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Ushering in the next generation of climate technology

April 22, 2023
Sustainability

Climate technologies—technologies that accelerate decarbonization—are essential to limiting global warming. Despite the many attractive opportunities for investing in clean tech, global investments continue to fall short.1 As a result, many of today’s companies lack the technologies they need to decarbonize their operations and value chains. At the current level of investment, the second wave of climate technology innovation will follow the long and winding path of wind and solar: scaling up and reducing carbon emissions over 20 to 30 years.

But we do not have 20 to 30 years.

To reduce emissions and avoid the worst impacts of climate change, we need to spend $3.5 trillion every year on climate technologies. Starting now. Public and philanthropic funding alone cannot fill this giant gap. But public and philanthropic funding combined with market-shaping mechanisms designed to accelerate the development and scaling of climate technologies can.

The Power of Market Shaping
Market shaping is a strategy used by companies, governments, and investors to address market failures and positively shape the development of a market. By coordinating actions with other stakeholders, organizations can address the bottlenecks and breakdowns that occur within a diverse ecosystem, distribute risk, and leverage purchasing power. In the case of climate technologies, market shaping has the potential to dramatically speed up the green revolution.

Consider this. The global equity market cap is $120 trillion, and the global fixed-income market is another $120 trillion. By leveraging innovative market-shaping mechanisms, this huge pool of private capital that would otherwise go to less impactful investments can instead be directed into climate action. Private capital can be used to advance novel technologies faster, scale up proven solutions, and support adaptation and resilience to improve the lives of billions.

A decade ago, we saw the power of market-shaping mechanisms in global health when governments and philanthropists committed $1.5 billion to GAVI, the Vaccine Alliance. This landmark public-private partnership accelerated development and production of pneumococcal vaccines by at least five years, saving over half a million lives.

Public and philanthropic funding combined with market-shaping mechanisms are key to avoiding the worst impacts of climate change.
The same sense of urgency and investment are needed to address the defining challenge of our time: climate change. Market-shaping activities are most effective when multiple players have a stake in the outcome, but limited incentives to act individually. Climate technology producers face uncertainties around the potential demand and willingness to pay for their products, while climate technology buyers can be reluctant to make long-term purchase commitments. Market-shaping mechanisms play a crucial role in creating the collective incentive for players across the climate technology value chain by derisking both demand-side and supply-side factors and encouraging economies of scale.

We know what happens if we don’t invest aggressively in climate technologies. Recent models show that if we had invested $5 billion into solar in 1985, solar would have scaled—and started displacing carbon-intensive power eight years sooner. READ MORE

By Thomas Baker, Bahar Carroll, Greg Fischer, Karan Mistry, Paulina Ponce de León Baridó, and Tina Zuzek-Arden

Source: bcg.com

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