No green growth without innovation

The 'green growth' debate is taking place in an oversimplified setting, largely disregarding the innovation factor. Technologies to mitigate climate change are being treated as given, or as emerging spontaneously, ignoring the fact that the portfolio of technologies available tomorrow depends on what is done today. This can easily lead to misguided preferences, either for subsidising the use of relatively inefficient technologies or for postponing action in the hope that new technologies that will reduce the cost of fighting climate change will become available. But the radical new emissions-free 'backstop technologies' that are needed are not yet available, or are still far from the market. To foster their emergence the 'green innovation machine' must be turned on. For governments to tackle climate change while maintaining reasonable growth, even in the short term, we find that: • Both public intervention and private initiative are indispensable: governments must initially redirect market forces towards cleaner energy before market forces can take over; • Climate change policy should combine a carbon price with high initial clean-innovation R&D subsidies: the carbon price would need to be much higher if used alone; • Policymakers must act now: delaying clean innovation policies results in much higher costs; • Developed countries must act as technological leaders in implementing new environmental policies and should smooth access to new clean technologies for less-developed countries.