirtygrowth.INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE53.PriceandperformancebothmattertoP3.Windandsolararecertainlypricecompetitiveincertainregionswithfossilenergy—butonlywhenthewindisblowing,orthesunisshining.Paritywouldrequirethatrenewablesmeetthepriceandreliabilityoffossilfuels,andnotjustforeighthoursaday.Allmarketsspecifyqualityaswellasprice;forcleanenergy,thatmeansmatchingtheperformanceoffossilfuels,notjusttheprice.4.P3mustbemeasuredatthepointofdelivery,notthepointofproduction.Despitetheclaimsofmanyadvocatesthatwehaveallthetechnologiesneededtosolveglobalwarming,fewcurrentsolutionsarecostcompetitivewithoutsubsidiesatthepointofdelivery.(Seebox5.)Thecostsofwindandsolaratthepointofproductionhavedeclinedverysharplyoverthepasttwodecades,andtheyarenowP3competitiveincertainlocations,forsomeofthetime.Butit’sthecostatthepointofendusethatmatters,notthecostatthepointofgeneration.Againstthatmetric,formostendusersmuchofthetime,evenwindandsolararestillnotatP3.5.DifferentiatetechnologypathwaysusingP3.TheP3lenshelpsusdistinguishbetweentechnologiesandhencedefineappropriategovernmentpolicies.WhilesometechnologiesareonthepathtoP3andmayneedgovernmenthelptomovedownthecostcurve(e.g.,subsidiesforadoption),inothercases,aparticulartechnologymayneverachieveP3nomatterthescaleofproduction.Inthesecases,meetingtheP3markettestrequiressubstantialandongoinginnovation—oftentransformativeinnovation.ManykeydecarbonizingtechnologiesarecurrentlyfarfromP3,andscaleeconomiesandincrementalimprovementfromgovernment-supporteddemandexpansionwon’tsufficientlyclosethosegaps,soadoptionwilllagandnet-zerotargetswillbemissed(seefigure1).Thefourcurvesinfigure1illustrateA)theexistingprice/performanceforafossilfueltechnology;B)thepathwayforagreentechnologythatisoncoursetoachieveP3asdemandincreases;C)apathwayforagreentechnologythatwillnotachieveP3onthecurrenttechnologypathway;andD)technologiesforwhichthereisnoconceivablepathwaytoP3.CurrentpolicyoftenfailstodifferentiatebetweenBandCorevenDtechnologies.SoenormouseffortsaremadetogrowdemandforCandDtechnologies,butsinceneitherwilleverreachP3,neitherwillbeadoptedglobally.Instead,forsolutionstocertainemissionschallengesthatareessentiallypipedreams,policymakersshouldsimplyfocusonmitigation,suchasoffsettingcarboncapture.ForthemanytechnologiesoncurveC,thechallengeistoshiftthecurvedownentirelybydevelopingnewtechnologysolutions;forexample,batteriesbasedonchemistriesotherthanlithium-ion.ThecurrentpathwayforcurveCwillneverintersectwithP3,leavingonlyexpensive,endless,andultimatelyfruitlesseffortstofillthegapwithsubsidiesorregulations.Instead,policyshouldfocusoninnovation,seekingtogenerateanddevelopalternativetechnologiesthatcanshiftthecostcurvedownwarduntilitachievesP3.ForthosetechnologiesthatareontracktoreachP3(Btechnologies),policyshouldfocusonacceleratingmovementdowntheexistingcostcurveuntilwereachP3.Thesepoliciesaredetailedinthesectiontitled“ThePoweroftheP3Lens.”INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE6Figure1:Fourprice/performancepathwaysInnovationiscentralandshouldbetargetedatachievingP3forthemostimportanttechnologies.2Becausetheyseetheclimatecrisisasimminentandoverwhelming,manyadvocatesrefusetoaccepttheobviousrealitythatmuchmoreinnovationisneededforaneffectivegreentransition.Yet,thatisindeedthereality.Inpart,thismeansencouragingincrementalimprovements—oftenlinkedtoincreasedscaleofproduction—tomovecurveBtechnologiesdownthecostcurvetowardP3.InsectorswithtechnologiescurrentlyoncurveC,whichwillneverreachP3,moreradicalinnovationisneeded—notjustmovementalongtheexistingcostcurvebutashiftoftheentirecurvedownwardsothatitcaneventuallyreachP3.Bothkindsofinnovationwillbecriticallyimportant,butgovernmentpolicyshouldbefocusedparticularlyonthetransformativetechnologiesneededtoshiftcostcurves,wheretheprivatesectorlikelywon’tinvestenoughbecauserisksandcostsarehigher.OnceP3isachieved,marketswillbetheprimarylever.Atthatpoint,marketscanandwilldomostoftheheavylifting.Thescaleoftheclimatecrisisissuchthatonlymarketsarebigenoughtodrivethechangethat’sneeded.TheInternationalEnergyAgency(IEA)hasestimatedthatthenecessaryglobalinvestmentswillbe$84trillionby2050,whiletheMcKinseyGlobalInstituteputthecostat$275trillion.3Butgovernmentscollectivelycannotandwillnotprovidethatleveloffundingoranythinglikeit.Onlythespendingandinvestmentofmarketactorsmakingeconomicallyself-interesteddecisionshastheleverageandscaletodeployalltheproductsandtechnologiesneeded.Thisdoesnotmean,assomefree-marketconservativeswouldbelieve,thatmarketsalonecanmanagethegreentransition.LikealmostalltechnologytransitionssincetheIndustrialRevolution,itwilltakeconcertedeffortfrombothgovernmentsandtheprivatesectorfocusedD.NoPathwayC.OffCourseB.OnCourseA.FossilFuel1x2x3x4xMultiplesofP3TimeP3GapINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE7andorganizedaroundgettingtoP3.Andthatshouldbethelodestarforclimatepolicyinallnations.Whatwepropose,therefore,isfundamentallya“realist”approachtoclimatechange,whichmustbecomethebedrockonwhicheffectivepoliciesshouldbebuilt.UsingtheP3framework,theoverridingimperativemustbetocreatecost-competitivesolutionsthatworkgloballyandwillbevoluntarilyadoptedviathemarket.Andforthat,wemustfindwaystogettoP3forclimate-criticaltechnologies.Thisrealistapproachmayjustseemlikecommonsense,buttheP3lensisimportantpreciselybecausetheclimatedebateislargelydominatedbyothervoices.Theremainderofthispaperexplainswhyaforceapproachwillfailandthenpresentsarealistapproachtoclimatepolicy—onethatwillsimultaneouslyaddresstheurgencyofclimatechangeANDeffectivelyreflectthepoliticalandeconomicrealitiesofthe2020sandbeyond.Finally,thereportprovidespathwaysthroughthepolicyspaceandthroughthetechnical,financial,andpoliticalconstraintsthatbindtheavailableoptionsforclimatepolicyintheUnitedStatesandelsewhere.Recognizingtheseeconomic,political,andsocialrealitiesdoesnotmeanwemustsurrenderonclimatechange.Farfromit.ItiscurrenteffortstoforcelessthanP3solutionsontheworldthatareunrealistic.SCHOOLSOFFORCEThereareatleastfourmajorschoolsorgroupingsintheforceapproach:radicaloptimists,nation-centricclimateadvocates,Cassandras,andhair-shirters.Inmanyways,theyofferdifferentperspectives,buttheirmessagesallfundamentallyleaninthesamedirection:Wemustactnowinwaysoratspeedsthatwithoutforcewewouldnot.Force-firsters(whichincludesvirtuallyallclimateadvocates)believethatforceistheonlywaytosolveclimatechange,focusedinparticularonforcingpolicieswithintheirownnation.PresidentBiden,forexample,talksaboutdecarbonizingtheU.S.electricgridandvehiclefleet,largelythroughforce(regulationsandsubsidies),butthiskindofforcingcanonlyworkifmostoftheworldadoptsit,whichisveryunlikely,nomatterhowmuchpressureisexerted.Asnotedinthenextsection,becauseclimateadvocatesseethecrisisassosevereandactionisneededimmediately,almostalltheirrecommendationsrelyongettingindividuals,organizations,andgovernmentstotakeactionstheywould,intheabsenceofclimatechange,notnormallytake.Thisincludesmandatingsolutions,subsidizingsolutions,taxingandotherwiselimitingdirtyenergy,andpressuringorganizations,individuals,andothergovernmentstotakeaction.Thereare,ofcourse,differencesamongforce-firstproponents.Radicaloptimists(e.g.,StanfordprofessorMarkJacobson)offernoguidanceinmakingdifficultchoicesbecausetheywronglydenychoicesarenecessary.4Forhimandmanyclimateactiviststoday,mostifnotalltechnologiesareoncurveBalready,withwindandsolar,forexample,beingperceivedascheaperthandirtyenergy.Asweshowinbox5,thisisfalse.Arelatedargumentisthatthecleantransitionwillbenetpositiveeconomically,becauseitcreatesjobsandspursinvestment.(Seebox6.)ButthisisonlytrueifwegettoP3andbeyond.INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE8IntheWest,thenation-centricadvocateslargelydrivingclimatepolicyintheirownnationignorethecoreobservationthatclimateistrulyaglobalissue.Focusingonpolicyinrichcountriesmissesthekeypoint:Whileforcingthegreentransitionthroughsubsidiesandregulationswillnotworkinmostrichcountries(forreasonslaidoutahead),thosemechanismswilldefinitelynotworkinlow-incomenations,wherethelion’sshareoftheworld’spopulationlivesandmostofthegrowthinenergyconsumptionwillcomefrom.Cassandraswarnthat,absentevenmoreforce,catastropheawaits.Caseinpoint,SimonSharpe’sbookFiveTimesFaster:RethinkingtheScience,Economics,andDiplomacyofClimateChange.AbettertitleforthebookmighthavebeenFiveTimesMoreForce,asSharpearguesthatwemustdecarbonizeataratefivetimesfasterthantoday,andthewaytodothatistomotivategovernmentsevenmoreby1)developingriskmodelsthatsignificantlyincreasedamageestimates;2)havingclimatecost-benefitmodelsthatsignificantlyratchetupthecostandbenefits;and3)encouragingcountriestocooperateonspecificclimateprojects.Giventhatclimatewarningsarenowanalmostdailypartofmanypeople’slives,it’snotclearthatmorealarmingmodelswillgetmuchmoredone.Thesewarningscouldeasilybackfireaswell,leadingpeopletotuneout.Becauseclimateadvocatesseethecrisisassosevereandthatactionisneededimmediately,almostalltheirrecommendationsrelyongettingindividuals,organizations,andgovernmentstotakeactionstheywould,intheabsenceofpressure,nottake.Finally,hairshirtenvironmentalistsbelievethatpeoplemustbegoadedorshamedintogivingupmuchthattheynowenjoy—thatpeoplecanbepersuadedtoadoptaradicallyreducedcarbonfootprint,walkingtowork,nolongerflying,becomingvegans,and“livingsimply.”TheUnitedNationstellspeoplethattheycansolvetheclimatecrisisthroughtheirindividualactions,suchaskeepingtheirhousecolderinthewinter,givinguptheircar,eatinglessmeat,buyingfewerclothes.5Butexhortationonclimatehasn’tworkedinthepastanditwon’tworkinthefuture:Ithasn’tworkedinrichcountries,anditcertainlywon’tinpoorones.ItisespeciallydamningthattheUnitedNations,anorganizationthatshouldreflect,aboveall,theinterestsoflow-incomenations,isarguingthatlow-incomecountriesshouldsuppresstheiraspirationsandaiminsteadtoliveatlevelspoorpeopleindevelopednationswouldrejectoutofhand.Box2:PoliticalFailuresofForceTaxesondirtyenergyareonetoolforforcingchange.Economistshavearguedthatcarbontaxesarethebestwaytosolvetheclimatecrisis,usingpricemechanismstodriveshiftsindemand.However,itappearsthatnoneconomistsarenotsokeen.LessonsfromboththeUnitedStatesandFrancedemonstratehowsensitiveenergypricesare,andwhypoliticianshavebecomesoreluctanttoimposecarbontaxesonenergy.FailuretoPassCap-and-TradeCarbonPricingintheUnitedStatesNumerousU.S.attemptstoimplementacarbonpricehavefailed.Thelastconcertedeffortwasthe2009AmericanCleanEnergyandSecurityAct,widelyknownastheWaxman-Markeycap-and-tradelegislation.ItpassedtheHouseofRepresentativesbyjustsevenvotes(despitethe79-seatDemocraticmajority)butwasnotbroughtupforavoteintheU.S.Senateandquietlydiedatthecloseofthelegislativesession.Majoroppositioncamefromlargeenergycompanies,INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE9laborandconsumerorganizations,andenvironmentalgroups.Energyprovidersopposedthecostincreaseonmostfossilfuelsandthecomplicatedstructureofallowances,credits,phase-ins,carbonbanking,etc.6EnvironmentalgroupssuchasGreenpeaceopposedfreeallowanceallocation—morethan85percentofproposedallocationthrough2026—asgiveawaystospecialinterests.LargetradeorganizationssuchastheAmericanPetroleumInstitute,theAmericanGasAssociation,theU.S.ChamberofCommerce,andtheNationalAssociationofManufacturers,alongsidesomenationallaborgroupssuchastheUnitedMineWorkersAssociation,alsoopposedthelegislation.Legislativetiming—duringtheGreatRecession—furtherweakenedsupport.Waxman-Markeyofferssomekeylessons,pointingtothefailureofforcemechanismslikecarbonpricing.Toattractsufficientsupport,policiesthatraisethepriceoffossilenergymustincludesignificantcarve-outs,concessions,offsets,andothergiveawaystospecialinterests.These“outs”reducethepolicy’seffectiveness,andwhiletheyaredesignedtoincreaseindustryandpublicsupport,theyalsoexpandoppositionfromsomeenvironmentalgroups.Today,thelatterlargelyopposeprice-basedmechanismsinfavorofregulationsandprohibitions.ThefailureofWaxman-MarkeydemonstratesthatanexplicitpriceoncarbonisunlikelytobeimposedintheforeseeablefutureintheUnitedStates,andprice-basedpoliciescontinuetobeunpopularamongawiderangeofpoliticalconstituencies.Ofcoursepollingisfarfromconclusiveonthis,butnonereputablerecentpoll,lessthan38percentofAmericanswerewillingtopayjust$1amonthasacarbonfee,down14percentagepointsfrom2021.Only21percentsaidtheywouldbewillingtospend$100amonth.7TheGiletsJaunesProtestsTheGiletsJaunes,orYellowVestProtests,aseriesofcivilprotestsandunrestinFrancethatinvolvedtensofthousandsofpeopleonaweeklybasis,startedinNovember2018.Theykickedoffafterthenationalgovernmentannouncedamodestfuelpriceincreaseaspartofitsclimatestrategy(about8Eurocentsperliterorabouta5percentincrease).This“greentax”explicitlyaimedtoincreasethepriceofgasolineanddieselfuel,andtoencouragedriverstoconserve,carpool,walk,bike,ortakepublictransporttocutemissions.8However,thefuelpricehikedisproportionatelyaffectedruralandouter-urbanresidentswhoreliedmoreheavilyonpersonalvehicles(givenfewerpublictransportationoptions).Manyalsofeltthatthenationalgovernment—basedintheurbanenvironmentofParis—didnotunderstandthepersonalfinancialdifficultiesimposedbyincreasedfueltaxes.Theprotestswereanationalphenomenonandlastedformorethanayear.Protestorsalsochallengedothernationaleconomicpoliciessuchasthelowminimumwage,recissionofthenationalwealthtax,andtheongoingcostoflivingcrisis.NationalsupportfortheYellowVests(namedfortheobligatoryyellowsafetyvestsallFrenchdriversmustkeepinthebootoftheircars)washigh,pollingataround70percentthroughouttheprotests.Asaresult,FrenchPresidentEmmanuelMacronwasquitequicklyforcedtorescindtheproposedfueltaxincrease.9TheYellowVestsProtestsfurtherhighlighttheweaknessesofmechanismssuchascarbontaxesthatimposeadditionalcostsonconsumers.Suchpriceincreaseswereenormouslyunpopularandquicklygeneratedoverwhelmingpushbackacrossthepoliticalspectrum,eveninanaffluentcountysuchasFrance.INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE10ONCEP3ISACHIEVED,MARKETSARETHEKEYLEVERFORDECARBONIZATIONThescaleofthechangeneededtoaddressclimatechangeisunprecedented,anditrequiresextraordinaryaccelerationtomeetthedemandsofawarmingworld.Typically,ittakesdecadesforfoundationaltechnologiestogainevenafootholdinthemarket,muchlessdominance.True,technologyshiftshavebecomefasterinrecentdecades,buttheclimatetransitionisstillinaclassbyitself(seeBox3).IEA’s2021net-zeroroadmapcallsforextraordinaryandsustainedinvestmentincleanenergy(~$84trillionby2050).10Thatisaformidablechallenge,butitisjustthestartofissuesrelatedtoscale.Rapidlyrisingdemandforscarcemineralsspikedthepriceoflithiumbymorethan200percentin2022.Manycriticalinputshaveonlyafewsourcesandwillbeveryhardtoscaleup.Evenlandforbigsolarandwindfarmsisbecomingscarcerandmoredistantfrompopulationcenters.Buildingenoughproductionisitselfachallenge.TheIEApathwayrequiresenormousadditionsofwindandsolarannually—farmorethan2022levels—aswellasmassiveincreasesintheproductionanduseofhydrogen,plusnecessaryinvestmentsinsupplychainsandinfrastructure.Criticalenablingtechnologieswillbeneeded.Windandsolar,forexample,requirelong-termstorageiftheyaretoreplace24/7reliablefossilfuels.Existingstoragetechnologies,includingbatteries,aretooexpensiveandtoodifficulttoscale.Similarly,fossilfuelscanbeincludedintheenergymixifcarboncapture,storageutilizationandstorage(CCUS)becomereadilyavailableatcoststhatdon’tmoveP3outofreach.Currently,thecheapestbluehydrogen(whichusescarboncapture)costsaboutthreetimesasmuchashydrogenmadewithoutit.11Andwhiletheglobalretreatfromnuclearhasslowedandsmallmodularnuclearreactorsmaybetransformative,amassivescale-upofnuclearseemsalongwayoff.Forthegreentransitiontobesuccessful,itmustrelyonmarkets—andformarketstowork,anynewcompetitoragainstexistingproductsorservicesmustprovideapproximatelythesameperformanceforaboutthesamepriceifitistobesuccessful.Thesecleanproductiontechnologiesmustthenreachendusers.Electrificationistheprimarypathwayforadecarbonizingworld,butthecurrentelectricgridiscreakingattheseams.BloombergNewEnergyFinanceclaimsthat$4.1trillionininvestmentisneededtomaintainexistingelectricalinfrastructure,and$17.4trillionmorewillberequiredtomeetnewdemand.12Thatincludes80millionkilometersofelectricgridexpansionglobally,doublingtheexistingglobalgrid.Hydrogentransportationinfrastructureislargelyabsentatthescaleneeded,whiletheintroductionofCCUSatscalemeansdeployinghundredsofthousandsofmilesofdedicatedcarbondioxide(CO2)transportationpipelinesglobally,alongwithhundredsofsequestrationsites.AllthesecostsmustbeincludedwhenestimatingP3forcleanproductiontechnologies.Thesecomponentsofthegreentransitionrequireextraordinaryinvestments,soscarceresourcesmustbeallocatedacrosshundreds—probablythousands—oflargeandsmallprojectsaroundtheglobe.Thescale,speed,andcomplexityofthistransitioncanbeaddressedonlythroughtheapplicationofmarketforces,asonlymarketscanprovidethescale(governmentscertainlywon’t)orthespeed(governmentscan’t)that’sneeded.Andthesheercomplexityoftheresourceallocationproblemcanalsoonlybesolvedprimarily(thoughnotentirely)throughmarkets.INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE11ByfocusingonP3technologies,wecanuseandguidetheenormouspowerofmarketstowhichtheeconomiesofalmostallcountries—evenChina,evenRussia—arenowirrevocablycommitted(NorthKoreabeingtheonlyobviousexception).Marketshaveundeniablyraisedaveragelivingstandardsandcreatedenormouswealth(albeitinhighlyunequalways).Evencountrieswithstrongcollectivisttraditionsnowacceptthattheymustworkwithinamarket-orientedfuture.Weneedtoharnessthosemarketsforthegreentransition.Archimedesallegedlysaid,“GivemealeverlongenoughandIwillmovetheEarth.”Forthegreentransition,onlymarketsarealeverlongenoughandstrongenoughtomeettheneed.Thisisnottoclaimthatsimplyunleashingfreemarketswillsolvetheclimatecrisis.That’sobviouslynottrue,orwewouldnothaveaclimatecrisistoday;privatecompanieswouldhavesolveditalready.Butgivenitsglobalcharacterandthescaleofthegreentransition—farbeyondthecapacityofgovernmentstofundormanage—thereisnodriverclosetomatchingthepowerofthemarket.Changeatthisscaledependsonprivatesectorinvestments(whichreflectinvestorchoices).Butmarketswillonlyworkeffectivelywhenthecostofgreenenergybecomesprice/performancecompetitivewithfossilfuels.Untilthathappens,investorswillrewardmarketwinners,whicharethedirtytechnologies.Forthegreentransitiontobesuccessful,itmustrelyonmarkets—andformarketstowork,anynewcompetitoragainstexistingproductsorservicesmustprovideapproximatelythesameperformanceforaboutthesamepriceifitistobesuccessful.ThisisP3.Itreflectstheharshbutundeniablerealitythatgreenenergywon’treplacegasoline,naturalgas,orcoalifitcostsmoreorifitsperformanceisworse.Box3:ScalingfortheGreenTransition:AGlobalChallenge13Toservetheexpandedscaleoflow-carbontechnologiesby2050,significantglobalexpansionswillbeneededtomeetnet-zerotargets.Someperspectivesonthescaleneededarethefollowing:ProductionGlobalannualcleanenergyinvestmentmustgrowfromabout$1trillionin2022to$4trillionby2030andmaintainthatlevelfor20yearsthroughmid-century.IEAnotesthatcontinuedadditionsinrenewablesarerequiredtomeetmid-centurygoals.By2030,globalannualadditionsofwindandsolarwillhavetoreach390gigawatts(GW)and630GWeachyear.In2022,theworldadded75GWofwindenergyand191GWofsolar,whichrepresentedimpressivegrowthbutwasstillfarbelowwhere2030growthmustbe.Globalhydrogendemandincreasesdramaticallybetweennowand2050.Currentdemandforconventionalhydrogenis90megatonnesperyear(MT/y),withdemandexpectedbyIEAtoincreaseto200MT/yby2030and530MT/yby2050.Thisglobalgrowthnecessitatesarapidincreaseinelectrolyzerscapableofproducinglow-carbonhydrogen,alongsideanentirelynewtransportationinfrastructureforhydrogen,includingpipelinesandshippingviabargeandrail.TransmissionElectricgridsmustexpandrapidlygloballytomeetthenet-zerochallenge.BloombergNewEnergyFinancenotedthatglobalgridinvestmentwillneedtotop$21.4trillionby2050,$4.1trilliontomaintainexistingelectricalinfrastructureand$17.4trilliontoexpandtheINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE12grid.Some80millionkilometersofelectricgridexpansionwillbeneededby2050—doublingtheglobalgridinfrastructure.CCUSmustexpandatunprecedentedrates.TheIEANZEroadmapmodels7.6billiontonnes(GT)ofannualCCUScapacityby2050,fromacurrentlevelof250MTin2022,a30Xexpansioninroughly25years.Thisincludes6.6GTCCUSintheelectricity,industrial,andfuelsupplysectors,and1GTofdirectaircapturesequestration.ThisequatestohundredsofthousandsofmilesofdedicatedCO2transportationpipelinesandhundredsofsequestrationsites.EndUsersEVsalesneedtogofrom14percenttodayto60percentby2030,perIEA.Thereare26millionEVsontheroadtodayaroundtheworld,andabout1.5billionICEvehicles.DecarbonizingheatforbothresidentialconsumersandmanufacturersisanIEApriority.Heatpumpsmetonly10percentofglobalspaceheatingneedsin2021;by2050,IEAestimatesthatheatpumpswillbeusedin40percentofresidentialbuildingsinemergingmarkets,and55percentintotal.CLIMATECHANGEISGLOBAL,SOTHEGREENTRANSITIONMUSTBEGLOBALByitsnature,climateitselfisglobal.Thatglobalcharacterisacknowledgedinalmosteveryarticlewrittenaboutclimatechange—andisthenpromptlyforgotten.TheUnitedStatesaccountsfor12.6percentofCO2emissions(seefigure2).14WhencombinedwiththerestoftheOrganizationforEconomicCooperationandDevelopment(OECD),thetotalreaches35percent,andbothfiguresaredeclining.15CO2emissionsfromoutsideOECDareclosetotwo-thirdsofallemissions,andboththeirshareandtotalemissionsfromlow-incomecountriesaregrowing,astheirneedsexpandrapidlyandtheymainlyusethecheapest(anddirtiest)technologiestomeettheirneeds.16Figure2:GlobalCO2emissionsbyregion(billionsoftonnes)1705B10B15B20B25B30B35B40B175018001850190019502000InternationalTransportOceanaAsia(excl.China&India)ChinaIndiaAfricaEurope(excl.EU-27)EuropeanUnion(27)SouthAmericaNorthAmerica(excl.USA)UnitedStatesINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE13So,thefutureofgreenhousegas(GHG)emissionsandhenceofthegreentransitionliesnotintheEUandnotintheUnitedStates.Itliesinthelow-incomecountries.Indeed,totheextentthegreentransitiontakesholdintheWest,thecenterofgravityforGHGemissionsshiftsmoreheavilyelsewhere.Thatrealityisreinforcedbydemographicshifts—80percentoftheworld’spopulationgrowthbetween2022and2050willcomefromAfricaandAsia,andpredominantlyinthepoorestcountriesintheworld.18ManygreentechnologieswillbedevelopedanddeployedfirstintheWest,andwillalsoperhapsreachP3intheWest,buttherelevantmarketsforthosetechnologiesareglobal,andadoptionbylow-incomecountrieswillfollowregardlessofwherethetechisdeveloped,onceitreachesP3.Thisdoesn’tmean,assomehaveargued,thattherichcountriesshouldbeofftheclimatehookuntilallcountries—orevenjustthebiglow-incomecountries—agreetocutemissions.TherichcountriesbuilttheireconomiesonthebackofGHGemissions,sotheybearsubstantialresponsibilityforaddressingclimatechange.Andofcourse,therichcountriesarebestplacedfinanciallytodoso.Nordoesitmeanlow-incomecountrieslackinterestinclimatepolicy.Onthecontrary,especiallyastherearecloseconnectionsbetweenburningfossilfuelsandthedisastrousairpollutionenvelopingmanycitiesinlow-incomecountries,aswellasthepredictedriseinsealevelandmoreintenseweathergenerally,goinggreenseemstobeanattractiveoption.China,forexample,knowsthatitcannotgrowindefinitelyonthebackofcoal.19Infact,webelievethatintherightcircumstances,low-incomecountrieswillcutemissionsandwilleventuallyreachnetzero.Thechallenge,though,isformidable.TakeIndia,forexample,whichhasformallycommittedtonetzeroby2070andisrampinguprenewables.Yet,despitethesegoodintentionsandconsiderableactivity,India’suseofcoalisstillgrowingfastandwillcontinuetodoso(seebox4).Ithashugecoalreservesthatarecheaptoexploit,andcoalhasbeenthebackboneofelectricitygenerationinIndiafordecades.Itrecentlyauctionedrightsfor121newcoalmines,whileexistingminesarealsobeingexpandedquickly.20China’suseofcoalissimilar.Box4:India—PowerDemandIncreasesandSupplyChoicesIndia’sCO2emissionswillincreaseaspowerdemandgrowstoserveanexpandingandurbanizingpopulation(1.8billionby2040).Anadditional4,600terra-watthours(TWh)ofadditionalpowerwillbeneededby2050,afourfoldincreaseover2020powerproduction.21Renewableswillprovideagrowingpercentageoftotalpowerproduction,butcoal-poweredenergywillstillgrowsubstantiallyinabsoluteterms(seefigure3).22TheModigovernmentaimstoaddsome500GWofrenewablescapacityby2030(15xthecurrentrenewablecapacityinCalifornia).Solar,inparticular,isbecomingpricecompetitiveforutility-scalepowergenerationinsomepartsofIndia,butsystem-levelcosts,theloadprofile,andthelowproductioncostsoffullydepreciatedfossil-generationassetsareslowingadoption.23,24However,thegovernmentalsoplanstosubstantiallyexpanduseofcoal;outputwillapproximatelytripleby2050.25ThereissimplynowayforrenewablestoprovidethegrowthincheappowerthatIndiaisprioritizing.Therenewables’shareoftotalpowerproductionvariesconsiderablybystateinIndia.Stateswithmorecoalproductionhavelessrenewablepower.Interstateenergytradingislimited,soutilizationratesarenotmaximized,whichnegativelyaffectstheeconomicsofrenewables.IEAINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE14estimatesthatnetzeroby2070inIndiawouldrequiremorethan$160billionininvestmentannually,equivalenttoabout5percentofthenation’sannualgrossdomesticproduct(GDP).India’srecentlyannouncedinvestmentof$4.3billionincleanenergyislessthan0.15percentofthetotalneeded.26India’scontinuingemphasisonnewcoalminesandcoalenergyshowsthatitwillnotregulateagainstfossilfuelsifdoingsoresultsinhigherenergypricesorlowerenergyavailability.Growthtrumpsgreeneverytime,and—givenIndia’sprofoundneedforgrowth—anyIndiangovernmentthatpromotesgreenovergrowthcouldbeseenasbetrayingitscitizens.TheP3lensfocusesattentiononotherissuesaswell.We’veseenthatP3mustbemeasuredatthepointofconsumption,notatthepointofproduction.SoIndianeedsanefficientanduniversalgridtotransmitrenewablepowerfromwhereit’sproducedtowhereit’sneeded.Ifrenewablescannotreachparitywithcoalatthepointofconsumption,coalwillcontinuetodominatetheenergymix.Figure3:India’sinstalledandprojectedenergycapacity(gigawatts)27Indiaisjustoneexample.Aroundtheglobe,nogovernmentwillabandongrowth.Poorcountriesinparticularwillnotabandongrowthtobecomegreen,evenwheretheclimatecrisisismostapparent(e.g.,inBangladesh,wherefloodingdisplaces50,000–200,000peopleannually).28Thefocusongrowthisamatterofsurvivalforgoverningelites,andthereisahistoryheretoo,asmanylow-incomecountriespreviouslyimposedpainfulcutstofoodorenergysubsidiesunderInternationalMonetaryFund(IMF)orWorldBankpressure.29Theirelitessubsequentlylearnedthathigherfoodorenergypricesareanexceptionallyeffectivemethodforgeneratingdemandsforregimechange.30Indeed,China’spathhasbeenbasedexplicitlyonasocialcontractthatprovidesforgrowthinexchangeforauthoritariangovernment.Thatcontractisincreasinglyamodelforotherlow-incomecountries.Greenisn’tpartoftheequation.0200GW400GW600GW800GW1,000GW1,200GW201020202030SolarWindHydroNuclearGasCoalINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE15Inthiscontext,theclearmessagefromtheSouthatCOP26wasentirelypredictable:Theywantagreeneconomy,willworktowardit,butcannotandwillnotpayasubstantialpremiumforit.Thatmessagehasbothapracticalandamoraldimension.Practically,socialcontractseverywherelimitwhatgovernmentscanimpose,andthoselimitsarefarlowerthanthecostofthegreentransitioninpoorcountriesthatneedtogrowfast.Poorcountriescannotandwillnotpayasubstantialgreenenergypremium;andCOP26andCOP27showedthattheWest—whileitwillcontributesomething—willnotpayanywhereclosetothatpremiumforpoorcountrieseither.ThesevencountriesthatcommittedtoLossandDamagecontributionsatCOP27offeredatotalof$275million,whichisnotaseriousamountforatransitionthatwillcosttrillionsofdollars.31Infact,despiterecentlargeinvestments,theWestwon’tevenpayforitsowntransition.That’sthepracticalpicture.Butthemoraldimensionisalsoimportant.Overthe~150yearssincethestartoftheIndustrialAge,industrializationintheWesthascreatedtheclimatecrisis.Sopoorcountriesseenoreasontopayforthecleanup.Theybelievetheydidn’tbenefitandthattheydidn’tcausethemess,sotheyshouldn’tpaytofixtheproblem.32Whateverthetruthofargumentsaboutcore/periphery,North/South,imperialists/colonies—whateverthejusticeofthesearguments—theyarethegraniterealityintowhichclimatepolicywillcrash.Poorcountriesarepoliticallyunabletopayaheavypricetofixaclimateproblemthatuntilrecentlytheydidn’tevencause(aggregateemissionssincetheindustrialrevolutionhaveofcoursepredominantlycomefromrichcountries).Theserealitiessuggestwearenotgoingtomeetthe2050timelinetonetzero.Buttheyalsoprovideaveryspecificroadmapthatcandirectustowardabetterapproach.Iflow-incomecountrieswillalwayschoosegrowthovergreen,thengrowthandgreencannotbecastasalternatives.P3givesusthetoolstoavoidthatchoice.Poorcountriescannotandwillnotpayasubstantialgreenenergypremium;andCOP26andCOP27showedthattheWest—whileitwillcontributesomething—willnotpayanywhereclosetothatpremiumforpoorcountrieseither.Whilefewcountrieswillpaythegreenpremiumneededtoinstallhigh-costcleantechnologies,manywillacceleratetheirgreentransitionifthecostislowenough.Sogreentechnologiesmustbecomecheapenoughtocompetedirectlyandeffectivelywiththestatusquo.Costsforgreentechmustshiftdownwarduntilthegreenpremiumeventuallyvanishes.Whenthathappens,wecanhaveourcakeandeatittoo.Wecancontinuetogrow—apracticalandpoliticallyimperative,evenintheWest—whileatthesametimeshrinkingGHGemissionstoreachtheeventualgoalofnetzero.WEHAVEALLTHETECHWENEED—PERHAPS,BUTNOTATP3Weneedcheapgreentechnologies,socancurrenttechnologiesbecomecheapenoughquicklyenough?AretheyalleffectivelyoncurveB?It’sbecomeamantraamongcertainpartsofthepolicycrowdthatwehaveallthetechweneed.MarkJacobson’srecentbookNoMiraclesNeededisoneexample,summarizedinarecentGuardianarticle:33[T]hebestsolutionisonethatcanbeimplementedquicklyandatlowcost.Enterwind,waterandsolar(WWS).WWSincludesenergyfromthewind(onshoreandINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE16offshorewindelectricity),thewater(hydroelectricity,tidalandoceancurrentelectricity,waveelectricity,geothermalelectricityandgeothermalheat),andthesun(solarphotovoltaicelectricity,concentratedsolarpowerelectricityandheat,anddirectsolarheat).Whencombinedwithelectricitystorage,heatstorage,coldstorageandhydrogenstorage;techniquestoencouragepeopletoshiftthetimeoftheirelectricityuse(demandresponse);awell-interconnectedelectricaltransmissionsystem;andniftyandefficientelectricalappliances,suchasheatpumps,inductioncooktops,electricvehiclesandelectricfurnacesforindustry,WWScansolvetheginormousproblemsassociatedwithclimatechangeatlowcostworldwide.Thisisbothtrueandfalse.Manyexistinggreentechnologieswillunderpinthegreentransitionandbecomecheaperastheyscaleup.Butthereisaformidablegapbetweentheexistingprice/performanceofmostgreentechnologiesandthatofthecheapandenergy-richfossilfuelstheymustdisplace.Ratherthangrapplingwithclimaterealities,Jacobsonandotherssimplyadoptagameoflet’spretend:Let’spretendthatthegreentransitionisnotonlycostfreebutthatwewillallmagicallybecomericherwhilepayingforit—andthatthemassiveinvestmentrequiredwillbepaidbackwithinsixyears.Let’sjustpretendthatthevariabilityproblemsofwindandsolarwillsuddenlyvanish,andthat“awell-connectedelectricaltransmissionsystemwillmagicallyspringuparoundtheglobe(whenithasnotdonesointhe100yearsofgriddeploymenttodate).34Jacobson’ssolutionswillalsoapparentlyreducetheamountofenergyneededonaglobalbasisby44percent(themathapparentlyworksifweaddinthemagicalappearanceof“someefficiencyimprovementsbeyondwhatisexpected”),eventhough,aswehaveseen,globalenergydemandsaregrowingrapidly.Jacobsonisnotalone.Indeed,15yearsagoinAnInconvenientTruth(his2006documentary),AlGoreclaimedthat“wehaveallthetechnologyweneed”—andvariousBidenadministrationofficialshavearguedmuchthesame.35Thisapproachassumesthatcountries(andthecitizenstheyrepresent)willnotsignupforanarduous,expensive,anduncertaintransitiontoagreenfuture.Weagree.Butinsteadofacceptingthisrealityandworkingtochangeit,thesolutiononoffersimplyappliesmagicalthinking.Itjustinsiststhatthegreentransitionwillbepainless,profitable,quick,andcertain,usingtechnologieswealreadyhave.That’sjustnottrue.Andintheend,“wehaveallthetechweneed”isadisastrousmessage.Itsuggeststhatthegreentransitionwillbecost-freeandeasy,hencetheonlymissingingredientiswillpower.Wejustneedtofocusoureffortsandwewillemergeintothesunlituplandsofagreeneconomythatischeap,moreefficient,andcostfree.36Wejusthavetobelievethatpeoplewillditchtheirgasstoves,junktheirsecond-most-expensiveasset(ICEcars),installgeothermalheatingalongwithaheatpumpandelectricwaterheater,solvetheenergystorageandelectricitytransmissionproblemssowecanignorethedaily,seasonal,andannualvariabilityofwindandsolar,replace136,000TWhoffossilfuelsprimarilywithsolarandwind,andgenerateanddeliverenoughgreenhydrogentodecarbonizeheavyindustry,transportation,andaviation.37It’salljustaneasyliftthatrequiresnosignificantnewtechnologiesatall;justthewilltosavetheplanet.INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE17Box5:WeDoNotHaveAlltheCleanTechWeNeedataPriceCompetitiveWithDirtyTechInNovember2021,astheBidenadministrationwasgearingupforCOP26inGlasgow,itpublishedawhitepapersettingforthhowtheUnitedStatescouldcutemissionsbyinvestinginrenewables,alongwithothermeasures.ThepaperassertsthatthestrategywouldresultinaneteconomicbenefittotheUnitedStatesbetweennowand2050.Itcites11studiesfromenergythinktanks,environmentalorganizations,anduniversitiesinsupportofthisconclusion.Butwhattheadministrationdidnotsay,andwhatthecitedstudiesdonotmakeclear,isthatthoseneteconomicbenefitsarecontingentoncontinuedsteadydeclinesinrenewableenergycosts.Allstudiesrelyonasinglesetofcostprojectionsthatareupdatedannually,theNationalRenewableEnergyLaboratory’s(NREL)AnnualTechnologyBaseline(ATB).38Theseprojectionsarefedintovaryingenergymodelstopredictfutureoverallrenewableenergydeploymentandtotalsystem-widetransitioncosts.Notably,toachieveambitiousclimatetargetswithanetbenefittotheeconomy,continueddeclinesfarbeyondtoday’salreadylowcostswillbenecessary.Forinstance,theprojectionsforoffshorewindthrough2030implycostreductionsbetween25and43percent.Withitshigher-capacityfactorsandfewerland-useconstraintsthantraditionalonshorewind,offshorewindisseenasvitaltoahigh-renewablesgrid.Similarly,utility-scalebatterystorage,whichwilldramaticallyexpandrenewablesdeployment,isexpectedtodeclineincostbybetween33and60percentby2030.Iftheenergytransitionmodelsreliedontoday’scostsratherthanthisprojecteddecline,thesystemtransitionwouldbeverycostly,ratherthanprovideanetbenefit.Whatmightupendtheseprojections?Tobesure,costdeclinesarelikelyasmoreunitsaredeployed,drivinginnovationindesign,deployment,andmanagement.However,scaleandlearningeffectseventuallyexhaustthemselves,andhistorysuggeststheymaydosounexpectedly.Therecentuptickinrenewablecostsshouldserveasawake-upcall,evenifitprovestobetransitory.IEA,forexample,notesthatinvestmentcostsforutility-scalewindandsolarprojectscouldincreasebyasmuchas25percentoverthenextfewyearsbeforeinflationarypressuresinglobalcommoditymarketssubside.39Continuedinvestmentinhardware,software,andsoft-costinnovationarecrucialtoachievingalow-carbonfuture.So,costswilllikelycontinuetodeclinethankstoscaleeconomies,incrementalinnovation,andmarketforces,buttheyverywellmightnot,andeitherwaythedeclinesmightormightnotleadtoP3.Thecostdeclinesassumedinthemodelsarenotnecessarilyimpossible,exaggerated,orsomehowdeceptive,butpolicymakers,entrepreneurs,andscholarsmustavoidthetrapofthinkingthattheydescribeafuturereality.Theyofferonlyoneversionofthatreality,andtherearenumerousandformidablepitfallsontheway.Weneedtounpackthehiddenassumptionsthatthemodelsusetoderivethesepositiveoutcomes—especiallyassumptionsaboutcontinuedpolicysupport—andthentakestepstoguardagainstcontingenciesthatcouldderailtheexpectedprogress.INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE18Tobolstertheirclaims,proponentsalsoarguetheclimatetransition,ratherthancostingmoneyandreducingproductivity,willboosteconomicgrowthandjobs.Greentechnologieswillnotcreatenetgrowthornetjobsunlesstheircostislowerthanthecostofdirtyenergy(alsoincludingsimplyspendingalotofmoney).Inthiscase,trillionsofdollarshavenoeffectonmoderate-tolong-termeconomicgrowth,unlessthenewtechnologyismoreproductivethantheold.(Seebox6.)Box6:UnlessWeGettoP3,ClimateSolutionsWillNotGrowtheEconomyManyclaimthatclimatesolutionswillbegoodfortheeconomybecausetheywillcreatejobsandspurinvestment.Afterall,thethinkinggoes,thetrillionsofdollarsinneededinvestmentwillspurnewjobsandeconomicstimulus.AsanarticleinForeignAffairsstates,“[R]atherthanbeingviewedasacosttobeborne,theneededprojectsshouldbeseenasstrategicinvestmentswiththecapacitytoboostgrowthinboththeshortandthelongrun.”40Anotherstudystatesthat“replacingthese[dirty]plantswithlocalsolarorwindwoulddrive$589billioninlocalcapitalinvestmentthatcouldsupporteconomicdiversification,jobcreation,andtaxrevenue.”41Butthesestatementsarenottrue.Unlessanationaleconomyisinrecession,addedspendingthatdoesnotboostproductivityonlyleadstoinflation.Ifaddedcleanenergyisnotmoreproductivethandirtyenergy(e.g.,thecostofenergyoutputislower),thenitwilllowerpercapitaincomes,notincreasethem.EvenifnewcleanenergyplantsareatP3,scrappingusuableexistingdirtyassetsandreplacingthemwithnewoneswillalsoreduceglobalGDP,becausetheexistingcapitalwillnothavebeenfullyamortized.Aslongascleanenergyrequiresmoreresources(financialandlabor)forenergyproduction,fewerresourceswillbeavailabletoproduceothergoodsandservices.Thereareonlytwowayscleanenergyinvestmentscangrowtheeconomy.Thefirstisifcleanenergycostslessthandirtyenergy.Ifthisisthecase,thensocietygetsthesameamountofenergywithfewersocietalinputs,andthosesavedinputscanbeusedtoproduceotherthings(e.g.,haircuts,furniture,healthcare,etc.)Thecommonclaimthatcleanenergyinvestmentswillcreatejobsisareflectionofthecurrentineffeicencyofcleanenergy.Ifittakes1,000workerstoproducexBTUsfromoiland1,200workerstocreatetheequivalentenergyfromwindorsolar,thenyes,jobswillbecreated,butrealGDPwilldeclinebecausethoseextra200workersarenotworkingtoproduceotherthings.Itwouldbelikesayingthatwecancreatejobsifwebanfarmtractors.Yes,wewouldgetmorejobsinfarming,butfoodpriceswouldgoup(makingeveryonepoorer),andemploymentinotherindustrieswoulddecline.ThatiswhygettingtoorbeyondP3issoimportant,becausewecanhaveourcakeandeatitto:GHGreductionandthesameorhigherproductivity.Arelatedwayisiftheexternalitycostsofdirtyenergyareincluded.Ifthesecostsaregreaterthantheaddedcostsofcleanenergythenglobalnetbenefitwouldbegreater.But,importantly,thesebenefitsareglobal,andthecostsarenational(orlocal).Sofewcountrieswillincludethesecostsintheirdecision-making.Thesecondpossiblewaycleanenergyinvestmentscangrowtheeconomyisifanationexpandsitsexportsbecauseitgainscompetitiveadvantageincleanenergysectors.Thisallowsanation’stermsoftradetoimprove,lettingitscurrencyappreciateandmakingimportsrelativelycheaper.Anditiscertainlypossible,anddesirable,fortheUnitedStatestogaincompetitiveadvantageinthecleanenergyindustry.Butsuccessisanythingbutassured,especiallygivenChina’scleanenergymercantilism.Moreover,competitiveadvantageisazero-sumgame:IftheUnitedStatesgains,INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE19othernationsmust,bydefinition,lose.Inotherwords,theglobaltradebalanceinanygood,includingcleanenergygoods,mustbezero(exportsmustequalimportsonaglobalbasis).AdditionalexportsmightmaketheUnitedStatebetteroff,butthatargumentdoesnotholdglobally.AstheBritishsay,ifwisheswerehorses,beggarswouldride.Toaddresstheclimatecrisis,insteadofwishingitoutofexistence,wemustadoptarealistapproachtightlyfocusedonhelpingtechnologiesmeettheP3test.However,wefirstneedadeeperdiveintothecurrentlydominantmodel,whichseekstoforcetheadoptionofcleantechnologies.FORCINGPOLICIESTHATIGNOREP3WILLFAILBroadly,therearefourkindsofforcingpolicies:1)regulationtodirectlyforceadoptionofgreentechnologyortooutlawexistingfossil-basedtechnologies;2)subsidiesthatreducethecostofgreentechnologies;3)taxesthatincreasethecostofdirtytechnologies;and4)exhortation:simplydemandingthatcompanies,individuals,andothergovernmentschangetheirbehaviorsandadapttoalow-to-nocarbonworld.Noneoftheseapproacheswillworktoenableglobalclimatesolutions.RegulationRegulationisusedbygovernmentstolegallyrequire(orprevent)anaction.Regulationcanmakedirtyproductsmoreexpensive,blocktheirusealtogether,orrequiretheadoptionofcleanerproducts.Forexample,governmentscouldseektobangasstoves,gaswaterheaters,andgasspaceheaters;blockdrillingforfossilfuel,fossilfuelpipelines,andfossilfuelexports;eliminateICEcars;closecoalfiredpowerplantsorshort-haulflights;banmeatadvertisementsormeataltogether;theuseofplasticbags,andmuchmore.42Insteadofprovidingenduserswithchoicesthatwillleadtoachangeintheirbehavior,regulationimposeschange—usuallybutnotalwaysontheproducersofgoodsratherthanonconsumers.43Canwesimplyimposegreenenergybyfiat?Simplymandatetheendoffossilfuelusebyasetenddate—suchasCalifornia’srecentlymandatedphase-outofICEvehiclesalesby2035?44Thisissuperficiallyplausible,evenattractive.ItseemstoaddressGHGemissionswithoutneedingtomeettheP3test—indeed,withoutconfrontingendusersatall.Usefully,itcentralizesdecision-making,sopoliticalpressurecanbemoreeffective.IntheUnitedStatesandsimilarfederalsystems,federal-levelregulationcanhelpavoidtheslowstrangulationofpolicybyconflictingpowercenters,whilealsoaddressingthefree-riderproblembetweenandwithincountries(someU.S.states,forexample,aremuchmoreskepticalabouttheclimatecrisisandtheneedforpotentiallycostlymitigationandhencemaysimplyfreerideontheeffortsofCaliforniaandotherbright-greenstates).Regulationalsoreflectsthesharedassumptionsofmosteconomists—includingsuchconservativeiconsasHayekandFriedman—thatcapitalismrequiresaregulatoryframework.45Thatsetsboundariesforacceptableeconomicactivity—boundariesthatgowellbeyondobviousguardrailsaroundmarketplaceactivity(fraud,stockmanipulation,etc.).Humanshaveregulatedthewidereconomysincethebeginningofrecordedhistorythroughrulesgoverningcurrency,trade,apprenticeships,andevenwhoisallowedtobuywhat.Timeaftertime,newregulationhasbeenaccompaniedbywarningsofdirecteconomicconsequences,datingbacktothefirsttradeINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE20unions,childlaborlaws,theincometax,andearlytradepolicy.Manyofthesebroadregulationshavebeeneffective.Startinginthelate1960s,regulationhas,forexample,achievedimpressivesuccessesinrequiringcleanairandsafewater.46It’snowthefailuresintheseareasthatarenewsworthy—andthecostshavelongagobeenintegratedintothegeneralcostofdoingbusiness.47TheCuyahogaRivernearClevelandnolongercatchesfire,andLondonisnolongerblanketedincrushingfogeverywinter,nowthatcoalandwoodfireshavebeenbanned.Whywillthistop-downapproachfailtospurthegreentransitionweneed?Itwillfailbecauseregulatorysuccessessharesomekeycharacteristicsthatmakethepoliticalandeconomiccostsofregulationbearable,andclimateregulationdoesn’tmeetthosetests:▪Concealment.Inmostcases,thecostsofregulationarelargelyhiddenfromendusers.Consumersdon’tknowthatplasticchairsgotmoreexpensivebecauseinthelate20thcenturyplasticscompanieswereforcedtoaddressenvironmentalexternalities.That’sahiddencost.Thereisno“CleanWaterTax”lineontheU.S.1040taxform.Effortsthataremorepublicare,conversely,muchhardertoimplement.TheFederalgastaxintheUnitedStateshas,forexample,notbeenraisedsince1993,eventhoughinflationhaseatenawayhalfitsvalue.▪Scale.Thesizeofthenewregulatoryburdenmustbemanageablegiventheproductivityandthewealthofthespecificsociety.Clearly,thisimpliesthatrichcountriesaremuchmoreabletoaffordahigherregulatoryburdenthanpoorcountries.▪Feasibility.AllaircraftflightsthatgenerateGHGemissionscouldbebannedtomorrow.Butthat’snotfeasiblebecausethereisnopracticaltransportationalternativetoflyingacrossoceansandforlongdistances.Regulationsmustofferexistingindustriesaneffectivepathwayforward.▪Limitedimpactoncompetition.Somewaysofdoingthingsdieout,butdifferencesinreadinesstoacceptthemdonotreshapethebalanceofpowerwithinanindustry.ThedecisiontobanDDTwasimportant,butitdidnotsignificantlyaffecteventhepesticideindustry—thesamemanufacturersingeneraljustmovedontonewlegalproducts.48▪Costsandbenefitsarealignedacrosstimeandgeography.TheCleanAirandCleanWaterreformsoftheearly1970sworkedlargelybecausethecostsandbenefitsaligned.Societypickedupthecosts(viaincreasedregulation)butalsoreceivedthebenefits:cleanairandcleanwaterimprovedlifeacrosstheUnitedStates.Climateisadifferentproblem.Thebenefitsarewidelydistributedaroundtheentireglobe,whilethecostsareconcentratedinenergy-producingandenergy-intensiveindustriesalongwithselectedenergyendusers,andregulatoryimpactsareexperiencedquitedifferentlybetweencountriesandregions,richandpoor,andurbanandruralpopulations.Costsalsoapplynow,whilebenefitsmayemergeonlydecadeslaterintheentirelyimperceptibleformofglobalwarmingforegone.RegulationstobanGHGemissionsfailallfiveofthesetests.Theywouldtransformthecompetitivelandscapeinmanyindustries;theywouldbeextremelypublic;closingtheP3gapviaregulationimpliesanenormousnewcostburden;someregulations(e.g.,banningICEsimmediately)arecurrentlynotfeasible;andthebenefitsareglobalanddistant,whilethecostsarelocalandimmediate.INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE21WhatwouldhappenifICEswerebannedovernight?Thepitchforkswouldbeoutalmostasquickly.Thereisnosupplychaintosupportdeploymentofmillionsofnon-ICEvehicles.Greenenergysourcestodaydon’thavethecapacitytopowerthemillionsofnon-ICEvehiclesthatwouldbeneeded.Mostconsumerswon’tbuythemwillinglyexceptatP3.AndthemillionsofICEvehiclesnowontheroad(300millionintheUnitedStatesalone)representanenormouspoolofassetsthatwouldbecomeworthlessovernight.Soeventhemostaggressivegreenregulatorshavebuiltinalooooongrunway.Forinstance,Californiahasbannedjustthesale(nottheuse)ofnewICE-poweredlightvehiclesby2035;millionsofthosevehicleswillbeontheroadformanyyearsafterthat.Ofcourse,notallregulationsbansomething.Andregulatoryreformsthatacceleratechangewillbewelcome—infact,theywillbeneeded.Wewillcertainlyneedabetterregimefordeployingnuclearpower,andformovingmuchmoreelectricitymoreeffectivelyacrossthegridtowhereitisneeded.Regulationsthatshiftthecostofexternalitiestoemittingindustriesfromthesocietyatlargecouldhelp,butagain,thesewillnotbeimplementedinmanyplacesbecauseofcoststhatultimatelywillbebornebyconsumers.Relyingontheregulatoryoptionwouldleaveusallpoorer—ifthatwereevenpossible—andthereisnopoliticalconstituencyfordoingsoineithertheWestorlow-incomecountries.RegulationcansometimeshelpgrowdemandwhenthepathwaytoP3isviable(curveB),butrelianceonregulationwillfail,especiallywhenfacedwithcurveCtechnologies.Box7:BeyondtheBlackBoxEconomistsandmodelershavelongtreatedinnovationasablackbox,somethingthatjustoccursastechnologiesdeveloped,scaled,anddeployed.Buttheblackboxapproachistoosimplistic,giventhestakesfortheclimateofsustaininginnovationtocreatebetter,cheapersolutionstoachieveazero-carbonelectricitygridby2035andeconomy-widedeepdecarbonizationby2050.TheDepartmentofEnergy’s(DOE’s)2021SolarFuturesStudyopensuptheblackboxofclimate-techinnovation.49Thestudylaysouttwoinnovationpathwaysthatcouldachievea57percentcostreductionby2030.Followingeitherpathwaycouldspurvastinvestmentandwidespreaddeploymentofsolarpowerwithacumulativerangeof760GWto1,000GWby2035.Onepathway(“lowcost”)reliesprimarilyondemand-sidedriverstocutthecostsofsolarPVmodulesandbalanceofsystem(BoS)componentsthroughmassproduction.Keypoliciesthatwouldthispathwaycouldincludeinnovationsinfinancing,suchasthosethatmadethird-partyownershipmodels,commonplace.Thesemodelsloweredtheup-frontcostofinstallationandbroughtsolartopreviouslyuninterestedstatessuchasGeorgiaandNorthCarolina.Theotherpathway(“highperformance”)cutscostsmostlyasaresultofbreakthroughsonthesupplyside,especiallynewmodulehardwarethatismoreefficient,durable,andreliable.ThanksinparttoChinesegovernmentsubsidies,thedominantsolarcellmaterialtodayiscrystalline-silicon(c-Si),whichisapproachingaperformanceceiling.Newermaterials,suchasperovskites,offercapacityandapplicationbenefits,buttheyarecostlier,andtheglobalknow-howandsupplychainstosupportthemarenotwelldeveloped.ToenablethispathwayforsolarPVtechnology,theUnitedStateswillhavetocontinuetoinvestintargetedresearch,development,anddemonstration(RD&D)andsupportformanufacturinginnovation.INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE22Bothpathwaystoverylowsolarcostsareschematicsdesignedtoshedlightonhowcomponentsoftheoverallcoststackmightchange,buttheyaredefinitelynotpredictionsandshouldnotbetreatedasthoughtheyareare.Giventheintrinsicuncertaintyoffurthersolarinnovation,andenergymarketsmorebroadly,weshouldbebettingoninnovationandscaletodeliversolaratP3—acomprehensivesolarPVinnovationpolicypushingformorebreakthroughsinsolartechnology(e.g.,improvingtechnologies’physicalcharacteristics)whilealsoacceleratingscaleandprocessinnovationbystrengtheningdemand.TheUnitedStateshasmadegoodprogressdevelopinganddeployinglow-costrenewableenergy.Butthemodelingisclear:Buildingareliablegridthatwillserveasthebackboneforacleaner,more-electrifiedeconomywithoutraisingenergycostswillrequiretechnologicalimprovementsthatdrasticallydrivedownthecostsandimproveperformance.TellingAmericansthatthenationcanmakethistransitionwithtoday’stechnologywithoutpayingmoreforenergyisnotonlymisleading,itmakesithardertogeneratesupportforinnovationpolicies.Figure4:DepartmentofEnergyNRELSolarFuturestudyoflow-costsolarpathways(costperMWh)SubsidiesSubsidiesencourageratherthanrequirechange.Subsidiesarethecarrotsofferedbygovernmentstoinducetheadoptionofgreentechnologyandcanpowerfullyinfluencethedevelopmentandadoptionofnewtechnologies.Seedingmarketsviasubsidiescandriveadoptioninanewmarket,suchasinsolarenergy,wherefeed-intariffshaveclearlyhadadramaticimpactondemand.50Suchsubsidiescanhelpdrawinearlyadoptersand,atalargerscale,encouragethedemandfrommoremainstreamusersthatmaybeneededtodrivescale-up.ThemassivetaxincentivesforcleanenergyintheInflationReductionActareanexampleofsubsidies,asareexistingtaxcreditsforinstallingsolarorwindgenerationorbuyinganEV.More$46.5-$5.5-$2.9-$8.0-$4.0-$3.5-$7.0-$9.6-$12.7$20.0$0$5$10$15$20$25$30$35$40$45$502020High-PerformanceCaseLow-CostCase2030ModuleBoSReliabilityYieldINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE23widely,proposalsfordebtreliefforlow-incomenationsinexchangeforclimateactionareinfactjustsubsidies.51Subsidiescanbeeffective.TakeNorway,where79percentofnewcarssoldareelectric.52ButthatisnotbecausemostNorwegianconsumerspreferEVs;itisbecausetheNorwegiangovernmentmadeconsumersanoffertheycouldnotrefuse,includingreducedtaxes,reducedtoll-roadcharges,accesstobuslanesandpriorityparking,subsidizedchargingstations,anabundanceofcheaphydroelectricity,andmore.Ontopofthat,Norwayimposes$2.84intaxespergallonofgasoline—10timesmorethanU.S.gastaxes.53Sowhynotjustsubsidizeourwaythroughthegreentransition?Theanswersarescaleandtiming.Subsidiesbydefinitioncostmoney,sothebiggerthegapbetweenP3andthecostofnewtechnologies,thelargerthesubsidymustbe.Similarly,thelongertheperiodbeforegreentechnologiesaremarketcompetitive,thelargertheoverallburdenofsubsidy.AndsometechnologiesarelikelyoncurveCandwillneverbecomepricecompetitive,andwillthereforeneedsubsidiesinperpetuity.That$7,500inEVsubsidiesisasubstantialamount,butit’sonlyabout11percentofmedianhouseholdincomeintheUnitedStates.InIndia,thatwouldbeabout349percentofhouseholdincome;inNigeriaitwouldbe361percent.Subsidiesthuscarrythreemainrisks:First,theymaybeveryexpensive.Second,theymayleadtopermanent(andunnecessary)expenses.Finally,theyareusuallyhighlypersistentanddifficulttoreduceoreliminate.TheywillthereforebehugelyexpensiveifthereisasubstantialP3gapbetweenthecostofcurrentdirtytechnologiesandnewcleantechnologies,wheretheperiodofsubsidizationislong.Theacceptablelevelofsubsidyvarieswiththefinancialcapacityandwillingnessofdifferentgovernments,butlargepermanentsubsidiesaresimplynotfeasible,eveninrichercountries—andfarlesssoinpoorercountries.So,whilethereisaroleforsubsidies,thecoreproblemiscost,asend-userenergysubsidiestendtobeexpensive.TakethenewEVsubsidyintheUnitedStates:upto$7,500pervehicleforEVsmanufacturedintheUnitedStates(thereareotherrestrictions).54About15millionvehiclesaresoldannuallyintheUnitedStates,sosubsidizingallofthemwouldcostabout$112billionannually.55Obviously,theavailablesubsidywillcoveramuchlowersharethanthat,butthescaleofsubsidyneededtomakeaseriousdentinICEsalesisformidable,evenintheUnitedStates.Butthat’snotthemostimportantcostquestion.Wealreadyknowthatthelow-incomeworldiswherethegreentransitionmustwork.That$7,500inEVsubsidiesisasubstantialamount,butit’sonlyabout11percentofmedianhouseholdincomeintheUnitedStates.56InIndia,thatwouldbeabout349percentofhouseholdincome,inNigeriaitwouldbe361percent,inIndonesiaitwouldbe325percent,andeveninChinaitwouldbe158percent.57AndwhilethecostofEVsdesignedforthesemarketsmightbelower(thoughitalsomightnot),thatscaleofsubsidyisnotfeasibleinpoorercountries,whichiswheretheclimatecrisisismosturgentandwhereemissionsarestillrisingrapidly.58INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE24EVsarejustoneexample,buttheyshowquitedramaticallythatsubsidiesforgreentechnologiesatscalearenotinthemselvestheprimarysolution,evenintheUnitedStatesandEurope.Giventhescaleofthetransformationsneededtoaddressclimatechange,asubsidy-drivenapproachacrossallsectorsandtechnologieswouldsimplybefartooexpensive.AndgiventhemassiveU.S.federalbudgetdeficitandpoliticalpressurestonotincreasespendingortaxes,thereislittlechancethatapoliticalcoalitioncanbeformedbehindfurthergreensubsidies,letalonetolevelsthatwoulddriveacceleratedchangeattherequiredscale.Thechallengesforsubsidy-basedpoliciesaremuchworseinlow-incomecountries.Therethemismatchbetweenresourcesandneedisenormous,andthereisnoevidenceatallthattheresourcesneededforasubsidy-drivensolutionwillbemadeavailable,eitherfrominternalresources(theyaretoopoor)orfromtherichcountries(whichsonosignofpayingthepiper).FindingpathwaystothegreentransitionintheUnitedStatesandWesternEuropeisimportant,andsubsidieswilllikelyplayarole,butdeepandextendedsubsidiesareverydifficulttoimaginepoliticallyandeconomicallyintheWest—andarejustnotviableatallinthelow-incomeworld.59TaxesIfwecan’tlowerpricesofcleantechnologythroughouttheworldwithsubsidies,manyarguethatgovernmentsshouldraisethepriceofdirtytechnologiesthroughtaxesortariffs.Wehavenoproblemwiththatconcept.Ofcourse,dirtytechnologiesshouldpayfortheexternaldamagetheycause,andacarbontaxwouldbeanelegantwaytoimposethosecosts.Standardeconomictheoryindicatesthatproductivityismaximizedwhenthefullcostsofexistingproduction—includingthesocialexternalitiesassociatedwithit—arebornebytheproducer.That’swhat’sbehindthepushforcarbontaxesandvariousattemptstodevelopmarketsforcarbonrelatedtoenergyproduction.Suchpolicieswouldberationalandhelpful.Unfortunately,politicalrealitiesaredifferent.Manynationssubsidizeoilandgasoline,andwouldfaceapoliticalrevoltiftheyeliminatedthesubsidiestoraisetheprice.Manynations,suchastheUnitedStates,havenotbeenabletoimposeacarbontax,andevennationsthathavedonesomostlyimposeonlylimitedtaxesthatareinsufficienttomovetheclimateneedle.TheIMFreportedthat“onlyaboutone-fifthofglobalemissionsarecoveredbypricingprograms,andtheglobalaveragepriceisonly$3aton.That’safarcryfromtheglobalcarbonpriceofabout$75atonneededtoreduceemissionsenoughtokeepglobalwarmingbelow2°C.”60Thepointhereissimple:Wecanpretendthatgovernmentswillsummonthepoliticalcouragetoimposeandkeepthelevelsofcarbontaxationneededtochangebehavior.Orwecanlookatthereality—suchasthetotalfailureoftheUnitedStatestoincreasethefederalgastax,orthesuccessoftheGiletsJaunesinFranceinforcingtheMacrongovernmenttorollbackverymodestfueltaxincreases(seebox2).Thoseindicatorsidentifythelimitsofatax-ledpolicy.ExhortationAsadvocatesrealizethedifficultiesofchangingpublicpolicy,theyareincreasinglyturningtoexhortation,ofindividuals,companies,andgovernments.ExhortingIndividualsSomeenvironmentalistshaveproposedadifferentoption:ano-growthorevende-growthpathwaythatcallsfortheradicalreductionofenergyuse.TheseenvironmentalistsbelieveprofoundlythatthegreentransitioncanbeinducedbypersuadingthemassestochangetheirbehaviorandgiveINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE25uptheirmaterialaspirations.Anumber,suchasJasonHickel,callexplicitlyforde-growth,especiallyintheWest,andforreplacingcurrentsocietiesbyalowenergy/lowcarbonfuture.61Thehairshirtbrigadehasmadeadifference,muchofitpositive.62Thesheercentralityofclimateinpoliticstoday—andintheplansofcorporationsandgovernments—islargelyduetotheextraordinaryvolumeandimpactofenvironmentalconcernandprotestsoverthepastdecade.DatingbackbeyondRachelCarson’spivotalbookSilentSpring,environmentalistshaveshown—sometimesdramatically—howmoderneconomieshavecarelesslyoffloadednegativeexternalitiesontotheenvironment,withtheclimatecrisisonlythemostrecentcase.TheCleanAirActandCleanWaterActweredirectresponsestopollutionintheUnitedStates,andsetthetableforthepoliticsoftheclimatecrisisbydemonstratingthatchangeispossible,thatprotestmatters,andthatcorporatecomplaintsaboutadditionalcostsordelayscanbeovercome.63Determinedenvironmentalistsandthemuch-improvedscienceofclimatechangehavethereforehelpedtransformthecontextinwhichenvironmentalandeconomicpoliciesaremade.Indeed,themovement’sgreatestsuccessisthatwenolongerdebatetheseasentirelyseparatetopics;today,economicpolicyisalsoenvironmentalpolicy.Activistsassumethatifenoughpressureandguiltcanbebroughttobear,oftensugarcoatedas“thisisgoodforyou,”widespreadactionwillresult.Don’tfly.Don’thavekids.Don’tconsume.Don’teatmeat.Turndownyourswimmingpoolheater.64Loweryourthermostatinwinterandraiseitinsummer.Installa“greenroof.”65And,eatinsects.66Box8:TheFalseLessonoftheMontrealProtocolDespitetheendlesslistofdelaysandbrokenpromises,somepeopleretainatouchingfaithinthepowerofinternationalcooperationtosolvemajorprobelmssuchasclimatechange.PeoplesuchasSimonwillarguethatitisnecessaryforcountriestocometogethertoaddressglobalproblems.Theyoftencitethe1987MontrealProtocolonSubstancesthatDepletetheOzoneLayerthatregulatestheproductionandconsumptionofnearly100“ozonedepletingsubstances.”Afterall,thedepletionofozone,likethebuildupofGHGs,affectstheentireplanet,notjustonecountry.Presumably,theincentivesforfreeridingmightbesimilar.Yet,everynationsignedtheagreement.TheProtocolisnotamodelforclimatechangefortworeasons.Thetransitioninvolvedwasrelativelyminor—replacingabout100chemicalswithalternatives.Comparedwiththemassivelyexpensivetaskoftransitioningtheentireworldtocleantech,thiswaschild’splay.Moreover,thecostswererelativelyminor.AsCassSunsteinwrote:TotheUnitedStates,themonetizedbenefitsoftheMontrealProtocoldwarfedthemonetizedcosts,andhencethecircumstanceswereextremelypromisingforAmericansupportandevenenthusiasmfortheagreement.Remarkably,theUnitedStateshadsomuchtolosefromdepletionoftheozonelayerthatitwouldhavebeenworthwhileforthenationtoactunilaterallytotakethestepsrequiredbytheMontrealProtocol.67Incontrast,thecostsofaddressingglobalwarmingareordersofmagnitudegreater.Inaddition,thetechnicalchallengesforcomingupwithozone-safealternatives,whilereal,wererelativelystraightforward,andindustryquicklyresponded.Growingdemandforairconditioningalsomeantthatcostswereallocaatedinaagrowingmarket,andincumbentmanufacturerswerenotseverelydisadvantaged.INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE26Eveninrichcountries,hairshirtsjustdon’twork.Trade-offsthatinvolvedsomepersonalsacrifice—someactualcost—havebeenrejected.Theeat-localmovement—whichhastheaddedbenefitofofferingfresherfood—isabarelyvisiblepimpleontheenormousbacksideoftheUnitedStatesgrocerybusiness.68Similarly,effortstopersuadepeopletowalkorbikemoreandtakepublictransporthavehadsomeimpactatthemargin—thenotionofthe15-minutecityhasgainedsomecurrencyamongcityplannersandlocalgovernment(althoughithasalsogeneratedpushback).Buttheseeffortsareeffectiveonlyincertainquitelimitedgeographiesforaquitelimiteddemographic;mostmoderncitiesarebuiltforandrequireaccesstoacar,andthereissimplynosignthatautosaleswillfall,eventhoughcarsarenolongertheculturalbadgetheywere,evenforyoungpeople.Globallight-vehiclesalesreflectthisreality(seefigure5).RecenteffortsbytheDutchgovernmenttoforcefarmerstocutnitrogenuseaspartofitsclimatepolicyledtomassiveprotestsandtheriseofanewpoliticalparty.69Figure5:Annualizedsalesofnewvehiclesin2010–2019(millionsofunits)70Similarly,theanti-flyingmovementhashadnodiscernibleimpact,asidefromritualizedattacksonprivatejets.GHGemissionsaresimplynotaconcernforconsumersastheybuyairlinetickets.Thegrowthintheglobalnumberofairpassengerscontinuestoaccelerateandwas(pre-pandemic)growingfasterthanthelong-termtrend(seefigure6).Evenprivatejettravel—thetargetofhairshirtactivists—continuestosoar.71Themanyfailuresunderscorethelimitsofhairshirtactivism.It’snosurprisethatnotasinglegovernmenthasbeenelectedonano-growthplatform—notintherichcountries,andnotinthelow-incomeworldeither.Thegrowthimperativestilldominates,andwithinthat,hairshirtshaveonlyalimitedroletoplay.010M20M30M40M50M60M70M80M90M100M2010201120122013201420152016201720182019AllOthersJapanEUIndiaChinaUSAINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE27Figure6:Numberofairlinepassengerflightsworldwide,2010–2019(millions)72Intheend,hairshirtsareevenlessattractivethanregulationsorsubsidies,astheydemandthatweagreetobecomepoorer—notalwaysinadirectfinancialsense(thoughthataswell),butinabandoningcomfortsmostpeopleintheWestareaccustomedto,andtowhichlow-incomecountriesaspire:carownershipanduse,heatingandcoolingofbuildings,ameat-baseddiet,suburbanliving,airtravel,thelistislong.Unfortunately,theparallellistofbehavioralchangesthathavebeenadoptedisexceptionallyshort.AndnotasinglegovernmenthasbeenelectedintheWestorthelow-incomeworldonaplatformbasedaroundless.So,exhortationconfrontsarealitythatwantslittletodowithit.Intheend,hairshirtsareevenlessattractivethanregulationsorsubsidies,astheydemandthatweagreetobecomepoorer—notalwaysinadirectfinancialsense(thoughthataswell),butinabandoningcomfortsmostpeopleintheWestareaccustomedto,andtowhichlow-incomecountriesaspire.ExhortingCompaniesAsclimateactivistsrealizethepoliticaldifficultyoftheregulation,subsidy,andtaxmechanisms,theyareincreasinglypressuringcorporations,knowingthatlargecorporationsaresensitivetotheirimagewithconsumers,investors,andgovernment.AsBidenadministrationClimateEnvoyJohnKerrynoted,“AttheGlasgowclimatesummit,numerousgovernmentsandlargecorporationscommittedtostartbuyingcleanindustrialproducts,sendingacrucialmarketsignal.”73Thisisnotreallyamarketsignal;itisasignalfromexhortation.Tobesure,manycompanieshavemadeclimatecommitments,butmosthavenot,especiallynon-publiclytradedcompaniesandcompaniesinlower-andmiddle-incomecountries.Indeed,anumberofbankshaverecentlybackedoffcommitmentsmadeatCOP28toinvestmoreincleantechbecausedoingsowastoorisky.Similarly,pressuringbanksandinvestmentfirmstodivest05M10M15M20M25M30M35M40M45M20102011201220132014201520162017201820192020INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE28fromcompaniesthatarenotgreenenoughwilldonothingbecausetherearemorethanenoughotherinvestorstobuythesecompanies’shares,especiallyiftheyfallinpricefromgreendivestitures.Largecorporations,atleastinmanyhigh-income,democraticcountries,havemadenumerouscommitmentstoaddressclimate(evenifsomeshareofthatis“greenwashing”).Buttherearesharplimitstowhatcompaniescandoincompetitivemarketsthatputapremiumonpriceandquality.Forexample,asignificantnumberofinsurancecompanieshavedroppedoutoftheInsuranceClimateAllianceafterrealizingthattheircommitmentsmadenofinancialsense.74ExhortingGovernmentsExhortationofgovernmentsistheprinciplefocusoftheCOPsummits,wheregovernmentsarepressuredbyactiviststomakeclimatecommitments.Todate,thesehavebeenmetnowhere,buttheresponsetothesefailuresismoreexhortation.AlokSharma,aformerUKministerwholedtheCOP26talksinGlasgowin2021,arguedthat:COP28mustdeliverstrengthenedemissionsreductiontargets,andacommitmenttopeakglobalemissionsby2025...[Theremustbe]aplantoturbochargethecleanenergyrevolution,andacommitmenttophaseoutfossilfuels.Andameaningfulagreementonhowtoscaleupfinance,bothpublicandprivate,tosupportdevelopingnationstodecarbonizetheireconomies—movingfromthebillionstothetrillions.75Chinahasbeenaparticulartargetofthisformofexhortation,asithasbecomethelargestglobalemitterofGHGs(itisresponsibleforaboutonethirdoftheglobaltotal,accordingtotheWorldBank).TheviewamongmanypolicymakersintheWestisthatiftheyjustexhortandbribeenough(throughconcessionsonothermatters),Chinawillsomehowreduceitsemissions;JohnKerryarguesthat“Weneedto‘get’China,”whilefiveseniorforeignpolicyexpertsrecentlywroteanopenletterinTheWashingtonPostarguingthat“China’sengagementintheinternationalsystemisessential…toeffectiveactiononcommonproblemssuchasclimatechange.”JosephNye,atopforeignpolicyacademicandassistantsecretaryofdefenseintheClintonadministration,recentlyagreed.76Fortheseandotherpolicymakers,thatmeansmakingconcessionstoChinainotherareas,suchastradepolicy.Despiteallthecallstoaction,U.S.effortstoexchangeemissionscutsinChinaforU.S.concessionselsewherehavefailedtodateandwon’tworkinthefuture.77Chinashowslittlewillingnesstoimpoverishitscitizensbyabandoningcheapercoalplantsformoreexpensiverenewables.ItwillcutemissionsifandonlyifitisintheirChina’sself-interesttodoso.Asaresult,China’scurrentenergystrategyincludesacontinuingrelianceon(andgrowthin)fossilfuelenergy,alongsidegrowthinrenewables.78Box9:Exhortation:GrowthHurtsthePlanetGrowthrejectersarguethatifwewanttosavetheplanetfromglobalwarming,wecannolongeraffordgrowth.FournaturalscientistswarnedinanarticleinNaturethatweneed“anequitabledownscalingofthroughputwithaconcomitantsecuringofwellbeing,aimedatasubsequentdownscaledsteady-stateeconomicsystemthatissociallyjustandinbalancewithecologicallimits.”79IncaseyouINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE29didn’tgetthat,weneedtobepoorertosavetheplanet.ThisiswhyTimJacksonproposeshighertaxes(tolimit“pathological”consumptionbythemasses),withthemoneytobespenton“lessproductive”socialservices.80Inaneconomywithamuchlargershareofspendingdevotedtosocialservices,thearts,care,andrecreation,wecanlimitgrowth“preciselybecausethenatureoftheseeconomicactivitiesresistslabourproductivitygrowth.”81Likewise,BanerjeeandDuflowantthegovernmenttotaxworkersandspendthemoney“toincreasethedemandoflabor-intensivepublicservices.”82Baumol’sdisease(low-productivityindustrieshurtinggrowth)nowbecomesBaumol’scure(low-productivityindustriesstoppinggrowth).Fewpeoplearewillingtoconsumelesstosavetheplanet,certainlynotthethreebillionwholiveonlessthan$2.50perday.83Andhairshirtswouldnotbeenough:EvenifglobalGDPwerecutinhalf—consigningbillionsofpeopletomuchworselives—carbonemissionswouldbecutbyonlyhalfatbest,whichisnotenoughtostopclimatechange.ThefamousbetbetweenenvironmentalistPaulEhrlichandbusinessprofessorJulianSimonwaswonbySimon,astheprojectedshortageofcopper,chromium,nichel,tin,andtungstennevermaterialized.Infact,fastergrowthisexactlywhat’sneededtoaddressclimatechangeandotherenvironmentalchallenges.Indeed,thewidelyacceptedenvironmentalKuznetscurveshowsthatitisatlowandhighlevelsofeconomicoutputthatenvironmentalpollutionisreduced.84Fastereconomicgrowthmakesitmorelikelyvoterswillacceptcostlyenvironmentalpoliciessuchasacarbontax—andalsogeneratesmoresocietalresourcesthatcouldbeusedtoaddressclimatechange.INNOVATIONTOGETTOP3UnlesscleanenergytechnologiesgettoP3,theworldwillnotcomeclosetonetzero.GettingtoP3requiresinnovation,throughbothproductandprocessinnovation,andviabothradicalandincrementalproductinnovation.Andthatinnovationrequirescoherentandwell-fundednationaltechnologypolicies.85Indeed,climateismuchmoreofatechpolicychallengethanaregulatoryone.“Innovation”isaveryflexibleterm.Broadlyspeaking,it’sbestdefinedastheintroductionofnewproducts,services,orprocessestothemarketplace.Incontrast,“invention”istheinitialcreationofnewtechnologies.So,innovationisnotpatents,itisnotresearchanddevelopment(R&D),itisnotinvention,eventhoughtheseareallcomponentswithintheinnovationecosystem,supportingthedevelopmentanddeploymentofnewproductsandprocesses.It’salsousefultodistinguishbetweenincrementalinnovation—whatcanbedonetodaytoimproveperformance,reducecosts,etc.—andlongertermmoretransformativeinnovationfocusedonthedevelopmentofentirelynewproducts.Incrementalinnovationpowerstheshiftalongthecostcurvesdescribedearlierinfigure1butremainstiedtothatcurve.Transformativeinnovationisdifferent:Itshiftstheentirecurve,creatinganewsetofopportunitiesforincrementalinnovationalongtheway.Movementdownthecostcurveprimarilyoccursinthreeways:learning,scale,andspecialization.Aseachunitisproduced,ithelpsacompanylearnmoreabouthowtoproducetheunitmosteffectively.Thatislearningbydoing,anditissignificant;manufacturers(andothercompanies)learnhowtodothingsbetter,wastelessmaterial,andsequenceactivitiesmoreeffectively.TherevolutioninmanufacturingintroducedbyToyotaandotherJapanesecompaniessome30yearsagowasbasedonINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE30anewandmuchmoresystematicunderstandingof(andcommitmentto)processimprovementsthroughtheKaizensystem.86However,learningeconomiespeteroutpastacertainpoint.Scalereferstothebulkmanufacturingfirstofcomponentsandthenoffinishedproducts.Typically,newproductsmovethroughapathwayfromhand-craftedorartisanproduction(forprototypesandthefirstfewexamples),thenbatchproduction,wherethereareefficienciesfrombuildingasmallnumberofproductsinwaysthatallowformorespecializedlabor,andthenfinallyintoproduction-linemanufacturing.WhenFordfirstappliedtheproduction-lineandmass-productiontechniquestotheautoindustry,itcouldmorethandoubletheaveragewageofworkersandatthesametimecutpricesforconsumersdramatically.TheModel-Tsoldfor$850in1908,andforunder$300in1925.Asaresult,by1923,FordwasproducingmorethanhalfofAmerica’sautomobiles.87HenryFord’sfamousdictum,thatFordwouldprovideaModelTin“[a]nycolorthecustomerwants,aslongasit’sblack”showsjusthowmuchhevaluedthepowerofscale.88Productionimprovementsshadeintominorproductimprovementsaswell,withoutrequiringtheintroductionofanentirelynewproduct.Fordmight,forexample,introduceabetterdoorhandle,whichmarginallyimprovestheproduct.Thattooisanincrementalinnovation.Theriseoftheglobaleconomyhasdemonstratedathirdforcedrivingincrementalinnovation:thecreationofmorecomplexsupplychains.Fordwasaverticallyintegratedcompany(e.g.,ithadasteelmillonsite),butmodernproducersareoftensystemsintegratorsofpartsandcomponentsfromnumeroussources.That’showApplebuildsiPhonesandBoeingbuildsaircraft.TheiPhonehaseightmajorcomponentmanufacturersplusthedesignteamatAppleHQinCaliforniaandfinalassemblymostlybyFoxconninShenzhenChina.Mostofthecomponentmanufacturershavetheirownsuppliersandsubgroups,sooverall,Applehas180directsuppliersspreadacross30countries,andmanyofthesehavetheirownsupplychains.89Incrementalinnovationpowerstheshiftalongthecostcurve,butremainstiedtothatcurve.Transformativeinnovationisdifferent:Itshiftstheentirecurve,creatinganewsetofopportunitiesforincrementalinnovationalongtheway.Insomecases,itiscomponentmanufacturersthatcanbenefitmostfromeconomiesofscale.Corning,forexample,suppliestheglassusedforsmartphonescreensbymanyphonemanufacturers.ServingmultipleclientsletsCorningbenefitfromeconomiesofscale,whichreducesthecostoftheglasstomanufacturers.Perhapsthesamewillbetrueinsomecleanenergymarkets:Scaled-upproductionofwindturbinebladesusingdistributedsupplychainshashelpedcutthecostofnewland-basedwindenergyfrom$89/MWhin2000to$32/MWhin2021,eventhoughglobalordersruninthethousands,notthemillions.90Theseextraordinarilycomplexsupplychainsarepossiblebecauseglobaltradebarrierswerebrushedaside(especiallyviatheentryofChinaintotheWorldTradeOrganizationin1993),andbecausemoderncomputingandinstantcommunicationsallowmanagementofsuchcomplexsystemsatminimalcost.Ofcourse,sometechnologiesneverreacheconomiesofscale.Forexample,whilegreenhydrogenhasbecomeatechnologyofhighinterestandconsiderablepolicypush,it’sunlikelythathydrogenplantsthemselveswillbecomeamassproductioncommodity.Scalebenefitsforgreenhydrogenmustthereforecomefromthemassproductionofcomponentsinstead,notablyelectrolyzers.INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE31LookingthroughtheP3lens,wecanseethattransformativeinnovationwillsometimesbeneeded(e.g.,inlong-termenergystorage,astheexistingdominanttechnology—lithium-ionbatteries—cannotprovidethelengthofstorageneededateconomicallyviableprices).Buttransformativetechnologieshavespecialchallenges.Theyareinherentlyhigherrisk,theirbenefitsmaynotbeeasyfortheirownerstocapture,andtheymayneverreachscale.Spillovereffectsaresubstantial,competitorsmaysurpasstheinnovator,andbusinessproblems(e.g.,dysfunctionaldistributionsystemsorbadlyrunproductionfacilities)canderailthem.Transformativeinnovationsfaceinternalchallengesaswell,fightingfortheirlivesagainstestablishedproductswithinlargeexistingcompanies.ClayChristenson’sbookTheInnovator’sDilemmacapturesthiscontradiction—ithelpstoexplainwhyKodakfailedtheopportunityindigitalcameras,Nokiafailedinsmartphones,andUSSteelfailedwithmini-mills.91Thefurtheratechnologyisfromthemarket,thebiggertherisks,whichiswhygovernmentsplayabiggerroleaswereachbacktowardearlierstagesofdevelopment.Basicresearchhasformanydecadesbeendominatedbygovernmentfunding,butthereisanimportantgovernmentroleinfundingappliedresearchaswell.Inthecaseofclimatechange,thepressingneedfornewtechnologydemandsdifferentrolesforthegovernmentatdifferentstagesoftechnologydevelopment.AnexistingTechnologyReadinessLevel(TRL)modelisalreadyinuseatDOE,aswellasotheragencies(notablytheDepartmentofDefenseandNASA).92Thismodelillustratesdifferentkindsofgovernmentsupportfortechnologydevelopmentbutislimitedtopre-commercialdevelopment.Thatexistingmodelnolongersufficientlycapturesgovernmentengagementwithtechnologydevelopment;thegreentransitionwillrequiregovernmentsupportwellbeyondtheinitialcommercialdeploymentofgreentechnologies,tothepointwheretheyreachP3.SotheTRLmodelmustbeextendedfurtherintothemarketspace,wheremilestonestowardP3aremarkedbythelevelofmarketadoptionandtheremaininggaptofullP3(seefigure7).Artificiallylimitinggovernmentsupportfornewgreentechnologiestothepointwhereproductsenterthemarketisarecipeforfailure.Figure7:AnextendedTRLmodelTHEPOWEROFTHEP3LENSThepathtothegreentransitionisapaththroughtheswamp:quicksand,traps,anddiversionsoneveryside.It’seasytoenterthelandofendlesssubsidies;muchhardertoleave.SimplydependingPre-conceptRefinementTechnologyDevelopmentSystemDevelopmentandDemonstrationProductionandDeploymentEarlyAdoptionScale-UpAdoptionTRL1TRL2ConceptRefinementTRL3TRL4TRL5TRL6TRL7TRL8TRL9TRL10TRL11TRL12Research,Development,TestingMarketDeploymentINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE32onthevirtueofhumans(asdefinedbythevirtuous,ofcourse)hasapoortrackrecord.Magicalthinkingwon’twork.Themodernworldisnotoneinwhichrulesarehandeddownandimmediatelyimplementeduniversally,or(often)atall.Andeverywhere,growthtrumpsgreen.Thesetoolsdonothavetobeappliedglobally.AslongasonecountrycanhelpgetthecostcurvetoP3,thosetechnologiescanbeadoptedgloballythroughmarketforces.AdeeperviewintoP3illuminatesthecostcurvesthatgoverntheadoptionofgreentechnology.WeknowthatgreentechnologiesmustreachP3tofullyengagethosepowerfulmarketlevers;wealsoknowthatcostsfornewtechnologiesdodeclineovertime,thankstoeconomiesofscaleandincrementalinnovation.What’smuchharderistodeterminewhetheraparticularcostcurvewilleverreachP3.Ifitwill,thejobofthegovernmentistoacceleratemovementalongthecostcurveasrapidlyaspossible.Thiscaninvolveregulation,governmentprocurement,subsidies,andotherdemand-creationmeasures.Nordothesetoolshavetobeappliedglobally.AslongasonecountrycanhelpgetthecostcurvetoP3,thosetechnologiescanbeadoptedgloballythroughmarketforces.ButifP3won’tbereached,thentheprimarytaskistofindsubstitutes,bettertechnologies,orbetterimplementationsthatwillreachP3instead.Thecostcurvesinfigure1(revisitedinfigure8)illustratetheprice/performancepathwaysavailabletonewtechnologies.Figure8:Thefourprice/performancepathways,revisited.Thepolicyimplicationsandrelatedprescriptionsforthefourcostcurvesdifferprofoundly:1.TechnologiesalreadyatP3(curveA).Governmentsherehavenoroletoplayintermsofprice/performanceimprovements,buttheycanhelptoacceleratethedeploymentofthesenewgreentechnologiesbyhelpingtosmoothmarketentryandmarketexpansion.Thiscouldtaketheformoftradepolicies,regulatoryreformsthatsweepawaybarrierstoentryD.NoPathwayC.OffCourseB.OnCourseA.FossilFuel1x2x3x4xMultiplesofP3P3OverTimeP3GapINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE33anddeployment,trainingforworkforcedevelopment,andnewinfrastructure.Itshouldnot,however,includesubsidies,orregulationsseekingtoforceatransition.Letthemarketdoitswork,butsmooththetransitionpathway,becausebigtransitionsareneveraswell-greasedaseconomicstextbookswouldsuggest.2.TechnologiesonthepathtoP3(curveB).Forthesetechnologies,gettingtoP3requiresmovementdownthecostcurve.Thisisdrivenbyscale,learningbydoing,andspecializationimprovementsassociatedwithmassproduction.Theroleofthegovernmentisthereforetosupportthescale-upoftechnologiesthatarewithinreachofP3,andtoprovidesupportingcapabilities(e.g.,technicalstandards)thatspreadbestpractices.Thiscouldsometimesmeansubsidiestoacceleratetheadoptionofnewgreentechnologies.However,thesesubsidiesshouldbebothtimelimitedandprovidejustenoughsupporttomakeadifference,whilephasingoutastheneeddeclines.Mechanismssuchascontractsfordifferenceseemespeciallyuseful.933.TechnologiesnotonthepathtoP3(curveC).SometechnologieswillneverreachP3.Forexample,bluehydrogen(whichisdirtyhydrogenplustheadditionalstepofcarboncapture)willnever,bydefinition,reachP3withdirtyhydrogen.So,investmentsinbluehydrogenwillnevergainmarkettractionwithoutongoingsubsidies.Insuchcases,policyshouldseektofindalternativetechnologies.ThismaywellrequiremovingbackupstreamawayfromproductionandbackintoR&D.Box10:LookingatHydrogenThroughtheP3lens.HydrogenillustratestheusefulnessoftheP3lens.Hydrogencanhelpdecarbonizesomedifficult-to-reachindustries.Itcouldperhapsalsobecomeanimportantstoreofenergytohandlelong-termvariationsinrenewableenergyproduction.Additionaluseshavebeenhyped—forcommercialandresidentialheating,orlightvehicles—becausehydrogenproducedfromrenewableenergyiszeropolluting.Butitisnotzerocost,andfortheseadditionalapplications,itisnotlikelytoreachP3.Currently,productionofgreenhydrogencosts~6xhigh-pollutiongrayhydrogen.Bluehydrogencosts~3x.WealsoknowthatbluehydrogenwillneverreachP3withgrayhydrogenbecauseitismadeusingthegrayhydrogensteammethanereformingorautothermalreformingprocessplusanadditionalstep(carboncapture).Lookingthroughthenormalclimatepolicylens,bluehydrogenisastepforward,asitcanreplacemuchmorepollutinggrayhydrogen,thusreducingemissions(ifcarboncaptureworksasadvertised).ButtheP3lenstellsusthatbluehydrogen’sroleinthegreentransitionisinherentlylimited,andinparticularthatitwillneverbeacost-effectiveelementinaglobaltransition.Sowhileitcanbeusedperhapstodevelopnewmarketsforhydrogen,orpossiblywithsufficientsubsidiestohelpdecarbonizesomeindustriesintheWest,thatcomesatasignificantcost(evenintheWest):theongoingsubsidiesneededtofillthegapbetweenthepricesofgrayandbluehydrogen.Highlysubsidizedbluehydrogencouldalsoblockthemarketentryofgreenhydrogenbyofferingasolutionthat’spricecompetitive(aftersubstantialsubsidies)andcleanerthangrayhydrogenwhilebeingconsiderablycheaperandlesssupplyconstrainedthangreenhydrogen.ThroughtheP3lens,though,greenhydrogenismorepromising,butatanearlierstageofdevelopment.Currentcostsarehigher,butthecostsofthekeycomponent(electrolyzers)willfall,andtherewillbescaleandlearninggainsaswell.IEAhasestimatedthatgreenhydrogenINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE34willbecheaperthanbluehydrogenby2035,andwilleventuallyreach$1/kg,theapproximatepriceofgrayhydrogen.However,thisisanestimateforthepointofproduction,notthepointofconsumption.Thereisalongdistancebetweenthetwo,andit’sthedeliveredpriceandperformancethatmatterstocustomers—andthat’safurtherchallenge.MichaelLiebreich,forexample,haspointedouttheimmensedifficultiesintransportinghydrogen.94ThuswemaystillneedtransformativetechnologiestoreachP3evenforgreenhydrogen.,Ifwedon’tinvestinthem,themuch-anticipatedhydrogenrevolutioncoulddeflatelikeapunctureddirigible.Giventheintrinsicuncertaintyofinnovationandenergymarkets,asmartpolicywouldfocusonbothacceleratinggreenhydrogendownitscurrentcostcurvewhileinvestingintransformativehydrogentechnologies—andmonitoringthosecostcurvesverycloselyindeed.Anyroleforbluehydrogenshouldbecarefullymeasuredandassessedintermsofcreatingmarketsthatwillsoonbefilledbygreenhydrogen.ItmattersalotwhetherhydrogenisoncurveBorC.4.Finally,therearesectorsthatsimplycannotdecarbonize(curveD).Aviationisperhapsthemostprominent.Effortstoforcetheadoptionofsustainableaviationfuel(SAF)—notablyintheEU—willfailevenintheWest(seebox11).Battery-poweredaviationisimpracticalbeyondshort-haulflightsbysmallerplanes—asmallfractionoftotalindustrymileage.Andwhileanewhydrogen-poweredlong-haulaviationsectorispossible,theeconomicsarebeyonddaunting,evenifthetechnicalandscale-upchallengescouldbemet.Partofaviation’sclimateimpactcouldperhapsbemitigatedbybetterroutingandincreasedindustryefficiency,aswellasbysolvingthecontrailsproblem(contrailsreflectheatbacktowardtheearth,andaccountformorethan50percentofaviation’simpactonclimatechange).95Butbeyondthat,policyshouldshiftresourcesawayfromfruitlesseffortstorepealthelawsofphysicsand,towardsectorswheresuccessispossible.Box11:AviationNetZero:NoPathtoP3Aviationisresponsiblefor2.5percentofglobalCO2emissionsand3.5percentofglobalwarming(whennon-CO2climateimpactsareconsidered).96Thehighenergydensityneededtopowerflightandthelonglifespanofaircraftmaketheaviationindustryespeciallychallengingtodecarbonize,whileperformanceneedsvarybymarketsegment.Sustainableaviationfuel(SAF)isthemostcommerciallyadvancedtechnologyfordecarbonization,anditcanbeusedinexistingaircraftwithoutsacrificingperformance.ThemostwidelyadoptedpathwayusesHydroprocessedEstersandFattyAcids(HEFA).Thisfuelismadefromfromwastecookingoilsandfats,andistwotothreetimesthecostofconventionaljetfuel.Itisseverelysupplyconstrained,becausethereareonlylimitedsourcesandalsocompetinguses.97GlobalSAFproductiontotaled80milliongallonsin2022,justover0.1percentoftheproductionofstandardjetaviationfuel(usuallyknownasJet-A).98ThecostofproducingHEFAfuelisunlikelytodecreasesignificantly,asthefeedstockisexpensivetocollectandisvolumelimited.99HEFAwillthereforenotbecostcompetitivewithconventionaljetfuelwithoutverylargesubsidiesfortheforseeablefuture.100AnalternativenascentpathwayproducesSAFfromcleanhydrogenandcarbon.Thisapproachisknowaspowertoliquid,(PtL)ore-kerosene.Thispathwaydoesnotfacefeedstocklimitations,butpricesarecurrently~5xthepriceofJet-A.Upwardsof70percentofproductioncostsstemfromthecostofcleanhydrogen.Whilethosxemayfallsubstantiallyincompingyears,ahydrogen-drivenaviationsystemwouldalsorequireenormousinvestmentsinnewplanes(whichlikelywouldneedtobecompleteltyredesigned)aswellasnewgroundfacilities.INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE35TheenormousP3gapbetweenjet-Aandalternativefuelsillustratedinfigure9,andthecompletelackofrealisticpathwaystoclosethatgap,meansthatregardlessofscaleeconomies,SAFcannotreachP3withintheforeseeablefuture.FacingthislargeP3gap,theEUhasrecentlyproposedablendingmandateforSAF,requiringthatairlinesuseagrowingpercentageofSAFdespiteitssignificantlyhighercosts.Thisregulatory-centricapproachfacesstrongindustryopposition,andcountriesoutsidetheEUareunlikelytofollowsuit.101TheEUapproachshowsthatonlyforcewilldrivetheuseofSAFs.EUthinkingthereforeseemsmuddled:Ontheonehand,thedeterminationtodriveuseseemstosuggestthatSAFisoncurveBwherescalewilleventuallyallowSAFtoreachP3.ButtheweightoftheregulationssuggeststhatEUregulatorsknowthatSAFisoncurveD,andtheyaresimplydeterminedtoforceadoptionatanycost.Thisapproachhassomeadvantages,itisindustry-wideregulation(intheEUatleast),itisreasonablywellhiddenfromtheconsumers,itdoesn’tinitiallyatleastaaddtoomuchcosttotheoverallcostsstructureoftheindustry,anditisimposedprimarilyonthosewhohavemoremoneythanaverage(airlinepassengers).PerhapstheEUwillbeabletodefendpoliciesthatloadcostsontopaasseners,butothercountrieswilllikelynotfollowsuit.Aviationisthereforeadifficultanddiscouragingcase.Itreflectsourbeliefthatsomesectorssimplycannotbedecarbonized,andthataviationwillbeoneofthosesectors.Butastheworlddecarbonizes,itwon’tgiveaviationapass,evenifSAFfails.Wethereforeexpecttoseethegradualintroductionofmandatorycarbonmitigationprograms(andrelatedtaxes)toeventuallybalancethecarbonthatisstillemittedbyaviationafterotherindustrieshavegonegreen.Figure9:U.S.jetfuelpricepergallonvs.fouralternatives—hydroprocessedestersandfattyacids(HEFA);fischertropsch(Gas-FT);electricityproducedkerosene(e-kerosene);andalcoholgoJet(AtJ)102Innovationis,aswenotedearlier,inherentlyrisky(thoughperhapslessriskythandoingnothing),forbothcompaniesandcountries.Inthisuncertainenvironment,P3lightsthepathforwardby$0$2$4$6$8$10$12HEFAGas-FTe-keroseneAtJU.S.JetFuelPriceINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE36focusingattentiononwhatmattersandwhatneedstobedone.ThepoweroftheP3lensliesinitsuniqueabilitytodefineaformalmilestonefortheendofthepath.Weknowthatthetransitionwillworkwhenthenecessarytechnologiesreachperformance/priceparitywithexistingtechnologies.Withoutthat,weareleftwithdesperatemeasurestofakeP3:subsidies,regulations,perhapstargetedpublicprocurement,plaintivecallstovirtue,andeventuallygeoengineeringandotherremediationstrategies.Theproblemthenliesnotinthemechanisms—allmechanismshaveaplace.Theproblemliesinthesubstitutionofmechanismsfortheendpoint,themilestonewemustreach.ByidentifyingspecificP3milestonesforspecifictechnologies,wecanunderstandthekeybarriersandchallengesthatmustbeovercomeifeachmilestoneistobereached.Mechanismscanhelptodothat—supportingthesupplysidewhenthemarketisn’tthereyet,buildinginfrastructure,andevenseedingenduse.Itcanallcontribute,butonlyiftheP3goalisclearandthemilestonesalongthewaytowardthatspecificobjectiveforeachtechnologyandsectorareclearlymarked.Thus,akeytaskforrich-nationgovernmentsistoconductthoroughassessmentsofthewiderangeoftechnologiesbeingsupportedtogetaclearersenseofwhethertheyarecurveCorcurveBtechnologies—astheappropriatepolicypackagesarequitedifferent—andwheretheremaybenofeasiblepathtodecarbonization(curveD).Ofcourse,despitethepotentialpoweroftheP3lens,itismucheasiertocallfortheP3approachthanitistoimplementit.Someofthemoreimportantpitfallsareoutlinedinbox12.Butdespitechallenges,theP3lensistheonlywaytoreachamarket-basedgreentransition—andonlyamarket-basedtransitionwillworkforlow-incomecountriesaswellasmostoftherichcountriesandhenceforallofus.Box12:P3PitfallstoAvoidTheP3frameworkispowerful.Aswehaveexplained,it’’scentraltoeffectivepolicyandhencetoasuccessfulgreentransition.Butit’’snoteasy,ascommonpitfallscanderailtheuseoftheP3lens:1.Delivery,notproduction.It’’seasytofocusonthecostofenergyproduction,partlybecauseit’’ssimplerandpartlybecausethedataaremoreeasilyavailable.Energyistypicallyproducedatalargescaleandundertight-enoughregulationthatwholesaleproductionpricesareeasytoidentify.Butitisthepricetotheuserthatmatters,notthepriceofproduction,andthat’’smuchmoredifficulttofigureoutandvariesacrossawidespectrumofspecificcircumstances.Thatdeliveredpricereflectstheentirevaluechain,notjustproduction.ReachingP3fordeliveredenergymeansthat,collectively,allcomponentsofthesystemmustreachP3withoutsubsidies.2.Differencesbetweennewandold.Typically,newproductionplantshavecostadvantagesoverexistingplants.Newplantsusethelatesttechnology,cansometimesbesitedinwaysthatarenewlyadvantageous(e.g.,neardeliveryinfrastructureoranenduser),andmaybenefitfromdecliningcomponentcosts.Butoldplantshaveadvantagesaswell.Critically,thecapitalcostoftheplant(CAPEX)mayhavebeencompletelyamortizedovertime,givingtheplantsubstantialcost-structureadvantages,whileoldplantproductionhaslikelybeenoptimized.SotheP3lensmustaddressthesedistinctions,andpoliciesshouldseektoensurethattheoldisnotallowedtouseincumbencytodefeatthenew.INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE373.Sensitivityanalysis.P3analysisiscomplexandoftenhighlysensitivetoawiderangeofvariables,aschangesinthepriceoravailabilityofkeyinputsorcomponents,forexample,candramaticallychangetheeconomicsofaproposedproject.Forinstance,bluehydrogenishighlysensitivetothecostofnaturalgas,whichcanbeveryvolatile.P3mustthereforeincludesensitivityanalysisaswell.1034.Performance,notjustprice.It’’stemptingtofocusonthepriceofcommoditiessuchasenergyandsimplyassumethatperformanceisstandardoratleastfungible.Thisisnotalwaysthecase,though.Performanceincludesthetechnicalcapabilityoftheproduct—forexample,petroleumissoldatvariouspuritylevelsfordifferentuses.But“performance”alsoincludesless-standardizedcharacteristicssuchasavailability,deliverytime,reliability,andstorability.PerformanceiscentraltoP3analysis—and,inparticular,helpsbringdistributionissuesintotheanalysis5.Monitoringandreview.Giventhecomplexities,it’’stemptingtobeoneanddone—todoacomprehensiveP3analysisandassumethatitwillsufficeforaconsiderableperiod.However,thatmaynotbethecase—andenergypoliciescannotbelockedintooutdatedmodels.Fortunately,DOEhascommittedtoalivingdocumentapproach,astherecentcommercializationpathwayspublishedbyDOEforthreesectorsareexplicitlydesignedtoremainunderregularreview.1046.Theanalogiestrap.Thecostofsolarpowerhasdeclinedby85percentinthepastdecade.105Thisseemssimilarto(andispartlybasedon)theremarkableandsustainedimprovementinP3forsemiconductors(followingMoore’sLaw).ButP3improvementsaredrivenbyspecificinnovationsandthecapacitytoscaleeffectively.ArguingbyanalogythatP3forgreentechnologieswillnecessarilyfollowMoore’sLawforsemiconductors—orthatothertechnologiessuchaselectrolysisornuclearwillfollowthispathway—isadangerousformofmagicalthinking.Onlydetailedsector-specificanalysis,usingcarefullyconstructedscenarios,cansupportsuchcriticallyimportantconclusions.TheP3lenshelpsusbothatthemacrolevelandinthedetailedunderstandingofgreenpathways.Resourcesareinevitablyfinite,especiallygovernmentresources.So,makinggoodcallsaboutwhichtechnologiestobackiscritical.TheP3lenshelpsusseewhichtechnologiestoprioritizeandwhichrequirefurtherdevelopment.ItalsoallowsustoexplorethemostefficientwaytogettheGHGreductionsweneed,andtoavoidexpensiveinvestmentsindead-endoptions.Thathelpsusmaketherightstrategicchoicesamidmultiplepotentialoptions.CONCLUSIONImportantconclusionsfollowfromtheargumentsabove,andmanywillbeexploredinmoredetailinasubsequentseriesofInformationTechnologyandInnovationFoundation(ITIF)papers.Themostimportantisthatclimatepolicyneedsafundamentaloverhaul.Overthelasttwodecadesatleast,virtuallytheentireclimatepolicydiscussionhasbeencenteredaroundforceratherthangettingtoP3andthenlettingmarketsdotheheavylifting.WearguethattheP3lensshouldbebroughttobearoneveryclimatepolicy.AndifthereisareasonableriskthatforcecannotachieveP3inaparticulartechnology/application,policymakersmustquicklyfocussignificantresourcesontheRD&Dneededtosupporttransformativeinnovation.Indeed,thegoalshouldnotbenetzeroby2050,butrathertoreachP3formultipletechnologiesonaglobalbasis(especiallyinlow-incomecountries)wellbefore2050.INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE38Bearingthesecoreargumentsinmind,weknowthefollowing:1.TheP3imperative.GettingasclosetoP3aspossible,asquicklyaspossible,shouldremaintheprimarydriverofpolicy.That’sbecauseclimatechangeisglobal,sosolutionsmustbetuned,inparticular,totheneedsofbiglow-incomecountrieswheremarketleverswillbeabsolutelycentral.So,everyclimatepolicymustanswerthebasicquestion:isthatpolicythebestwaytogettoP3forthattechnology/sector?Answeringthatquestionrequiresamuch-expandedframeworkforanalysis.TheexistingTRLmodelisgoodforcapturingdevelopmenttowardthemarketbutisnohelpbeyondthat.2.Missingtechnologies.Itisamistaketobelievethatwehaveallthetechnologiesweneedtocompletethegreentransition.SomeexistingtechnologieswillfullyaddressGHGemissions,butcannotcompeteatcurrentprice/performancelevelsevenintheUnitedStates,letaloneglobally.Inotherareas,forexamplenuclearandbiotech,weneedfundamentallynewtechnologies.Andit’snotwhetheratechnologyworksthatmatters,it’swhetheritdeliversatP3.Thatmeansweneedacleantechnologypolicyportfoliofocusedonawiderarrayoftechnologies,includinghigh-risk,high-rewardtechnologysolutions.3.WhatmattersisP3forenergydeliveredtotheenduser,notjustP3forenergyatthepointofproduction.Manydistributionchallenges,forexample,growasscaleexpands(e.g.,electrificationofvehicleswillsoonrequireradicalexpansionoftheelectricgrid),andthemarketsthatmatterareattheuserendofthesupplychain.So,policyshouldnotfocustootightlyonthepriceofenergyatthepointofproduction.4.Mechanisms.Wewillnotsubsidize,regulate,orexhortourwaytoparity.Buttherewillbeimportantrolesforbothregulationandsubsidies.EspeciallyastechnologiesgetnearP3,subsidies,regulations,andcarbontaxescansometimeshelpgetustherebyseedingmarkets,creatingscalethroughstandardization,andencouragingdeployment—allofwhichcanhelpmovetechnologiesalongcurveB.Butbyfarthebiggestgloballeveristhemarket,andP3isthekeytounlockit.5.Innovationremainscritical.Inmanysectorsandformanytechnologies,itwon’tbeenoughtomovedownthecostcurveasscalegrows,asthatcurvewillneverreachP3.Andso,despitetheurgencytoacceleratethegreentransition,wemustnotstarvebettertechnologies—currentlyfurtherupstreamofthemarket—ofR&Dfundingandsupport.Inmanycases,wemustfindtransformativetechnologiesthatwillshifttheentirecostcurvedownward,notjusthelpproductionmovedownit.Finally,it’simportanttoconsiderthepossibilitythatitmightbeimpossibletogettoP3forallneededsolutions.Afterall,therearelikelytoberealitiesgroundedinphysicsthatcannotbeovercome.Thehistoryoftechnologicalinnovationsuggeststhathumaningenuityfindsawaypastwhatwereconsideredinsurmountablebarriers.Butmaybethistimeisindeeddifferent,atleastinsomesectorsandforsometechnologies.Ifthatisthecase,thereareonlythreechoices.First,higher-incomecountriescouldstepupandpaytocaptureandsequestertheremainingcarbonemissions.Itmakeslittlesensetoexpectlower-incomecountriestodothat.Itcouldbeanexpensiveoption,butit’slikelytobeneeded.ManyclimateadvocatesrejectCCSaltogetherINFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE39becausetheypreferaworldinwhichrenewablesworkandfossilfuelsareunnecessary.It’sunfortunatethatourworldisnotthatworld.106Second,climateimpactscouldbecomesoseverethatpoliticalpressuremountenoughsothatevenlow-incomecountriestakeaction.Wearealongwayfromthathappening,inpartbecauseofthefree-riderproblem,anditwillalmostcertainlycometoolate,butitispossible.Third,governmentscoulddecidethatthebestwecandoissomereductioninemissions,andtoswitchtheprimaryfocustowardclimatemitigation:reducingdamagefromclimateimpacts.That,however,isnotasolutionforaspecificsector,andseemsequallyunlikely.Theseareallpossibilities,butbeforeconsideringadoptingthem,theplanetdeservesafull-scaleandfocusedattempttogettoP3.TheP3lensdemandsthatwepayattentiontothedetails,thatwedifferentiatetheneedsandconditionsofvariousspecifictechnologiesandsectorsandtheirproductionandcommercializationpathways.DifferentiatingbetweentechnologiesthatareondifferentcurvestowardP3willbeatthesametimedifficultandmandatory,butweneedthosesector-andtechnology-specifictransitionstrategiestoachievealow-carbonworld.Wewillneedtobehonestaboutwhatweknowandwherethereisuncertainty.Wemustspecificallyfocusonend-usemarketsratherthanthecostofproduction.Andweshouldtailorourpolicypackagestotechnologiesatverydifferentplaces,allwhileextendingourunderstandingofhowtomakethecriticallyimportantdistinctionsthatshoulddrivepolicy.It’satallorder,butitisdoable—and,aswehaveshown,itistheonlyrealisticpathtothegreentransition.INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE40AcknowledgmentsTheauthorswishtothankHannahBoylesforresearchontheIndiaandAviationboxesandforhelpwithformattingandreferences.WethankStefanKoesterforresearchonthePoliticalFailuresofForceandScaleboxes.KayleenSchreiberprovidedhelpwithgraphicsforwhichwearegrateful.RandolphCourtandAlexAmbroseprovidedtheirexpertiseonediting,forwhichwearealsograteful.AbouttheAuthorsDr.RobinGasterispresidentofIncumetricsInc.andavisitingscholaratGeorgeWashingtonUniversity.Dr.Gaster’sprimaryinterestslieinclimate,economicinnovationpolicy,metrics,andassessment.Hehasworkedextensivelyoninnovationandsmallbusiness,regionaleconomicdevelopment,transformationineducation,andtheriseofthebigtechnologycompanies.HeservesasanonresidentseniorfellowatITIF’sCenterforCleanEnergyInnovation.Dr.RobertD.Atkinson(@RobAtkinsonITIF)isthefounderandpresidentofITIF.HisbooksincludeBigIsBeautiful:DebunkingtheMythofSmallBusiness(MIT,2018),InnovationEconomics:TheRaceforGlobalAdvantage(Yale,2012),Supply-SideFollies:WhyConservativeEconomicsFails,LiberalEconomicsFalters,andInnovationEconomicsIstheAnswer(RowmanLittlefield,2007),andThePastandFutureofAmerica’sEconomy:LongWavesofInnovationThatPowerCyclesofGrowth(EdwardElgar,2005).AtkinsonholdsaPh.D.incityandregionalplanningfromtheUniversityofNorthCarolina,ChapelHill.EdRightorisaconsultantfocusingondecarbonizationandsustainability.Hisworkinbothindustryandnonprofitprogramsfocusesonreducingenergyuse,greenhousegasemissions,andwaterandwasteimpactsinthemanufacturingsector.HewaspreviouslydirectorofITIF'sCenterforCleanEnergyInnovation.AboutITIFTheInformationTechnologyandInnovationFoundation(ITIF)isanindependent501(c)(3)nonprofit,nonpartisanresearchandeducationalinstitutethathasbeenrecognizedrepeatedlyastheworld’sleadingthinktankforscienceandtechnologypolicy.Itsmissionistoformulate,evaluate,andpromotepolicysolutionsthataccelerateinnovationandboostproductivitytospurgrowth,opportunity,andprogress.Formoreinformation,visititif.org/about.INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATIONJULY2023PAGE41ENDNOTES1.ValerieVolcovici,“Americansdemandclimateaction(aslongasitdoesn’tcostmuch):Reuterspoll,”Reuters,June26,2019.https://www.reuters.com/article/us-usa-election-climatechange/americans-demand-climate-action-reuters-poll-idUSKCN1TR15W.2.Themostimportanttechnologiescanbedefinedquitesimplyasthosethathavethepotentialforthebiggestimpactonemissions.3.NetZeroby2050:ARoadmapforTheGlobalEnergySector,InternationalEnergyAgency,2021.https://www.iea.org/reports/net-zero-by-2050;Thenet-zerotransition:Whatitwouldcost,whatitcouldbring,McKinseyGlobalInstitute,January1,2022.https://www.mckinsey.com/capabilities/sustainability/our-insights/the-net-zero-transition-what-it-would-cost-what-it-could-bring.4.MarkZ.Jacobsonetal.,“Low-CostSolutionstoGlobalWarming,AirPollution,andEnergyInsecurityfor145Countries,”Energy&EnvironmentalScience15,no.8(2022):3343–59,https://doi.org/10.1039/D2EE00722C.5.“TenActionsfortheSustainableDevelopmentGoals.”UnitedNations,accessedJune1,2023.https://www.un.org/en/actnow/ten-actions.6.EaswaranNarassimhan,StefanKoester,andKellySimsGallagher,“CarbonPricingintheUS:ExaminingState-LevelPolicySupportandFederalResistance,”PoliticsandGovernance,vol.10,no.1,2022,https://doi.org/10.17645/pag.v10i1.4857.7.EPIC(EnergyPolicyInstituteattheUniversityofChicago),“EPIC/AP-NorcPoll2023FactSheets,”EPIC,2023.https://epic.uchicago.edu/wp-content/uploads/2023/04/EPIC_AP-Norc-Poll-2023_Fact-Sheets.pdf.8.BenjaminDodman,“Ayearofinsurgency:How‘yellowvests’leftanindeliblemarkonFrenchpolitics,”France24,November16,2019.https://www.france24.com/en/20191116-a-year-of-insurgency-how-yellow-vests-left-indelible-mark-on-french-politics.9.KimWillsher,“France’swealthytopaymoretaxinwakeof‘yellowvest’protests,”TheGuardian,December5,2018.https://www.theguardian.com/world/2018/dec/05/france-wealth-tax-changes-gilets-jaunes-protests-president-macron.10.NetZeroby2050:ARoadmapfortheGlobalEnergySector,InternationalEnergyAgency,May2021https://www.iea.org/reports/net-zero-by-2050.11.“PlattsHydrogenPriceWall.”S&PGlobal,accessedJune1,2023.https://www.spglobal.com/commodityinsights/PlattsContent/_as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