Addressing Climate Change through Innovation: The Challenges Ahead

A key component of climate change mitigation efforts will be the need to develop new technological solutions and to diffuse current state-of-the-art technologies to developing countries. However, due to a number of market failures, the required research and technological transfers are currently not being undertaken. The essay discusses how what has been learned about promoting innovation policies at the general level can be applied to the specific challenges in the environmental area. It stresses the need to establish the proper regulatory and institutional frameworks as a precondition for attracting funding into these activities. More specifically, there is a current need to set a realistic price for carbon emissions that will provide an important financial incentive for firms to invest in mitigation technologies. The issue of finding finance for often long-term and risky environmental projects is likely to become especially difficult due to the 2008 financial crisis.