OECD Science and Technology Policy Ministerial

Parallel break-out session B

Apr 24, 2024 | 9:45 AM - 11:00 AM



How to direct research and innovation funding to address the climate challenge?

How to direct research and innovation funding and finance to address the climate challenge?
Main issues

The green transition will require sustaining high levels of investment across the entire research and innovation chain, from generating cutting-edge scientific knowledge to devising and implementing new solutions that accelerate and make the transition to net zero a winning proposition for all. Since the industrial revolution, increasing levels of wellbeing and material prosperity have been achieved through scientific and technological advances, which have ultimately contributed to the challenge of global warming faced today. Continuing this path risks endangering humankind’s future if there is no collective action to undergo a deep and increasingly urgent transition. 

Advances in science, technology and innovation (STI) are necessary for such a large scale and complex change. Without the contribution of STI, the transition to net zero may prove too difficult for all countries and parts of society to embark upon and sustain. Indeed, modelling of the energy sector shows that 35% of the required reduction in CO2 emissions through to 2050 will have to come from technologies that are not yet on the market (IEA, 2023) . Moreover, the technologies needed to decarbonise other key industries vital for feeding the planet’s population whilst protecting ecosystems, providing shelter, and enabling transportation need substantial breakthroughs. 

Government financial support for STI in the public and private sectors is a key part of the broader set of policy measures to combat climate change, both for mitigation and adaptation. Without this support, including for fundamental research, progress on low-carbon innovation, such as recent advances in the affordability of renewable energies, would not have been possible. 

However, current levels of government support and private sector investments are not sufficient to meet the challenge. As OECD data shows, government budgets for research and development (R&D) on energy and the environment have dwindled in comparison with other government priorities. Past increases in energy R&D budgets have not been sustained when markets signalled, through low prices, an abundance of fossil fuel stocks. Data from the International Energy Agency (IEA) on government budgetary support for R&D and demonstration show that support for low carbon technologies has only recently caught up with the levels of the early 1980s, notwithstanding a recent upsurge in investment in R&D for renewables and energy efficiency. 
Market-driven policy instruments designed to promote climate change mitigation and to raise overall levels of R&D and innovation are necessary but not sufficient for an effective mobilisation of STI funding. Breakthrough innovation in areas like energy, agricultural and industrial process emissions, is affected by shortcomings in markets and institutions that limit innovation in general. However, such innovation involves additional uncertainties and problems in aligning efforts, risks and rewards. There are deep-seated incentives for private and public actors to continue directing their scientific, inventive and innovative efforts to technologies and solutions that draw upon and entrench polluting technologies and habits, making it ultimately more difficult to transition to a net zero economy. 

In this context, public funding to support scientific and technological breakthroughs as well as their diffusion must come from several parts of government, including sectoral ministries and agencies in areas like energy, transport, agriculture, and health. Ministries and authorities with formal STI policy responsibilities have significant responsibility for helping orchestrate this effort and steering public and private investments to where they are most needed. In addition to increasing levels of R&D expenditure, governments need to consider what their investments ultimately support and how, deploying portfolios of funding instruments that support high-risk high-reward research and the development and demonstration of breakthrough technology, especially with direct or indirect links to green transformation objectives.