Energy Sector Strategies to

Support Green Growth

Module 04
Supporting Innovation for Green Growth
Lesson 1
Green innovation: An Introduction
World Bank
Institute

Presentation Script

Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 1: Green Innovation: An Introduction

Presentation Script

Module 4: Supporting Innovation for Green Growth

Lesson 1: Green innovation: an introduction

This Lesson will address the following topics:

This lesson will explore the importance of innovation in the energy sector for
creating a greener economy and how governments can support innovation as
part of a broader green growth strategy.
More specifically, you will learn about;

What green innovation is

The types of innovation that can support sustainable energy development

The rationale for governments to set policies to support green innovation

We will also provide some links to references and resources for more
information.

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 1: Green Innovation: An Introduction

Presentation Script

What is Green Innovation?

We start by defining green innovation. Green innovation can be defined as
improvements to technologies (including products, processes,
organizational/management and marketing structures) by entrepreneurs that
are commercialized through markets to improve natural resource sustainability

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 1: Green Innovation: An Introduction

Presentation Script

In the context of the energy sector, innovation includes technology upgrading for
pollution and Green House Gas emissions reduction and resource efficiency that
will help improve energy access and rural electrification and the generation,
storage, transmission, distribution and energy use efficiency. It also includes
energy technology upgrading for reduced vulnerabilities and adaptation to
climate change, and for job and wealth creation, and poverty reduction. Some
technologies likely to be specific: for better photovoltaic cells, improvements in
energy use for households and industries. Others may be systemic and involve
broader technological improvements such as changes in transport systems, new
organizational patterns of cities and the production of goods and services, which
change the energy footprint of societies.
For developing countries, innovation can provide major opportunities. It can
contribute to satisfying the growing energy demand through a transformation of
the power sector while meeting development needs. Investing in innovation can
enable countries to develop their own domestic innovation trajectories. Hence,
there is a significant incentive for governments to create an enabling
environment for domestic research, innovation and entrepreneurship, and for
tapping existing global knowledge and research in order to capitalize on the cobenefits from their needed energy build-out.
This module will challenge the common perception that innovation is focused
primarily in the industrialized countries. Rather, it is important to encourage
innovation in all development contexts.

The innovation process National Innovation System

Before discussing specific innovations in the energy sector, lets identify the
process of innovation at a National or Sub-National Level. The invention itself,
when it comes to technological change, has traditionally been thought to happen
in the Research step, but can actually take place anywhere along the stylized 5
steps: Research, Development of discoveries, Demonstration of discoveries
through prototypes, Market Transformation or adaptation to customer needs
through market testing, and Diffusion which includes commercialization of a new
product, process, organizational change or marketing technique in the
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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 1: Green Innovation: An Introduction

Presentation Script

marketplace. This process is not linear, and consists of overlaps and feedbacks
between the different steps, with new ideas often generated in the Diffusion
step from customer feedback or customer co-design, and then benefiting from
further Research and Development.

When we put this process into a bigger context, we see that there are many
factors impacting the innovation process. This figure now shows a National
innovation system. Systems for green growth build domestic capacity that
enables entrepreneurs within an appropriate innovation climate to choose,
absorb and promote the technologies that are best for improving the energy
sector.
There is need for innovation throughout the life cycle of the products and supply
chain. Innovation can for example include: Entrepreneurs can learn to ship products
more efficiently, learn how to source parts better, learn how to improve
manufacturing or the operation of a technology. Grid operators and utilities can
learn how to integrate a technology into the energy system more efficiently. And
policymakers can learn which policies and regulatory frameworks most effectively
support the use of the best technologies at the lowest cost.

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 1: Green Innovation: An Introduction

Presentation Script

Another important factor to note is that the innovation climate in every country is
affected by social, cultural and historical factors that are unique to the country in
question and sometimes even unique to each region within a country.

3 Categories for Green Innovation: Consists of different technologies:

In order to explore the appropriate policies to foster green innovation for the
energy sector, we have divided innovation into two types, both requiring as a
pre-requisite sufficient absorptive capacity and driven by productive
entrepreneurs.
Frontier innovation, is the commercialization of new-to-the-world inventions or
discoveries. Adaptive innovation is the adaptation of already-existing
technologies to better meet local needs. And absorptive capacity is firms ability,
varying across countries, to make use of technologies, driven by productive
entrepreneurs. Frontier and adaptive innovations include different types of
technologies that can help improve and transform the energy sector. Please take
some tie to review them.

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 1: Green Innovation: An Introduction

Presentation Script

In the next slides, you will learn more about these two types of innovation, and
the role of entrepreneurship and absorptive capacity. Later on, when we turn to
look at the policy options, they will be based on each of these categories.

3 Categories for Green Innovation: New-to-the-world innovation

Frontier innovation is also know as new-to-the-world innovation which means
that it is a discovery, often with some work taking place in the research phase of
the technology cycle. As the figure shows, frontier innovation can be seen as a
new technology curve. It can be new ways of improving energy efficiency or
generating power, allowing the production of more outputs with fewer or
different inputs. For example it can be a switch in how vehicles are powered or
how power is generated. Frontier innovation thus has the potential to make a
big contribution to transforming the energy sector.

To read more about a specific example of frontier innovation, click on the

example.

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 1: Green Innovation: An Introduction

Presentation Script

3 Categories for Green Innovation: Top twelve inventor countries 2000-2005

Yet, since most frontier research on clean energy technologies is concentrated in
high-income countries, most frontier innovations on clean energy occur in
industrialized countries. One way to illustrate this is to look at where green
patents are registered. As the figure shows, a clear majority of green patents are
registered in high-income countries.
And as the next figure shows in fact Japan, Germany and the US account for 60
percent of total greenhouse gas mitigation innovations worldwide between 2000
and 2005.
Some important innovations occur in emerging economies. As the table shows
China, South Korea, Russia, and Brazil are particular important.

Other countries that are not shown in the table but that are also important
emerging economies of green innovations are Argentina, Hungary, India,
Malaysia, Mexico and South Africa.

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 1: Green Innovation: An Introduction

Presentation Script

3 Categories for Green Innovation: New-to-the-firm innovation

We now move on to adaptive innovation. This is the diffusion of already-existing
technologies, allowing countries to adapt energy technologies to their local
conditions. Since there is significant potential for using and improving
applications of existing technologies that are not yet realized at their full
capacity, adaptive innovation is important for developing countries. Examples of
adaptive innovation could be ensuring that carbon storage systems work with
local fuel sources and geological conditions or adapting waste-to-energy
technologies to certain city contexts.

To read about an specific example of adaptive innovation, click on the example.

3 Categories for Green Innovation: Pre-requisites for innovation

Our third category, entrepreneurship and absorptive capacity differs from the
two previous categories. It does not refer to specific technologies. It is a prerequisite for the improvement and commercialization of all technologies. It is
firms ability to understand, adapt and make use of technologies, driven by
productive entrepreneurship. Innovation in the energy sector, like innovation in
general, depends not only on the inventions made but on people and firms that
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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 1: Green Innovation: An Introduction

Presentation Script

are able to generate and apply the knowledge in order to commercialize

technologies. This ability to absorb and commercialize technologies is
determined by the institutional environment surrounding the whole technology
cycle. This includes for example the regulatory and financial environment such as
the cost of capital, access to capital, and attitudes towards risk and reward: in
order for an entrepreneur to be willing to allocate his or her talent to productive
innovation, the environment should ensure sufficiently high rewards
commensurate with the risks, that will not be expropriated in some way in the
future. Improving the absorptive and entrepreneurial capacity of both public and
private small, medium and large businesses as well as consumers, producers and
the entire market is therefore crucial for commercializing and deploying energy
technologies.

To read about an specific example of absorptive capacity, click on the example.

Base of the Pyramid Innovation

After have learned about frontier and adaptive innovation and entrepreneurship
and absorptive capacity, we will now look at certain types of innovations that are
especially important for increasing access to energy in developing countries.
These are Base of the Pyramid Innovation, or also called BOP innovation. They
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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 1: Green Innovation: An Introduction

Presentation Script

include both formal large-step and informal small-step innovations, that can be
either frontier or adaptive, and are facilitated by entrepreneurship and improved
absorptive capacity. The benefits of them are that they are often co-created with
poor consumers themselves which means that they meet the needs of poor
households at much lower costs per unit. Examples could be to create cook
stoves at a small cost that are also easy to scale up and that would entail cobenefits such as improved health.

They also include sophisticated high-tech vaccines for neglected diseases, or for
common diseases at significantly lower costs.
Yet, to date very few BOP (and related low-tech) green innovations have been
sufficiently scaled-up. This can be partly explained by the low profitability of such
innovations. Therefore, it remains essential for governments to create an
appropriate policy environment to support them. In the next lesson, you will
learn more about these BOP policies.
For now, click on the box to learn more about the challenges of base of the
pyramid innovation.

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 1: Green Innovation: An Introduction

Presentation Script

Why lack of green innovation?

Before we can explore policy measures that can support innovation, we first
have to ask why there is a lack of green innovation? Well, it is due to the
inherent double externality of knowledge-related market failures
compounding environmental externalities and reinforced by traditional
government failures.

The combination of these failures requires a combined set of policy responses in

order to realize a countrys innovation potential. The environmental externalities
problem and the government failures have been analyzed in the previous
modules. We will therefore only take a closer look at the knowledge market
failures related to insufficient innovation.
Click on the box of knowledge market failure to learn more. When you are done,
proceed to the next slide to learn more about why governments should help to
correct these failures.

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 1: Green Innovation: An Introduction

Presentation Script

Why lack of green innovation?

Having these market failures in mind, one can see that there is a rationale for
governments to give support throughout the whole innovation chain
First, to support basic research and development. Due to knowledge being a
public good, and private firms typically not being able to capture all the positive
spillovers of that knowledge, research and development should be supported by
public funding. Thereafter, when private funding increases, there will still be
market externalities, for example carbon costs or barriers in financing that
hinder ideas to be further developed and commercialized. There will often arise
a funding gap, usually referred to as The valley of death. Hence, the market by
itself does not generally fix this problem, but rather the role of government in
the market formation stage can be critical to overcoming barriers to market
formation and diffusion.

Another reason to why Governments should be is that innovation is affected by

policies for the whole society, and not just the energy sector. For example,
policies to promote sustainable energy development include various policy areas
such as trade, educational and industrial policies. And Government support to
innovation can create gains to society that go beyond the specific area of
intervention (so called positive policy spillovers).
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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 1: Green Innovation: An Introduction

Presentation Script

Policy instruments for innovation

You are now familiar with what green innovation is and therefore ready to, in
the next lesson, explore the policy instruments that can support innovation, so
called Innovation Policies.
In the next two lessons you will learn about policies to promote frontier
innovation, to strengthen adaptive innovation to improve absorptive capacity as
well as how to strengthen International collaboration.

Innovation policies for promoting frontier innovation

This slide is dedicated to summarizing key messages from this lesson. Please take
your time to go through them and in the next slide you will find references, in
case you wish to learn more about the subject covered in this lesson.

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 1: Green Innovation: An Introduction

Presentation Script

References and Further Reading

Here are some useful references if you wish to learn more about the subject
covered in this lesson.

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