Developing Technologies for Zero-Carbon Economies

By Nils Røkke
TRONDHEIM, Norway, Jun 11 2019 – Never before has half a degree (0.5C) meant so much for humanity. We are behaving as if we have time to deal with climate change. We don’t. The main problem is that we believe we must sacrifice growth and prosperity for the sake of decarbonisation. We don’t.

Increase investments

We can decarbonise the economy and create jobs and growth. In Europe, this requires that member states increase investments in energy research and renewable energy technologies.

Europe can take the lead by investing in research and reviewing regulations, making sustainability a competitive advantage. The public and the private sector need to work together to quickly prototype technologies and then scale the pilots.

This requires research and innovation incentives. To show the effect of these approaches, I would like to point out a few concrete examples.

To increase investments in research in Europe, research institutes, the public and the private sector need to link national funding to EU programs. Existing research funding needs to be spent more wisely.

Nils Røkke

Simultaneously the public and the private sector need to plan, work and evaluate projects like real partners. I am certain that this will incentivize and accelerate climate-friendly and market-worthy businesses and ideas.

One example of an effective public-private partnership is the Norwegian government’s support of research facilities for carbon capture and storage at multiple locations for multiple industries. This includes Norcem’s cement plant in Breivik and the recycling of energy from a waste incineration plant at Klementsrud in Oslo.

Leveraging public-private partnerships

The Norwegian government has understood that to balance its national carbon budget, the public sector needs to support private industry. Proof that this approach works is the first full-scale carbon capture and storage (CCS) solution to be implemented at a cement factory, in Brevik, Norway.

Government supported schemes for capacity building, research and innovation has underpinned this development and planned deployment. This has also included projects operating under the EU Framework programs for research from FP6 to Horizon 2020. We need more solutions that are sustainable, effective and realistic by 2030. Which means we also need more public-private partnership.

Regulating change

At the same time, countries can regulate to ensure that sustainable operations become a competitive advantage and that sustainable technologies is rapidly deployed and adopted. A clear example from industry is the Europe-wide market for carbon quotas.

Requiring companies to pay for their emissions incentivizes them to find the most innovative and effective ways to reduce their emissions. The companies that can reduce emissions in the most cost-effective way will in turn become more competitive. The companies that change will capture market share and grow.

Regulations are also an incredibly efficient way to affect consumer and market behaviour, and thereby which technologies are sold, profitable and further improved. A common example of this is the Norwegian government’s approach to regulating the personal vehicle market.

Electric vehicles are exempt from many taxes and fees in Norway, which makes them very appealing when compared to vehicles with internal combustion engines. All of these incentives have made a significant impact on consumers adopting electric vehicles.

In March 2019 Norway actually became the first country in the world to sell more electric vehicles than internal combustion vehicles.

Incentivising energy research

Increasing funds for energy research and affecting behaviour through regulation are important for change, but full-scale pilot projects will only scale when energy research itself is incentivized. No one single technology or system can tackle our transition to a zero-emission society.

Each country must therefore consider the tools at their disposal to incentivise research into technologies for renewable energy. This was the backdrop for establishing the Mission Innovation initiative (MI) that was launched at the COP21 in Paris. Why is only 1.8% of public research and development funding invested in clean energy when clean energy is one of the most important ways to achieve climate neutrality?

The Mission Innovation initiative aims to double the investment into clean energy to trigger more investment from the private sector. After all, public money cannot solve this challenge alone.

Countries need to work together. At EERA, we work hard to ensure that we facilitate cooperation to the greatest possible extent. One concrete project I would like to draw attention to is the Joint Programme for Concentrated Solar Power (JP CSP).

Fostering knowledge and technology transfer from advanced European research to the most promising areas for solar thermal energy is the key aim of the international cooperation strategy of the program.

Within the framework of the EU funded Integrated Research Programme STAGE-STE, the JP CSP has successfully integrated partners from four continents – from Australia to Chile, Brazil, Mexico, India, China, as well as from MENA countries like Libya, Morocco and Saudi Arabia – in its research community, gathering all the key research institutions working on CSP and solar thermal energy.

The EU can always do more. One concrete recommendation I would like to give as Executive Vice President of Sustainability at SINTEF and Chair of EERA is to increase the budget for the next Horizon Europe research program. The initial suggestion of 100 billion EUR should instead be expanded to 120 billion.

We need the budgetary room so that we can fully pursue the ideas that make the most sense. Also, we need to be sure that the research we do fully permeates industry. Therefore, “Pillar Two” of Horizon Europe, the portion that connects the research with industrial opportunities, must be further strengthened.

There are many solutions and technologies that are required to generate the technologies and techniques for a more sustainable future. All countries and member states in Europe should increase their investments, regulate to ensure that sustainability becomes a competitive advantage, and incentivize research to realize as many solutions as possible.

Technology can keep us in the race to prevent global warming, jobs and economic growth. How can we ever overspend on that investment?

Driving Financialization

By Jomo Kwame Sundaram and Michael Lim Mah Hui
KUALA LUMPUR and PENANG, Jun 11 2019 – The emergence and growth of financialization from the 1980s has been driven by several factors operating at various levels – national and international, ideological and political, and of course, technological. The 1971 collapse of the Bretton Woods (BW) international monetary system arguably paved the way for financial globalization.

Jomo Kwame Sundaram

Cross-border financing
The BW dollar-gold standard had provided the basis for the relatively stable post-World War Two exchange rate system; ‘regulated’ capital flows of the BW system gave way to a new international financial order based on free-floating exchange rates and freer cross-border capital flows.

These developments changed banking in two ways. First, banks became more globalized, with international banking taking off in the 1970s. In the 1950s, only three major US banks had foreign branches. In 1965, only US$9 billion, or 2% of total US banking loans, were foreign. By 1976, foreign loans had risen to US$219 billion as the ten largest US banks made half their profits from international banking.

Second, with floating exchange rates, transnational companies’ (TNCs) profits were exposed to currency risks. Fluctuating, instead of stable exchange rates generated more profits from foreign exchange trading, accounting for growing bank revenues and profits.

Hedging and speculation
As banks increasingly served TNC ‘hedging’ needs, forex trading for speculation became more important than supporting the real economy. Although total world trade in 2007 was only worth US$15 trillion, forex trading averaged US$5 trillion daily, or over a quadrillion in the year!

Derivatives — such as options, swaps, non-deliverable contracts, ‘shorting’, etc. — allowed banks and their clients to hedge and speculate, with greatly increasing leverage magnifying risks, not only to the parties involved, but also to the financial system as a whole.

Michael Lim Mah Hui

At the international level, governments have permitted the proliferation of tax havens for corporations and individuals to evade taxes, ‘recycle’ and hide illicit funds, supported by bankers, lawyers, accountants and other enablers. Such illicit flows in 2014 were estimated at between US$1.4 trillion to US$2.5 trillion.

Thus, financial globalization involves mutating networks of financial institutions, both banks and non-bank financial institutions such as institutional investors, asset managers, investment funds and other ‘shadow banks’.

It involves lending to companies, households and individuals, for trading on securities and derivative markets within and across national borders. Financial globalization has been enabled by innovations made possible by significant improvements in computing capability.

Hélène Rey argues synchronized financial trends constitute a ‘global financial cycle’ due to the growing interconnectivity of securities and equity markets, capital flows and credit cycles around the world, ultimately influenced by US Fed policies. Greater integration and synchronization of financial markets have thus exacerbated financial instability and fragility.

From state to individual
But rapid global financialization is not only due to the expansive power of financial innovation, but also to deliberate policy choices at national and international level, beginning in the US with financial liberalization and banking deregulation from the 1980s. Interstate banking was allowed, and interest rate controls lifted, with commercial banks eventually allowed to underwrite and trade securities.

The US and other powerful financial interests successfully ‘globalized’ financial liberalization and financialization in the rest of the world, pressuring economies to lift exchange rate controls and open financial markets to foreign banks and investors, leading to Japan’s financial ‘big bang’ in 1990-1991 and the 1997-1998 East Asian financial crises.

The 1980s also saw the erosion of progressive taxation with more tax breaks for the rich, ostensibly to promote growth, and exaggeration of supposed funding crises for social security and public pensions.

Governments have favoured finance with generous tax breaks for interest income, with capital gains taxed much less than wages. These were invoked to legitimize the shift from future provisioning via the welfare state to self-provisioning via market investments.

Thus, investment risks have shifted from employers and governments to future pensioners investing individually via private pension funds, insurance companies and asset management corporations, i.e., changing from ‘defined benefits’ to ‘defined contributions’.

Ideological drivers
Financialization has been supported by the rise of shareholder activism, invoking ‘economic value added’ (EVA) arguments, to maximize shareholder value, instead of serving various stakeholders including employees, customers, suppliers and the public, or allowing managerial abuse of the ‘principal-agent’ problem, as managers serve their own interests, rather than investors’.

Short-termist maximization of stock prices via quarterly earnings, e.g., through mergers and acquisitions, is thus prioritized instead of long-term considerations, including ‘organic growth’. This paved the way for the mergers and acquisitions wave of the 1980s and 1990s, immensely profiting Wall Street and anointing financiers as the new ‘masters of the universe’.

Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.

Dr Michael LIM Mah Hui has been a university professor and banker, in the private sector and with the Asian Development Bank.