Decarbonizing Our Economy

Factors to extend the scope and accelerate deployment of new climate technologies Maryam Golnaraghi


The United Nations Framework on Climate Change 26th Conference of Parties (COP26) in Glasgow witnessed the largest gathering of leading technologists and engineering firms, corporate research and development (R&D) groups, investors, and governments for the most cohesive discussions to date about the status and role of new technologies for decarbonizing our economy (hereafter referred to as climate tech), addressing both sources and sinks of carbon.

Limiting the global average temperature increase to 1.5°C from pre-industrial levels over the next few decades requires a well-planned, whole-economy approach to achieving net-zero targets. This will require an unprecedented transformation across all sectors of society. Considering the urgency and short time window to decarbonize the global economy over the next three decades, the world has reached a critical moment for transformative action.

New technologies, processes, industries and infrastructure systems are needed to enable the disruption of energy, water, food and transportation systems; other carbon-emitting sectors, such as building and construction; and heavy industries, such as cement, plastics, steels and their value chains. Our ability to expand the scope of climate tech innovations and our agility to scale deployment are critical factors for shaping sustainable economies and achieving the pace needed to reach net zero in the coming decades. This requires not only technological innovations, but also the transformation of institutions, breaking through silos and redesigning policies and regulatory frameworks to enable such transformative action at this large scale.

Analysis by technology think tanks (e.g., RethinkX) and expert platforms (e.g., Project Drawdown) and discussions at COP26 brought into focus a range of existing climate technologies that, if deployed at scale, can significantly reduce emission during this decade—particularly for the transformation of energy, transportation, and food and agriculture systems. Beyond these, there is also a clear consensus about the need to enable significantly more innovations and new technologies to address the unprecedented transition ahead.

Supply and Demand Sides of Climate Tech

The rapid growth of solar and wind power over the last decade has been linked to falling costs and rising demand for deployment, shedding some hope for global efforts for energy transition and curbing greenhouse gas (GHG) emissions. According to the World Resource Institute, in 2010 solar and wind combined made up only 1.7 percent of global electricity generation, but by 2020 they accounted for 8.7 percent. Falling costs have been a big factor—the cost of solar photovoltaic electricity has fallen by 85 percent, and costs of both on-shore and off-shore wind have dropped by half.

A look at the latest trends reveal:

  • Scaling innovations in climate tech requires a more holistic consideration of the supply side from the early stage of research and innovation (R&I) to commercialization.1
  • There is evidence of increased funding through investors, such as venture capital firms, corporation venture capital and investor-led funds (such as Bill Gates-led Breakthrough Energy Ventures) for different stages of climate tech development from the early stage of company launch to growth stages; however, this still needs to be significantly scaled.2
  • Public-sector funding is increasingly being leveraged to provide capital for scaling pilots with potential, particularly for the energy transition.3
  • Traditionally, innovation investments focused on clean energy generation, energy efficiency solutions, electric vehicles, battery and storage, and carbon capture and storage (CCS). But there is clear evidence of the rise of investments in hydrogen, new climate tech for decarbonizing mobility (air and marine), food and agriculture systems, water systems, new materials and heavy industries (e.g., green steel and green cement).4
  • There is increased investing in the growth and large-scale deployment stages through purchase, procurement and partnerships.5

New markets also need to be developed with systems-level thinking. These new markets should not just consider the technologies needed for disrupting a company’s business model, but also its supply chain, an industry’s value chain or new infrastructure systems’ entire life cycles. For example:

  • The latest trends with new market developments indicate a rising number of platforms, such as Mission Possible Partnership of the World Economic Forum (WEF) and the World Business Council for Sustainable Development’s (WBCSD’s) convening corporations to assess sectoral technological needs for transitioning.
  • Corporations and governments (national to local) are investing in large-scale projects.6
  • Governments’ new infrastructure spending, some as part of their COVID-19 economic recovery plans, will interject significant funds into this space for the development of resilient green smart infrastructure systems.7

Managing Untested Risks of New Climate Tech for Large-Scale Deployment

As the world mobilizes to scale the development and implementation of new climate tech, it is important to recognize that new technologies and processes come with myriad untested risks, particularly when deployed at scale and in the form of sustainable infrastructure systems. Such untested risks span a wide range of operational and safety risks, environmental and disposal risks, construction risks, future liabilities and rising climate litigation, professional mistakes, supply chain and, of course, impacts of adverse weather and changing climatic conditions, which need to be managed while considering the entire life cycle. Gone unmanaged, new risks associated with large-scale deployment of climate tech also may pose financial and reputational risks to organizations and may lead to litigation risk.8,9 These risks also go beyond technological risks as defined by the Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD identified such risks associated with new technological developments in transitioning to a lower-carbon economy:

“Technological improvements or innovations that support the transition to a lower-carbon, energy-efficient economic system can have a significant impact on organizations. For example, the development and use of emerging technologies such as renewable energy, battery storage, energy efficiency, and carbon capture and storage will affect the competitiveness of certain organizations, their production and distribution costs, and ultimately the demand for their products and services from end users. To the extent that new technology displaces old systems and disrupts some parts of the existing economic system, winners and losers will emerge from this ‘creative destruction’ process. The timing of technology development and deployment, however, is a key uncertainty in assessing technology risk.”10

Insurers and reinsurers, as leading experts in risk management and the second-largest institutional investors, play an essential role in supporting the development of solutions for the transition to a resilient, low-carbon economy.11,12

On Oct. 12, 2021, The Geneva Association co-hosted with the Organisation for Economic Co-operation and Development (OECD) a strategic discussion on “Future-Proofing Technological Innovations for a Resilient Net-Zero Economy.” The event convened policymakers, academics and insurance industry executives ahead of the COP26 summit to discuss the insurance industry’s role in de-risking and financing technological developments, and the partnerships that need to be forged to enable and incentivize innovation and implementation.13 The role of insurers in assessing, pricing and managing the untested risks associated with new climate technologies and processes will be fundamental for large-scale implementation, sectoral adoption and raising private capital. This conference was the launch point for a new The Geneva Association research initiative on “Innovating Insurance Solutions for De-Risking Climate Technologies Toward Net Zero.”

7 Key Considerations to Expand the Scope and Agility to Deploy Climate Tech at Scale

  1. Governments should have a clear national strategy on climate tech innovation as part of their overall national plans for decarbonization and socioeconomic development. This strategy should be aligned with and supported by the state and local levels of government as well.
  2. Governments need to provide an enabling environment, public policies, and targeted loans and grants to boost the supply of R&I, incentivize market development and large-scale deployment of viable climate tech for transitioning their energy, transportation, food and water systems, and other carbon-intensive sectors, as well as greening of public infrastructure systems.
  3. Investing in human resources is critical to the development and deployment of climate tech at scale. This should include training programs in science and technology, increasing corporate and government-funded fellowships to help transform scientists and engineers into entrepreneurs to aggressively pursue technology development, and repurposing of labor for manufacturing, operating and maintaining new technologies and sustainable infrastructure systems.
  4. Deep cross-sectoral partnerships and collaboration are needed to drive out-of-the-box thinking and fast track the development and adoption of new technologies. For example, carbon-intensive industries, technology and engineering companies, the investor community, the insurance industry and governments must work together.
  5. Leveraging public and private investments and aligning risk/return profiles could enable more sustained financing across the technology pathway from the early stages to commercialization. This is fundamental to cross the “valley of death” and bring technologies to market at scale.
  6. Assessing, pricing and sharing these new risks along the entire life cycle will be fundamental for sectoral adoption, large-scale implementation and raising private capital. Insurers play a vital role in managing risks of untested technologies. Innovations in insurance products and services are needed for large-scale deployment (where market conditions allow). However, given the massive scale of technological disruptions needed to achieve the climate targets, insurers need to reconsider their status quo approaches. For example, insurers need to build their technical expertise far beyond actuarial expertise in their commercial and specialty lines by bringing on board technology experts who have a deep understanding of and hands-on experience with new climate technologies and associated risks. Insurers also may need to move away from traditional project-basis coverage to a more integrated approach to addressing client needs.
  7. Data is critical for assessing and pricing risks, identifying sensitive natural ecosystems linked to the environmental footprint of new technologies, evaluating the overall resilience of new technologies, anticipating failures, and conducting proactive maintenance and preventive risk management and retrofits. A range of new technologies, allowing for systemwide data collection and predictive risk analytics on top of digitization, cloud platforms, sensors and artificial intelligence (AI), could be deployed for new projects and sustainable infrastructure systems.14
Dr. Maryam Golnaraghi is the director of Climate Change and Environment at The Geneva Association. She also mentors climate tech startups in North America and Europe.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.


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