Energy consumption and production activities are responsible for two-thirds of global greenhouse gas (GHG) emissions (WEF, 2018: 6). For this reason, the greatest potential to help to slow GHG-driven climate change lies with the very companies engaged in the energy sector to be achieved by a) accelerating the pace of innovation and b) large-scale deployment of sustainable energy technologies.
Unfortunately, though, and despite the overall accelerating pace in recent years, climate relevant innovation in the energy sector is neither happening quickly or broadly enough, nor is it adequately aligned to address pressing issues and exploit new technologies (WEF, 2018: 5). The global energy system is facing rising and evolving demands: the urgent challenge of tackling climate change and the need to expand energy access, mirrored by new opportunities created by the Fourth Industrial Revolution, driven largely by the convergence of digital and physical innovations, which affect all sectors of the economy and society (WEF, 2018: 5).
“Path dependency” conservatism is slowing the transition
The electrical industry is without doubt one of the most conservative in terms of updating technology (Biasse, J.M. 2014). At the heart of this problem is a path dependency created by a tension between grid operators’ performance criteria, and the inherent risk associated with innovation. Grid operators’ main performance criteria include transmission continuity and voltage quality, which form the core benchmarks among European grid operators (CEER, 2016: 3). As a result, the thing that grid operators cherish most is stability – which could be interpreted as a “lack of change”- and tend to be hesitant to deploying new technologies (Biasse, J.M. 2014). Sustainability tends to be an afterthought.
As a result, there are strong incentives for grid operators to control operational risks with respect to innovation projects. This leads to a risk-averse culture which is at odds with the open-ended, uncertain nature of technology innovation (De Reuver et al. 2016: 631). This tension was summarised by Mr. Franz Strempfl, Managing Director of the Austrian power company Energienetze Steiermark; “You want me to ensure security of supply, have a huge amount of availability, invest a lot in the grid and make it cheaper as well?” (Deign, J. 2018).
Mr. Strempfl’s frustration captures the vicious cycle that hinders innovation in the grid space. As a knock-on effect of grid operators’ risk-aversion, grid equipment manufacturers (OEMs) have little incentive to pursue the development of new sustainable grid technologies. The combination of a lack of real demand from their customers (grid operators), with the commercial success of their existing technologies provides no real impetus for the development of clean alternatives. Thus, a culture is created that is not conducive to environmentally friendly innovation.
Sulphur Hexafluoride (SF6) in the Switchgear industry
An example of such a vicious cycle can be found in the switchgear industry. Switchgear are vital components of the grid as they isolate and protect different sections of the grid. The switchgear technology that has been growing most in popularity and is considered a ‘premium’ technology is called gas insulated switchgear (GIS). As the name implies, this technology contains a gas which happens to be the world’s strongest greenhouse gas; Sulphur Hexafluoride (SF6).
80% of all SF6 produced is used as an insulating medium for GIS (Powell, 2002: 6), and its global annual emissions are 8,100 tonnes (Dunse et al, 2015: 20); the equivalent to the yearly CO2 emissions produced by approximately 100 million new cars, which is more than annual worldwide care sales. Moreover, it has an atmospheric lifetime of at least 1,000 years and its installed base is expected to grow by 75% by 2030 (McGrath, M. 2019).
On a more hopeful note – there have been recent advances in sustainable alternatives to SF6-using GIS for almost all applications (Eves, M., et al. 2018; Xiao, S. et al. 2018; Benner, et al. 2012; Grotelüschen, F. 2019). However, the hard truth is that green technologies, no matter how advanced, are useless until they are actually deployed and used.
Unfortunately, this is currently the case with regards to electricity grids and the continued use of SF6-GIS while environmentally friendly alternatives are neglected. The reason for this is that environmental concerns are generally not part of a typical grid operator’s asset management team’s Key Performance Indicators (KPIs), as well as a deeply engrained path dependency. There is a reluctance to introduce such new technologies into their grids and when asked as to why; the typical response is that there is no real incentive for them to apply them pending regulatory changes which would enforce their use.
Regulator-driven innovations, adoption
It is precisely because of these systemic problems which hinder the rapid development and diffusion of sustainable grid technologies that policymakers need to act (Negro., S.O. et al. 2012: 3844).
Environmental regulation can lead to dramatic innovations. Not only by spurring the development of new technologies by incumbent manufacturers, but also by creating conditions in which new manufacturers can enter the market (Ashford, N.A. and Hall, R.P. 2011: 277). Environmentally-focussed regulations lead to innovation in clean technologies and discourage research and development in polluting technologies. Thus, environmental regulations can help industries break away from a polluting economic trajectory and move to a ‘clean’ one (Dechezleprêtre, A. & Sato, M. 2014: 2).
Moreover, low-carbon innovations can lead to wider economic benefits than the ‘dirty’ technologies they replace as they generate more knowledge in the economy which can be used by other innovators to further develop new technologies across different sectors. This makes it plausible that the switch from ‘dirty’ to ‘clean’ technologies could generate economic growth, thus justifying the strong public support for clean technology development (Dechezleprêtre, A. & Sato, M. 2014: 2).
Command-and-control (CAC) policies, market-based instruments (MBIs)
Environmental regulators rely predominantly on two types of instruments: command-and-control (CAC) policies, such as substance bans, emissions and technology standards, and market-based instruments (MBIs), such as emissions fees and tradable permits (Blackman, A. Li, Z. and Liu A.A. 2018).
There have been numerous studies comparing the effects of MBI and CAC policies. Most have supported CACs and some have supported MBIs (Lamperti, F. et al. 2016: 3). There is no clear agreement about the “best” approach to climate policy and the way to compare different instruments. For example, Goulder and Parry (2008) take into account a wide range of possible interventions, and they analyse the extent to which they meet a variety of major evaluation criteria, including cost-effectiveness, distributional equity, the ability to address uncertainties, and political feasibility. They conclude that no single instrument is clearly superior and that combinations of different climate policies can be more effective (Lamperti, F. et al. 2016: 4).
We need CACs. MBIs will be too slow
However, considering the sheer urgency of attention that the climate emergency demands, there is a strong argument for the implementation of CAC measures in certain cases. The scale of the problem means that there is simply not enough time for the incremental development and dissolution of MBIs. Moreover, CACs have been shown to be effective in environmental policy. For instance, some international agreements such as the Montreal Protocol fix an exogenous ceiling on specific polluting concentrations (Lamperti, F. et al. 2016: 4). Research also supports the view that the increasing stringency of U.S. environmental regulation accounts for three quarters of the 60% decrease in pollution emissions (e.g. nitrogen oxides, particulate matter, sulphur dioxide, and volatile organic compounds) from U.S. manufacturing in the period from 1990 to 2008 (Shapiro, J. S. and Walker, R. 2015).
CACs enabled the rapid phase-out of incandescent light bulbs
One such example where a strong CAC measure is warranted is the aforementioned continued use of SF6 despite sustainable alternatives being available. This is a legitimate example of where regulation can be more effective than a market solution. Consider the global phase out of incandescent light bulbs that has taken place since the turn of the century. The initial fears of price hikes, “light bulb socialism” and protestations about aesthetics have subsided and the new standards have led to manufacturer innovation and more consumer choice, not less (Sachs, N.M. 2012: 1663). Moreover, in the EU, the phase out has reduced household’s electricity consumption by 10-15% and saved close to 40 Twh (roughly the electricity consumption of Romania, or of 11 million European households, or the equivalent of the yearly output of ten 500 megawatt power stations) and reduced CO2 emission by about 15 million tons of per year (EU Commission, 2009).
At a time when the terrifying implications of climate change are increasingly real, it is not fanciful to argue that a similar approach should be taken with respect to technologies using extremely potent greenhouse gases that have readily available sustainable alternatives. Their use must simply be phased out as well.
California, EU: SF6 regulations are on the agenda
Regulatory bodies are increasingly scrutinising such greenhouse gases. For example, the influential California Air Resource Board (CARB) is taking the issue of SF6 seriously and plans on phasing it out for almost all applications by 2025 (CARB, 2019). Similarly, the European Commission is also investigating the role of SF6 in the energy industry and has commissioned a study into SF6 and available alternatives as part of its legislation to control F-gases. The report will be published in July 2020 and the regulation will be amended in 2022 (EU Parliament, 2018).
Although it is clear that sustainably reducing the warming influence of greenhouse gases will be possible only with substantial cuts in emissions of CO2, reducing non-CO2 greenhouse gas emissions would be a relatively quick and cost-effective way of contributing to this goal. Regulators should see greenhouse gases such as SF6 as an opportunity to tackle the path dependency that plagues innovation in the energy sector and send a clear message that the Paris climate agreement is being taken seriously. The unique challenge of climate regulation is that there simply is not the time for trial and error of normal incrementalism. Climate change will not wait.
By N. Ottersbach, nuventura
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