COP29: Innovation, not funding, holds the key to tackling climate change

Policymakers are missing a key point - there are few new and scaled-up technology solutions to mitigate climate change

Climate finance has been a key focus for world leaders at the COP29 Summit, which took place from November 11 to November 24 in Baku, Azerbaijan.

 

In his opening remarks, UN Secretary-General António Guterres said, “The world must pay up, or humanity will pay the price…climate finance is not charity, it’s an investment.”

 

A bold and ambitious statement. The end goal is to support developing countries to effectively cut down on greenhouse gas emissions and protect their people from drastic impacts of climate change.

 

By the end of the summit, a climate finance goal was set, with an annual target of $300 billion. By doing so, there’s an attempt to make climate change a very large global opportunity for the Global North to make money by “investing” in the Global South, broadening the appeal of climate action from a limited set of “crusaders” to “businessmen” — classic capitalism in action.

 

They are, however, missing a key point — that there are currently few new and scaled-up technology solutions to mitigate climate change to the extent required. Without these, finance could lead to suboptimal returns. It is unfortunate, therefore, that the conversation around innovation is only happening in small circles and has not yet taken centre stage. Is this because scaling up innovation is inherently a slow and risky process?

 

Maximum innovation for maximum impact

 

As a venture capitalist, I’ve listened to hundreds of pitches, and have only invested in a handful, knowing full well that deploying capital can only be effective at scaling outcomes if it backs an innovative offering with a viable business model.

 

Of the two, innovation is the more forceful driver for adoption. Take semiconductors, for example. For decades, the relentless pace of innovation has significantly reduced costs, while exponentially increasing computing power and adoption. Every product of the digital age, from satellites to smartphones, owes its existence to cheaper and more powerful semiconductors. The industry, worth $500 billion, now supports a technology industry worth $3 trillion.

 

Climatetech: A large playing field for innovation

 

When it comes to tackling climate change, there is ample scope for technology research & development (R&D) to make an impact. Fuel combustion emissions from industries, agriculture, forestry and fishing, and buildings accounted for 38 per cent, 12 per cent, and 26 per cent of global emissions, respectively, in 2022. These are areas that are notoriously stubborn to change and are ripe for new technologies to break the glass ceiling.

 

According to Clayton Christensen, when a new scalable technology emerges, it changes the value chain of entire industries and almost always reduces the cost of adoption compared to incumbent methods. The most visible example is the swift global adoption of photovoltaic (PV) cells and electric vehicles (EVs), now the principal drivers for the reduction in carbon emissions across energy and transport sectors, respectively.

 

Of course, when a new technology is on its way to becoming viable, adoption can be accelerated via subsidies and also by raising consumer awareness. We have seen how subsidies on EVs in India have boosted adoption across the country. More recently, the PM Surya Ghar: Muft Bijli Yojana aims to provide solar power to over 10 million houses.  But relying solely on subsidies can, over time, hamper innovation or reduce productivity, and divert resources from other priorities. Developing new technologies that can scale is the most effective path to driving up adoption rates. Once technology starts to scale, finance can then supercharge its impact on climate.

 

A prime example in the sector being the superior returns solar projects deliver across the world. Thanks to their scalability on the back of fruitful innovation, they are now on track to deliver 1,000 Gw annually.

 

Anything worth building takes time

 

The urgency for innovation is driven by the fact that time is not on our side. Historically, the most disruptive technologies have taken 15-30 years to see widespread adoption. Experts recommend the contribution of renewable energy sources towards global energy production must triple by 2030 to limit the global temperature rise to 1.5 degrees. Even generative AI gained traction after its operating models were put in place around seven years back in 2017.

 

Yes, funding and deploying capital are crucial steps in driving change, but they cannot be the end goal in themselves. Deploying capital can bring multiplier effects only if there is clarity on the outcomes expected, which rides on the scaling up of viable solutions.

 

While deeptech (private) funding has been on the rise, the path to climate mitigation must go through the long, risky and winding trails of the jungle of scientific innovation. This is why scaling up innovation capacity in labs around the world will require significantly higher philanthropic and grant funding. Finally, not only will we need free flow of capital towards R&D, we will also require patience for some of it to start bearing fruit. That’s a piece that COP29 almost entirely misses.

 

The author is  partner at early-stage Climatetech-focused VC firm, Blume Venture