Mark: Although a number of technologies already exist that could dramatically reduce greenhouse gas (GHG) emissions, there's really no doubt that technology development will play an indispensable role in accomplishing climate change mitigation objectives.

Given the importance of climate change mitigation, there should be a great business opportunity here! But there's a catch -- what will drive technology development in the direction of climate change mitigation objectives? This question may be easier to understand in the context of a specific example. I have a friend running a fuel cell company in Boston, and asked him a while back how the company was packaging the technology’s GHG emissions reduction benefits (which are significant). His answer blew me away. He told me that not only could he not monetize the GHG emissions reduction benefits in the financial pro formas he shows to investors, but he can’t even talk to investors about those benefits. Without a clear reason to do so, the investors just won’t value those reductions when they evaluate his fuel cell technology.

The bottom line is that there usually has to be a driver behind technology development. This driver can take the form of mandatory energy efficiency standards for appliances, or a financial return from selling the new technology in the market. But where are the drivers for climate change mitigation technologies? Without specific standards forcing the development of new technologies or a specific value assigned to GHG emissions reductions, what will encourage the development of these technologies? Sure, if you reduce emissions by saving energy you can save money, too; there is some incentive there. But that incentive has always been in place, even while energy-related emissions have soared nationally and internationally.

It is well-understood that there are significant funding gaps in the technology development process. Funding dries up as a technology progresses from fundamental research towards large-scale prototype tests and demonstrations. When a marketable product emerges, capital is again available from a diversity of sources. The pre-commercial funding gap is the "valley of death" for many new technologies.

GHG technologies are no exception. Evidence suggests that clean technologies face a wider pre-commercial funding gap than other emerging technologies due to extraordinarily long development times. Also, angel investors -- venture capitalists who invest earlier than most -- have moved away from clean energy investments. All hope is not lost, however. In 2004, clean technology ranked 7th in investment, behind software, biotechnology, medical devices and equipment, semiconductors, telecommunications, and networking and equipment.

But as long as GHG emissions are not valued in their own right, we’re missing a key technology driver. That’s the problem with arguing that we should favor technology development over GHG emissions reduction targets or cap-and-trade programs. One of the key attributes of a cap-and-trade program is the creation of a market price for the commodity being capped -- in this case GHG emissions. That price, in turn, is pivotal to creating incentives for technology development. Without a specific value assigned to GHG emissions reductions, you almost certainly need a regulatory driver. But we’re not hearing much talk about that.

If we believe in climate change mitigation, one of the best things we could do is to provide serious incentives for new technology development. There should be great business opportunities here, but we still need that pesky driver!

Note: Thanks to TC+ES intern Slayde Hawkins for her research in answering this question.


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Dr. Mark C. Trexler has more than 25 years of energy and environmental experience, and has focused on global climate change since joining the World Resources Institute in 1988. He is now president of Trexler Climate + Energy Services, which provides strategic, market, and project services to clients around the world.

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