Breaking path dependence in the energy sector

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Breaking path dependence in the energy sector
the need for technology-specific policies

• Staffan Jacobsson
• Environmental Systems Analysis, Chalmers and RIDE

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Outline

• The scale of the climate and transformation
  challenge
• Why technology-specific policies?
• A useful framework for identifying the key policy
  issues
• Examples from Sweden (wind and biopower)

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The scale of the climate and transformation
challenge

• The scale of the environmental problem
• CO2 reduction by 80
• Time frame of meeting the climate challenge
• E.g. stabilise at 500 ppm implies reduction of
  50 by 2050
• Power sector needs to be virtually decarbonised
  2050
• 40 years is a short time period
• Build up of a supply capacity and developing new
  technology takes decades, additional decades for
  replacing the incumbent technology
• Steam ships
• Mobile telephony

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The scale of the climate and transformation
challenge, cont

• The scale of the power sector
• 6,117 TWh (1973) - 17,450 (2004) 35,000? (2050)
• Implies a need to add capacity to supply about
  29,000 carbon neutral TWh by 2050
• Wind and solar power
• Capacity increases by 46 and 430 times give
• 7,149 and 2,835 TWh by 2050 (one third of demand
  for carbon neutral power)
• Each of these involve investment levels on par
  with the telecommunication sector in the OECD
  (mobile communication, internet etc)
• 2025 investment in solar power 137 billion USD
• 2030 investment in wind power 114 billion USD
• 2003 investment in telecommunication (OECD) 130
  billion USD

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Why technology-specific policies?

• The size of the sector implies that policy must
  foster a range of carbon neutral technologies
• The time scale of the climate challenge and of
  the learning processes, including uncertainties,
  implies that these need to be fostered in
  parallel and not sequence
• Cluster of technologies will vary in cost and in
  nature of learning processes and bottlenecks
• The policy challenge is to identify and act upon
  a varied set of technology- and time specific
  challenges

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A useful framework identifying the key policy
issues

• Intervention is legitimate but how can policy
  makers find a guide to the key policy issues?
• Broader rationale for policy intervention
  Failures in markets, networks, institutions or
  (innovation) system weaknesses in structural
  terms
• But how identify system weaknesses?
• Little guidance in IS and Policy literature
• Generic vs. TIS-specific?
• Propose functional analysis of TIS as a way to
  identify system weaknesses

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Some clarifications

• A TIS is primarily an analytical construct. It
  does not imply that
• all actors in a particular system are consciously
  working together towards the same goal, although
  some may be, or
• that they necessarily share the same goals, or
• that conflicts and tensions are not part and
  parcel of the dynamics of innovation systems, or
• that the system in focus has to exist in reality
  as a full-fledged one, or that it cannot be
  emerging, with very weak interaction between
  components, or
• that we see the systems components as directed
  or orchestrated by any specific actors but we see
  system builders as central actors, or
• that there is no or little room for agency

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The Structural Components of a TIS

• Firms in the whole supply chain
• Operate on markets (product/input)
• Other organisations
• Government bodies, industry and bridging
  organisations, interest organisations,
  universities etc.
• Political networks
• Advocacy coalitions, lobbying

• Learning networks
• User-supplier, related firms, competitors (direct
  or via common suppliers etc.), university-industry
  
• Institutions
• Policy and regulatory framework, culture (norms),
  beliefs (cognitition) about problem agendas, ways
  to do business etc.

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Structural dynamics Three key processes

• Entry of firms and other organisations
• Bring resources, fill gaps in the value chain,
  open new applications, forms a mass and DoL
• Formation of networks
• Impact on resource flows, opportunities, beliefs
  and advocacy
• Institutional alignment
• Heart of the process
• Advocates compete to gain influence over
  institutions

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Structural dynamics Features of a formative
phase

• High uncertainty facing investors
• Technologies, markets, regulation
• The process lasts for decades
• Wind turbines in Germany
• Organic milk in Sweden
• Cumulative process of small changes forming a new
  entity
• Invisible and frustrating

• With the elements in place, the TIS can shift to
  a growth phase
• Any change in components may trigger a change in
  gear
• Positive feedbacks drive the system in a
  self-reinforcing way
• The goal of policy is to enable this to occur on
  a broad scale

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From structure to functions

• Can trace evolution of structure but cant assess
  the goodness of a structure
• Entry of firms
• Formation of networks
• Institutional alignment
• Guiding policy makers requires finding weaknesses
  in a TIS
• Need intermediate variables to explain causations
• IS and Policy literature unsystematic and ad
  hoc
• Introduce a second level of key processes
• Analyse and assess functions that link
  structure to performance
• Key processes extracted from a multidisciplinary
  literature base and from experimental empirical
  work

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Proposed set of functions (key processes at the
functional level)

• Knowledge development and diffusion
• Influence on the direction of search
• Entrepreneurial experimentation
• Materialisation
• Market formation
• Resource mobilisation
• Legitimation
• Development of positive externalities (free
  utilities)

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Driving forces and blocking mechanisms

• Endogenous vs. exogenous forces of change
• Endogenous cumulative causation (Myrdal)
• Exogenous regime (destabilisation, Raven 2005),
  landscape, SIS, NIS
• Examples of mechanisms blocking functions
• Exogenous, e.g. highly organised incumbents
  hinder legitimation and institutional alignment
  sailing ship effects (i.e. development of
  competing technologies) blocks influence the
  direction of search.
• Endogenous, e.g. poorly developed learning or
  political networks blocks knowledge diffusion
  and legitimation.
• Policy issues for each TIS can be specified in
  terms of these mechanisms
• Examples from wind and biopower in Sweden

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Inducement mechanisms
Blockingmechanisms
1990s
F1 Knowledge development diffusion
RD funds
Relative cost
Investment subsidies etc.
F2 Entrepreneurial experimentation
Regulatory uncertainty
F3 Materialisation
F4 Influence on the direction of search
Green demand from some municipal utilities
F5 Market formation
F6 Resource mobilisation
CO2 tax
F7 Legitimation
F8 Development of positive externalities
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Inducement mechanisms
Blockingmechanisms
2000s
F1 Knowledge development diffusion
RD funds
Institutional misalignment
F2 Entrepreneurial experimentation
Climate change debate

• Permit procedures (wind)
• Inherent features of green certificates(mainly
  wind)

F3 Materialisation
Green certificates
F4 Influence on the direction of search
Conflicting interests
F5 Market formation

• Access to raw materials (bio power)
• Fossil gas competition (bio power)
• Nuclear power trauma (wind)
• Local conflicts of interest (wind)

F6 Resource mobilisation
F7 Legitimation
F8 Development of positive externalities
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Conclusions

• The scale of the transformation challenge is
  formidable
• We need to foster the development and diffusion
  of a range of carbon neutral technologies
  simultaneously
• Technology-specific policies are required
• Have presented one framework that appears to work
  to identify the technology specific policy
  challenges