Making Clean Technology and Economic Growth Work Together
Innovating for social progress, be it for climate change, healthcare or education, always presents a certain challenge of what’s the best driver for it. This is what Jacquelyn Pless works on as an assistant professor in the Technological Innovation, Entrepreneurship and Strategic Management group at the Sloan School of Management. Her research focuses primarily on the energy sector, trying to understand what propels change in technology that can reduce pollution.
Options already exist. It could be increasing the price of energy from “dirty” resources so that they reflect their actual cost to society. It could be something like a carbon tax, which increases the incentive to innovate in clean energy technologies. Or it could be providing tax breaks and subsidies directly for clean energy innovation.
The challenge is that there hasn’t been enough research on what policies and regulations really work and Pless wants to change that to help provide guidance on the best policy and organizational designs. A point of resistance is often that some people hold the belief that adopting clean energy technology is too costly, and while there still needs to be more affordable technologies and better ways to store renewable energy, “That’s simply not true,” she says.
Economics already has some theories and evidence on how to drive innovation in general. Pless wants to develop a similar framework when it comes to social progress, which, she says, is unique because it would need to take into account more than the general “positive impacts on society that most types of innovation generate.” In the energy sector, pollution can negatively impact health and whether people can be in school, go to work and keep going to work. Investing in green technology can reduce these costs.
One question that she’s studying is how to account for both the positive implications of innovation more broadly as well as the benefits of clean energy innovation when designing policy that aims to incentivize companies to innovate. Companies might do it on their own, but usually they do not face the prices that would induce such change. A key solution often proposed is a carbon tax. But a challenge, Pless says, is that policies often overlap, and their interactions with, say, technology-neutral research and development tax credits, might dampen the incentives because they also can receive these tax credits for “dirty” innovation.
In another project, she’s looking at companies in China and examining the impacts on companies’ performance. A common misperception is that economic growth and environmental regulation are at odds. However, while regulation can be costly, it provides an incentive to innovate and then adopt new practices and policies. Innovation can then drive growth, so there isn’t necessarily always a tension between the economy and environment.
Pless is looking at the data to study a specific regulation in China and has seen that productivity has improved about five percent for firms that aren’t as pollution intensive but still polluters. There’s also been no negative effects on firms in the most pollution-intensive industries. Taken together, these results are helping change the old narrative. “Environmental regulation is actually enhancing productivity, which then can filter through to economic growth and development,” she says.
But in China, one component to how firms achieve results can depend on being private or state-owned. There’s a long history of implementing and enforcing regulations differently, she says. Private firms are seeing gains from innovating their processes and practices. With state-owned firms, there are gains but not to the same degree. The evidence suggests that it might be due to some favoritism and/or help with contracts in order to help them survive, but this conclusion is mostly speculative. An overall takeaway either way is that regulatory enforcement is essential. “Without that, firms don’t have the incentives,” Pless says.
Pless’s work isn’t strictly about industrial behavior. It’s also looking at people, since their decisions can influence what innovation takes hold. When it comes to renewable energy, the challenge isn’t new. Solar is attractive, but “extremely variable” when it comes to the electricity that it produces, and it has to be used as its produced. “Supply and demand have to be exactly aligned unless there is sufficient storage, and that has only recently become an economically-viable option,” she says.
One idea in play is to use smart meters in the home, which can track energy fluctuations, provide real-time information on availability and price, and allow customers to decide how to optimize resources. That’s the supposition at least, but Pless says more needs to be considered.
People might understand the data, but they don’t want to plan their entire day around when the sun shines. Sometimes, it’s cloudy and the computer needs to run. It certainly doesn’t mean that relying on behavioral change is impractical — it’s an important part of the solution. But without batteries or other forms of electricity storage to capture power for days, if not weeks, along with other innovation in other technologies, it will be difficult to fully transition to an economy with net-zero emissions.
With these challenges in mind, Pless says, “We just need to innovate — a lot — and make this happen, and the urgency of addressing climate change doesn’t leave much time.”
From a researcher’s perspective, understanding what policies and management practices actually can solve these issues requires a lot of data, which often exists but is sometimes difficult to access. Researchers need granular, reliable, and consistent data on things like companies’ innovation successes, their business practices aiming to reduce the environmental impact of their activities, moving all the way down to the decisions that early-stage potential inventors, like Ph.D. students, make when choosing topics and technologies to study. “Having these data will enable researchers to apply the rigorous empirical methods required for really understanding how different policies and management practices work,” she says, “and in particular, which ones produce the most ‘bang for the buck.’”
As it stands, there hasn’t been enough empirical evidence on these topics, but it could be enabled with better access to data, especially if it comes from industry partners. As Pless says. “Working with companies can really help provide the information that we need to do the research that allows us to say what works versus not.”