A better way to fund climate breakthroughs
R&D funding usually doesn't incentivize adoption, and may go to the wrong research teams. Tying financial rewards to actual results could solve both problems at once.
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💹 Creating a market for climate innovations
We still need a lot of research, development, and innovation in clean technologies and climate adaptation to minimize climate damages, but innovation has been lacking in some crucial areas. Governments play a large role in financing and incentivizing innovations, and they have multiple tools at their disposal. In this newsletter, we explore the idea of market shaping: using the power of markets to reward innovation where patents or unregulated markets cannot.
The limits of patents and R&D grants
Market economies usually reward innovation through patents. This gives an innovator a temporary monopoly on using that innovation, so it can earn back the costs of innovation. Patents are a useful innovation incentive when the benefits of innovation are mainly private benefits to the consumer. For example, a company that invents a better immersion blender can earn back the resources it put into innovation as consumers are willing to buy it. Unfortunately, this system is flawed for (partial) public goods, like cleaner technologies and climate adaptation. The benefits of these solutions are public, so individuals often do not have enough incentive to purchase these products. As a result, companies have little incentive to invest in innovation that benefits the climate and environment.
Governments often aim to fill this gap by funding specific research or innovation projects, also called a push mechanism. Governments give research grants to universities or research groups, regardless of whether they are successful or not. This mechanism can be useful for open-ended basic research (when we don’t know what innovation we need), but it is also limited:
Push funding doesn’t incentivize creating a product that consumers will want to adopt, especially if most of the benefits are public benefits.
Push funding is paid out even if a research group is unsuccessful.
The government cannot always know which researchers are best placed to deliver results.
The government cannot always know which approach is best to address the innovation challenge.
Market shaping through pull mechanisms
To incentivize innovation in (partial) public goods like cleantech and climate adaptation, pull mechanisms may be an under-appreciated tool. Instead of paying for research inputs (like research staff and labs), a pull mechanism pays for the outputs (e.g. cleaner air-conditioning) and outcomes (e.g. reduced CO₂ emissions) of an innovation. This has numerous benefits:
Firms are only paid if they deliver a successful innovation that can or is actually be adopted at scale. The government or philanthropic funder only spends money in case of success.
Innovators themselves decide whether they are best-placed to work on an issue. They government doesn’t need to collect the expertise of all research labs, or decide which approach or technology will work best.
A pull mechanims can be as simple as a prize for a person or group to invent something that society needs. For example, the XPrize project will reward $100 million USD for best carbon removal idea demonstrated to work at scale.
A more advanced option is an Advance Market Commitment, or AMC for short. In essence, an AMC is a contract where a buyer (such as a government or philanthropic organisation) commits to purchasing a certain product at a given price once it becomes available. This creates a market for a product before it even exists, and therefore a financial incentive to invest in innovation.
AMCs have been successfully used in the past. The global vaccine alliance Gavi launched an AMC to promote the scale-up and adoption of pneumococcal vaccines. This has likely sped up the vaccine rollout by about 10 years, and the vaccine has already reached children in 60+ countries.
How can pull mechanisms be applied to climate breakthroughs?
Pull mechanisms like prizes or AMCs can also be applied to climate breakthroughs we need. Think of, for example:
Rewarding the invention and adoption of climate-resilient crops, without trapping farmers in restrictive patents prohibited seed sharing.
Producing and using clean cement and concrete, by rewarding clean production in government procurement contracts.
Creating a market for green hydrogen, by committing to buy it once it becomes cheap.
Rewarding the invention of a cleaner air conditioning unit, or promising to pay for the adoption.
Read more
This story is based on the research and work of the Market Shaping Accelerator at the University of Chicago.
Read more on the Market Shaping Accelerator website
“Market Shaping to Combat Climate Change”, book chapter by William Arnesen and Rachel Glennerster
Rachel Glennerster about market shaping on the 80,000 Hours podcast
🇳🇱 Highlights from the Effective Environmentalism meetup at EAGx Utrecht
Effective Environmentalism hosted a meetup for our community members at EAGx Utrecht this month. We had fruitful discussions about how to help people find impactful careers, how to communicate our ideas to the wider environmental movement, and the relationship between environmentalism and global development. A warm welcome to our new readers from EAGx Utrecht!
💶 Effective Environmentalism is looking for funding
Effective Environmentalism is currently a volunteer-run initiative, but we would like to scale up our activities to more effectively grow a global community of people and organisations tackling environmental issues as effectively as possible. Financial support for 2 FTE would help us to devote more time to growing the field of effective environmentalism.
If you are a donor or work for a grant-making organisation, please get in touch.
📰 What we’ve been reading and listening to
Taking a page from the electric vehicle playbook, and apply it to alternative proteins. (Daniel Gertner, Good Food Institute)
Electric vehicles (EVs) are in a later stage of adoption than alternative proteins, despite agriculture and transport contributing equal shares of greenhouse gas emissions. The alternative proteins sector can learn from EVs by focusing on price and quality parity, get supportive public policies to enhance innovation, and secure robust public and private funding to scale up.How to decarbonise the world’s cement. (Hannah Ritchie, Sustainability by Numbers)
Option 1: Use less cement, and add other ingredients to concrete
Option 2: Carbon capture and storage (CCS)
Option 3: Use a different source rock
An overview of climate research in effective altruism (Greer Gosnell, Rethink Priorities)
Some consequences of solar on the electricity markets (GEM Energy Analytics).
The highest value for solar power is often no longer when production is highest. In the morning and evening there is less solar generation, but prices are higher.The economic commitment of climate change. (Kotz et al.)
Climate damages outweigh the costs to limit warming to 2°C by sixfold. Most impacts are in countries with lower incomes, and fewer historical emissions.
🔔 Short news
👩💼 Job openings
We are highlighting some outstanding opportunities to make a positive difference with your careers. These positions are vetted by Effective Environmentalism and 80,000 Hours and are not sponsored.
International/remote
Technical Lead, Fusion Technology at UN International Atomic Energy Agency (Deadline: 1 August 2024)
North America
Director of Partnerships at Breakthrough Energy
Senior Associate, Development Operations at Clean Air Task Force
Several positions related to community, innovation, and policy at The Good Food Institute
Manager, Energy Transition at Rockefeller Foundation
CEO, North America at The School for Moral Ambition (Deadline: 17 August 2024)
Europe
Manager, Offshore Wind at The Carbon Trust
Innovation Associate, Electric Systems at The Carbon Trust
Senior Researcher, Climate Change and Risk Programme at Stockholm International Peace Research Institute (Deadline: 1 August 2024)
You can find more impactful environmental job openings at 80,000 Hours, or find careers specific to developing alternative proteins here.
Very thoughtful! Could it be interesting to do an analysis on the Danish Carbon Tax?