Editing IPCC:AR6/WGIII/Chapter-16 (section)

=== 16.2.1 Stages of the Innovation Process ===

<div id="h2-1-siblings" class="h2-siblings"></div>

The innovation cycle is commonly thought of as having three distinct innovation phases on the path between basic research and commercial application: Research and development (R&amp;D); demonstration; and deployment and diffusion ( [[#IPCC--2007|IPCC 2007]] ). Each of these phases differs with respect to the kind of activity carried out, the type of actors involved and their roles, financing needs, and the associated risks and uncertainties. All phases involve a process of trial and error, and failure is common; the share of innovation that successfully reaches the deployment phase is small. The path occurring between basic research and commercialisation is not linear ( [[#16.3|Section 16.3]] ); it often requires a long time and is characterised by significant bottlenecks and roadblocks. Furthermore, technologies may regress in the innovation cycle, rather than move forward ( [[#Skea--2019|Skea et al. 2019]] ). Successfully passing from each stage to the next one in the innovation cycle requires overcoming ‘valleys of deaths’ ( [[#Auerswald--2003|Auerswald and Branscomb 2003]] ; [[#UNFCCC--2017|UNFCCC 2017]] ), most notably the demonstration phase ( [[#Frank--1996|Frank et al. 1996]] ; [[#Weyant--2011|Weyant 2011]] ; [[#Nemet--2018|Nemet et al. 2018]] ). Over time, new and improved technologies are discovered; this often makes the dominant technology obsolete, but this is not discussed in this report.

Table 16.2 summarises the different innovation stages and main funding actors, and maps phases into the technology readiness levels (TRLs) discussed in [[#16.2.1.4|Section 16.2.1.4]] .

'''Table 16.2 | Stages of the innovation process (Section 16''' '''.''' '''2.1) mapped onto technology readiness levels ( [[#16.2.1.4|Section 16.2.1.4]] ).''' Source: adapted from [[#Auerswald--2003|Auerswald and Branscomb (2003)]] , [[#TEC--2017|TEC (2017)]] , [[#IEA--2020a|IEA (2020a)]] .

{| class="wikitable"
|-
! '''Stage'''

! '''Main funding actors'''

! '''Phases'''

! '''Related technology readiness levels (TRLs)'''

|-
| rowspan="5"| Research and development

| rowspan="5"| Governments

Firms

| Basic research

| 1 – Initial idea (basic principles defined)

|-
| rowspan="4"| Applied research and technology development

| 2 – Application formulated (technology concept and application of solution formulated)

|-
| 3 – Concept needs validation (solutions need to be prototyped and applied)

|-
| 4 – Early prototype (prototype proven in test conditions)

|-
| 5 – Full prototype at scale (components proven in conditions to be deployed)

|-
| rowspan="4"| Demonstration

| rowspan="4"| Governments

Firms

Venture Capital

Angel investors

| rowspan="4"| Experimental pilot project or full-scale testing

| 6 – Full prototype at scale (prototype proven at scale in conditions to be deployed)

|-
| 7 – Pre-commercial demonstration (solutions working in expected conditions)

|-
| 8 – First-of-a-kind commercial (commercial demonstration, full-scale deployment in final form)

|-
| rowspan="3"| 9 – Commercial operation in early environment (solution is commercial available, needs evolutionary improvement to stay competitive)

10 – Integration needed at scale (solution is commercial and competitive but needs further integration efforts)

11 – Proof of stability reached (predictable growth)

|-
| rowspan="2"| Deployment and diffusion

| Firms

Private equity

Commercial banks

Mutual funds

| Commercialisation and scale-up

( ''business'' )

|-
| International organisations and financial institutions

Non-governmental organisations (NGOs)

| Transfer

|}

<div id="16.2.1.1" class="h3-container"></div>

<span id="research-and-development"></span>
==== 16.2.1.1 Research and Development ====

<div id="h3-1-siblings" class="h3-siblings"></div>

This phase of the innovation process focuses on generating knowledge or solving particular problems by creating a combination of artefacts to perform a particular function, or to achieve a specific goal. R&amp;D activities comprise basic research, applied research and technology development. Basic research is experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundations of phenomena and observable facts, without any particular application or use in view. Applied research is original investigation undertaken in order to acquire new knowledge, primarily directed towards a specific, practical aim or objective ( [[#OECD--2015a|OECD 2015a]] ). Importantly, R&amp;D activities can be incremental – that is, focused on addressing a specific need by marginally improving an existing technology – or radical, representing a paradigm shift, promoted by new opportunities arising with the accumulation of new knowledge ( [[#Mendonça--2018|Mendonça et al. 2018]] ). Technology development, often leading to prototyping, consists of generating a working model of the technology that is usable in the real world, proving the usability and customer desirability of the technology, and giving an idea of its design, features and function ( [[#OECD--2015a|OECD 2015a]] ). These early stages of technological innovation are referred to as the ‘formative phase’, during which the conditions are shaped for a technology to emerge and become established in the market ( [[#Wilson--2013|Wilson and Grubler 2013]] ) and the constitutive elements of the innovation system emerging around a particular technology are set up ( [[#Bento--2016|Bento and Wilson 2016]] ; [[#Bento--2018|Bento et al. 2018]] ) ( [[#16.3|Section 16.3]] ).

The outcomes of R&amp;D are uncertain: the amount of knowledge that will result from any given research project or investment is unknown ''ex ante'' ( [[#Rosenberg--1998|Rosenberg 1998]] ). This risk to funders ( [[#Goldstein--2020|Goldstein and Kearney 2020]] ) translates into underinvestment in R&amp;D due to low appropriability ( [[#Weyant--2011|Weyant 2011]] ; [[#Sagar--2014|Sagar and Majumdar 2014]] ). In the case of climate mitigation technologies, low innovation incentives for the private sector also result from a negative environmental externality ( [[#Jaffe--2005|Jaffe et al. 2005]] ). Furthermore, in the absence of stringent climate policies and targets, incumbent fossil-based energy technologies are characterised by lower financing risk, are heavily subsidised ( [[#Davis--2014|Davis 2014]] ; [[#Kotchen--2021|Kotchen 2021]] ), and depreciate slowly ( [[#Arrow--1962a|Arrow 1962a]] ; [[#Nanda--2016|Nanda et al. 2016]] ; [[#Semieniuk--2021|Semieniuk et al. 2021]] ) ( [[#16.2.3|Section 16.2.3]] ). In this context, public research funding plays a key role in supporting high-risk R&amp;D, both in developed and developing economies: it can provide patient and steady funding not tied to short-term investment returns ( [[#Kammen--2007|Kammen and Nemet 2007]] ; [[#Anadon--2014|Anadon et al. 2014]] ; [[#Mazzucato--2015a|Mazzucato 2015a]] ; [[#Chan--2016|Chan and Diaz Anadon 2016]] ; [[#Anadón--2017|Anadón et al. 2017]] ; [[#Howell--2017|Howell 2017]] ; [[#Zhang--2019|Zhang et al. 2019]] ) ( [[#16.4|Section 16.4]] ). Public policies also play a role in increasing private incentives in energy research and development funding ( [[#Nemet--2013|Nemet 2013]] ). R&amp;D statistics are an important indicator of innovation and are collected following the rules of the ''Frascati Manual'' ( [[#OECD--2015a|OECD 2015a]] ) ( [[#16.3.3|Section 16.3.3]] , Box 16.3 and Table 16.7).

<div id="16.2.1.2" class="h3-container"></div>

<span id="demonstration"></span>
==== 16.2.1.2 Demonstration ====

<div id="h3-2-siblings" class="h3-siblings"></div>

Demonstration is carried out through pilot projects or large-scale testing in the real world. Successfully demonstrating a technology shows its utility and that it is able to achieve its intended purpose and, consequently, that the risk of failure is reduced (i.e., that it has market potential) ( [[#Hellsmark--2016|Hellsmark et al. 2016]] ). Demonstration projects are an important step to promote the deployment of low-carbon energy and industrial technologies in the context of the transition. Government funding often plays a large role in energy technology demonstration projects because scaling up hardware energy technologies is expensive and risky ( [[#Brown--2009|Brown and Hendry 2009]] ; [[#Hellsmark--2016|Hellsmark et al. 2016]] ). Governments’ engagement in low-carbon technology demonstration also signals support for businesses willing to take the investment risk ( [[#Mazzucato--2016|Mazzucato 2016]] ). Venture capital, traditionally not tailored for energy investment, can also play an increasingly important role, thanks to the incentives (e.g., through de-risking) provided by public funding and policies ( [[#Gaddy--2017|Gaddy et al. 2017]] ; [[#IEA--2017a|IEA 2017a]] ).

<div id="16.2.1.3" class="h3-container"></div>

<span id="deployment-and-diffusion"></span>
==== 16.2.1.3 Deployment and Diffusion ====

<div id="h3-3-siblings" class="h3-siblings"></div>

Deployment entails producing a technology at large scale and scaling up its adoption and use across individual firms or households in a given market, and across different markets ( [[#Jaffe--2015|Jaffe 2015]] ). In the context of climate change mitigation and adaptation technologies, the purposeful diffusion to developing countries, is referred to as ‘technology transfer’. Most recently, the term ‘innovation cooperation’ has been proposed to indicate that technologies needs to be co-developed and adapted to local contexts ( [[#Pandey--2021|Pandey et al. 2021]] ). Innovation cooperation is an important component of stringent mitigation strategies as well as international agreements ( [[#16.5|Section 16.5]] ).

Diffusion is often sluggish due to lock-in of dominant technologies ( [[#Liebowitz--1995|Liebowitz and Margolis 1995]] ; [[#Unruh--2000|Unruh 2000]] ; [[#Ivanova--2018|Ivanova et al. 2018]] ), as well as the time needed to diffuse information about the technologies, heterogeneity among adopters, the incentive to wait until costs fall even further, the presence of behavioural and institutional barriers, and the uncertainty surrounding mitigation policies and long-term commitments to climate targets ( [[#Gillingham--2012|Gillingham and Sweeney 2012]] ; [[#Corey--2014|Corey 2014]] ; [[#Jaffe--2015|Jaffe 2015]] ; [[#Haelg--2018|Haelg et al. 2018]] ). In addition, novel technology has been hindered by the actions of powerful incumbents who accrue economic and political advantages over time, as in the case of renewable energy generation ( [[#Unruh--2002|Unruh 2002]] ; [[#Supran--2017|Supran and Oreskes 2017]] ; [[#Hoppmann--2019|Hoppmann et al. 2019]] ).

Technologies have been shown to penetrate the market with a gradual non-linear process in a characteristic logistic (S-shaped) curve ( [[#Grübler--1996|Grübler 1996]] ; [[#Rogers--2003|Rogers 2003]] ). The time needed to reach widespread adoption varies greatly across technologies relevant for adaptation and mitigation ( [[#Gross--2018|Gross et al. 2018]] ); in the case of energy technologies, the time needed for technologies to get from a 10–90% market share of saturation ranges between 5 to over 70 years ( [[#Wilson--2012|Wilson 2012]] ). Investment in commercialisation of low-emission technology is largely provided by private financiers; however, governments play a key role in ensuring incentives through supportive policies, including R&amp;D expenditures providing signals to private investors ( [[#Haelg--2018|Haelg et al. 2018]] ), pricing carbon dioxide emissions, public procurement, technology standards, information diffusion and the regulation for end-lifecycle treatment of products ( [[#Cross--2018|Cross and Murray 2018]] ) ( [[#16.4|Section 16.4]] ).

<div id="16.2.1.4" class="h3-container"></div>

<span id="technology-readiness-levels"></span>
==== 16.2.1.4 Technology Readiness Levels ====

<div id="h3-4-siblings" class="h3-siblings"></div>

Technology readiness levels (TRLs) are a categorisation that enables consistent, uniform discussions of technical maturity across different types of technology. They were developed by the National Aeronautics and Space Administration (NASA) in the 1970s ( [[#Mankins--1995|Mankins 1995]] , 2009) and originally used to describe the readiness of components forming part of a technological system. Over time, more classifications of TRLs have been introduced, notably the one used by the European Union (EU). Most recently, the International Energy Agency (IEA) extended previous classifications to include the later stages of the innovation process ( [[#IEA--2020b|IEA 2020b]] ) and applied it to compare the market readiness of clean energy technologies and their components ( [[#OECD--2015a|OECD 2015a]] ; [[#IEA--2020b|IEA 2020b]] ). TRLs are currently widely used by engineers, business people, research funders and investors, often to assess the readiness of whole technologies rather than single components. To determine a TRL for a given technology, a technology readiness assessment (TRA) is carried out to examine programme concepts, technology requirements, and demonstrated technology capabilities. In the most recent version of the IEA ( [[#IEA--2020b|IEA 2020b]] ), TRLs range from 1 to 11, with 11 indicating the most mature (Table 16.2).

The purpose of TRLs is to support decision-making. They are applied to avoid the premature application of technologies, which would lead to increased costs and project schedule extensions ( [[#US%20Department%20of%20Energy--2011|US Department of Energy 2011]] ). They are used for risk management, and can also be used to make decisions regarding technology funding, and to support the management of the R&amp;D process within a given organisation or country ( [[#De%20Rose--2017|De Rose et al. 2017]] ).

In practice, the usefulness of TRLs is limited by several factors. These include limited applicability in complex technologies or systems, the fact that they do not define obsolescence, nor account for manufacturability, commercialisation or the readiness of organisations to implement innovations ( [[#European%20Association%20of%20Research%20Technology%20Organisations--2014|European Association of Research Technology Organisations 2014]] ) and do not consider any type of technology-system mismatch or the relevance of the products’ operation environment to the system under consideration ( [[#Mankins--2009|Mankins 2009]] ). Many of these limitations can be eased by using TRLs in combination with other indicators such as system readiness levels and other economic indicators on, for example, investments and returns ( [[#IEA--2020b|IEA 2020b]] ).

<div id="16.2.2" class="h2-container"></div>

<span id="sources-of-technological-change"></span>