Success in the battle against climate change will depend on the ability to find new and innovative solutions for a variety of emission-producing activities: from energy supply to industrial production, to housing, food and transport. On 20 November 2013, at the UN Climate Conference in Warsaw, a joint side event of the two EU-funded research projects CECILIA2050 and ENTRACTE discussed to what extent climate policies deployed in the EU have been able to trigger low-carbon innovations, and how the future EU climate policy framework can become more conducive to such innovations. Ecologic Institute's Benjamin Görlach moderated the discussion.

How participation in the EU ETS has triggered innovation in companies

Professor Andreas Löschel, coordinator of the ENTRACTE project, opened the event and gave an introduction to the two projects. He was followed by Ralf Martin, Assistant Professor at Imperial College London, who presented firm-level empirical evidence how participation in the EU ETS has triggered French companies in a number of sectors to reduce their emission intensity. The research, which has been conducted as part of the ENTRACTE project, compares companies covered by the ETS with comparable companies outside the EU ETS. Martin found evidence of significant emission reductions since the start of the scheme, achieved through a reduced carbon intensity of the production process.

Joint effect of climate policies on the innovation behaviour

This analysis was complemented by Massimiliano Mazzanti, Assistant Professor at the University of Ferrara. As part of the CECILIA2050 project, he looked at the joint effect that the whole set of climate policies has had on the innovation behaviour of firms in six sectors. Combining an econometric analysis with bottom-up qualitative analysis (in-depth interviews with 45 companies in eight countries), he found evidence of both technological and organisational innovation induced by policies. In terms of pricing policies, he concluded that the effect of using revenue to support innovations was at least as important as the incentive effect of pricing carbon emissions.

EU plans for reforming the climate policy mix

Jakub Koniecki, Member of the Cabinet of EU Climate Commissioner Connie Heedegard, complemented the two views from academia with a policy maker's perspective on the issue. He outlined the Commissions plans for reforming the climate policy mix that the EU employs, with particular attention to the overlaps between climate and energy policies. He underlined that we need to better understand the various price signals that companies are facing from climate and energy policy, and how this affects their innovation behaviour, as well as their competitive position.

Balance between a robust carbon price signal and securing competitiveness

The subsequent, lively discussion was moderated by Benjamin Görlach, Senior Fellow at the Ecologic Institute and coordinator of the CECILIA2050 project. The discussion touched upon the question how to square the circle between triggering innovation and low-carbon investment – for which a robust carbon price signal is desirable – and securing competitiveness, for which high carbon prices are seen as detrimental. The discussion also touched upon the impact of exemptions and preferential treatment on innovation: in the name of safeguarding competitiveness, companies benefit from a number of exemptions in climate and energy policies, such as free allocation of permits in the EU ETS. Yet this preferential treatment can be seen to stifle innovation. It was also discussed how the rules for preferential treatment could become more targeted, so that they promote innovation rather than offering a blunt exemption.