The New Economics of Innovation and Transition: Evaluating Opportunities and Risks

This report is not only about the promise such technologies hold for the clean energy transition, but about the lessons we can draw from such examples. It is about how we think, and often fail to recognise or understand the opportunities that arise from innovation and transition in major technologies and systems. Case studies, detailed in the Online Appendix, delve further into the three cases illustrated above, including their development in the major emerging economies indicated. Beyond R&D, all highlight strong and sustained government action in market and industry developments. Moreover, often it was action taken despite (rather than because of) traditional approaches to economic appraisal – delivering changes which have rendered largely irrelevant numerous historical (and even recent) modelling estimates of how much it would cost to tackle climate change – and how best to go about it. Consequently, this report starts by outlining the fundamental features of traditional economic appraisal. It then turns to look at each of the three historical cases above, including how these changes occurred and the role of government policy and appraisal in each. The report then outlines alternative approaches to economic appraisal which better capture the real economics of innovation and transition, particularly in relation to the challenge of deep decarbonisation. We then consider the implications for two more transitions to technology currently at earlier stages of emergence, namely road transport and steelmaking technologies.