Environmental and Climate Innovation:Limitations, Prices and Policies

There is currently much hope about environmental innovation and green technologies, notablyas a response to the threat of climate change. This paper offers a critical perspective on the roleof technological innovation to solving environmental problems, based on considering empiricaleconomic studies, energy and environmental rebound, the energy return on energy investment(EROEI) of alternative energy technologies, and various crowding out effects. Features of greentechnologies and motives of green innovators are briefly discussed. This is followed by anexamination of the desirable mix of environmental and innovation policies to stimulateenvironmental innovation, to escape current and to evade early new lock-ins, and to avoid theoccurrence of a “green paradox”. This involves an evaluation of specific policy instrumentsfrom an environmental innovation angle. An extended argument is offered to clarify thatenvironmental (CO2) pricing is crucial – even though insufficient – for environmentalinnovation to deliver definite solutions. In other words, environmental innovation (policy) is nosubstitute for environmental regulation (through prices). The paper also discusses theimportance for environmental innovation of international agreements for regulation ofgreenhouse gas emissions and international coordination of innovation efforts.