What role should governments play in the development of negative emission technologies?
In this guest commentary, Labanya Prakash Jena of the Commonwealth Secretariat and Shreyans Jain of the Climate Policy Initiative contend that governments can play a key part in the commercialisation and deployment of negative emission technologies, which, alongside deep cuts to emissions, climate science indicates will be necessary for reaching the Paris Agreement goals.
Technology development is a critical enabler for global climate action. This is increasingly being recognised by climate-conscious countries that are charting cleaner pathways to make their economies carbon-neutral by mid-century. As well as the growing deployment of renewable energy, electric vehicles and mass rapid transit systems, plus advances in energy efficiency, a gradual shift in focus is seeing the commercialisation of as-yet undeveloped negative emission technologies appear more realistic, as strategic investments are made in research, development, demonstration and deployment.
Through institutional collaboration and long-term network arrangements, several countries are now building structures to enable effective relations and interactions among universities, industry and governments as part of this development. What is needed, however, is an institution that can strike a judicious balance between the push factors that ignite innovation and the pull factors that draw technologies to commercialisation. Governments can play an important role in this endeavour.
More and better technological solutions are needed
The technical summary of Working Group 1’s contribution to the Sixth Assessment Report from the Intergovernmental Panel on Climate Change (IPCC), published in 2021, states that “deliberate carbon dioxide removal (CDR) from the atmosphere has the potential to compensate for residual CO2 emissions to reach net zero CO2 emissions or to generate net negative CO2 emissions”.
These ‘residual emissions’ will persist as a zero-fossil-fuel energy system is impossible to achieve in the foreseeable future, particularly in hard-to-decarbonise sectors like cement. And large-scale afforestation and reforestation is not sufficient as a carbon removal method, given the limited landmass available for this purpose.
Therefore, while technology is already playing a significant role in reducing emissions and nature-based sequestration solutions are important, negative-emission technologies will have to be developed and deployed on a large scale for countries to meet their net-zero targets (while acknowledging associated controversies). These technologies might include bioenergy production with carbon capture and storage (BECCS), direct air carbon capture and storage (DACCS), land management technologies to increase and fix carbon in soils, enhanced weathering methods, and ocean fertilisation. Government intervention will be needed to ensure that these technologies have the political drivers to enforce their deployment at scale.
Financing at different stages
The development of novel negative emission technologies involves high research and development expenses, a long gestation period, and an uncertain trajectory. Starting from ideation and concept development to demonstration of technical feasibility and commercial viability, the risk of failure is very high. Besides, the risk of developing new technologies, particularly at the basic science stage, does not align with the financial practices of mainstream financers. Even early-stage financers such as angel investors and venture capitalists invest little at the basic scientific research and discovery stage.
In the context of modern capitalism, governments as investors can play a major role in supporting economic growth through innovation and entrepreneurship. Historically, public funding for new technologies at the pre-commercialisation stage has enabled countries to develop path-breaking technologies for their industrial development. The industrial and technological rise of developed countries, for instance, has been a consequence of government policies that have provided the necessary financial apparatus.
For example, Germany’s federal investments in energy research and policy interventions to reduce climate-damaging greenhouse gas emissions through schemes like Energiewende have put the country at the forefront of innovation and made it a world leader in renewable energy. Today, the USA accounts for nearly half of all high-impact cleantech start-ups globally. Underlying this success is the government’s policy of stimulating the supply of venture capital to overcome financing gaps in emerging ventures. And in Canada, the government is advancing technology development by promoting entrepreneurial innovation through its financing programmes and policy initiatives.
Technology development has several stages, and the transition from one stage to another is associated with the risk of failure, popularly known as the Valley of Death. Innovation in negative emission technologies is constrained by two such funding gaps – the technology valley of death at the research stage and the commercialisation valley of death during the pre-commercialisation stage. Governments can play a pivotal role in bridging these gaps – from seed investment to early growth commercialisation.
The investment horizon of early-stage ventures is usually between five and 15 years. Financers may be discouraged by high technology risk profiles, incomplete knowledge on behalf of investors about the market potential of the innovation, the high cost of due diligence, and uncertain exit opportunities.
Governments can address the early-stage risk investment shortfall and stimulate private investment through interventions such as providing grant support for basic scientific research and early-stage innovation. For instance, the British government has set up a national innovation agency, Innovate UK, to accelerate innovation and drive business investment into research and development. Inspired by the success of countries that have provided grant support for early-stage innovation, several countries are witnessing the proliferation of incubator and accelerator seed investors providing commercialisation support to market-ready innovations. But the focus is often more on facilitating market-ready innovations than supporting cutting-edge new technologies.
Equity infusion via government-supported equity investment funds and grants can play an important role in developing efficient negative emission technologies. Usually, other capital providers such as angel investors and venture capital provide follow-on funding for technologies that manage to surmount the hurdles that often lead to early failure. India, for instance, has created a Fund of Funds for Startups with a corpus of INR 100 billion (approximately US$1.3 billion) under its Startup India programme, to facilitate the development and growth of innovation-driven enterprises.
Closer to the commercialisation stage, technology ventures often lack access to institutional debt finance at suitable terms. Government can offer debt capital at better terms through lending institutions or government-backed loan guarantee schemes that can help technology innovators to attract commercial capital. For example, the KfW Development Bank and the German Federal Ministry for Environment have established the Global Climate Partnership Fund to provide concessional loans and loan guarantee schemes to low-carbon propositions through local banks in developing countries. Government can also intervene by facilitating the development of crowdfunding platforms through regulatory and tax support, attracting capital from retail investors. Platforms like Bettervest Gmbh in Germany and Seedrs in the UK, for example, are helping project developers raise capital through crowdfunding.
Harnessing the potential
Negative emissions technologies have a huge potential to remove and sequester carbon dioxide from the atmosphere. It is imperative for governments to nurture the virtuous cycle of technology development by sharing the risk of innovation through public funding. In an ever deteriorating climate scenario, a net-zero future is improbable without the development and swift deployment of such technologies at scale.
Labanya Prakash Jena is Regional Climate Finance Adviser at The Commonwealth Secretariat. Shreyans Jain is Senior Analyst – Climate Finance at the Climate Policy Initiative. The authors would like to thank Esin Serin, Anna Valero and Georgina Kyriacou for their review comments and editing.
The views in this commentary are those of the authors and do not necessarily reflect those of the Grantham Research Institute or the reviewers.