Bill Gates is right about clean energy innovation

Philanthropist Bill Gates will reportedly unveil the world's largest clean energy research and development partnership Monday as climate change negotiators from around the world gather in Paris , and a group of nations including the U.S. will agree to double their clean energy R&D budgets. While the new negotiating framework that encourages individual national action will rightly take center stage at the Paris talks, this historic research commitment should be celebrated as a significant achievement that makes these new policies more credible and enables more aggressive emission reductions over time.

Paris is already poised for success. Developed and developing countries have submitted voluntary national targets and accompanying policies to reduce greenhouse gas emissions. As a result, these so called "Intended Nationally Determined Contributions" will cover nearly all global emissions, compared with just 14 percent in the current commitment period of the Kyoto Protocol.

Critics note that these targets do not keep global temperatures from rising above the 2 degree Celsius warming threshold adopted by the United Nations Framework Convention on Climate Change. Yet, the climate change damages that would result from the 2.7 to 3.7 degrees Celsius of warming these initial cuts would provide, while severe, are still much lower than would result from the 4 to 6 degrees Celsius of warming expected without them.

Moreover, as confidence builds that the burden of climate action is being shared, and public support builds, it will become easier for countries to take more aggressive steps. Because climate change is the ultimate tragedy-of-the-commons, free-rider problem—a ton of carbon does the same damage regardless of where it is emitted—countries cutting emissions need to know others are as well.

In order for this iterative process to work, countries need viable pathways to decarbonization that can maintain public support. Two elements are key.

First, government policies will need to achieve emission reductions at the lowest possible cost. Britain's recent cuts to green subsidies perceived as hurting consumers is a cautionary tale. Putting a price on carbon, whether through a tax or cap-and-trade program, that requires businesses and consumers to internalize the cost their energy usage imposes on others—what economists call a negative externality—is the most efficient way to do that. While such Congressional action on climate is not politically viable today, it will be needed to avoid the worst impacts of climate change.

Second, deep carbon reductions will require new breakthroughs in clean energy, not just increased use of wind, solar or even nuclear power. The new negotiating framework emerging from Paris must, therefore, be accompanied by national strategies to dramatically scale up clean energy R&D in both the public and private sectors.

Unfortunately, the trend has been the opposite. U.S. government investment in energy innovation has declined for decades, with energy research funding smaller than in other sectors like biotech or than in other industrialized nations.

While the private sector will drive such innovation, a vast economics literature recognizes that the private sector underinvests in early-stage R&D because it is able to capture only a small share of the social benefits of such breakthrough innovation.

As a result, increased government funding is needed to target long-term, high-risk R&D efforts, such as the sort pursued by the Department of Energy's Advanced Research Projects Agency—Energy (ARPA-E). Examples might be advanced batteries, fusion, or nanotechnology. There may also be targeted areas in which government support is needed to bring innovation to deployment, such as projects with very large capital costs that require first-of-a-kind demonstration at commercial scale like carbon capture systems. Ideally, such government research efforts would also have strong links to the private sector to foster coordination and information flow.

The national commitments that will be made in Paris are a significant achievement. But while they are celebrated, it is also important to recognize how dramatic the transformation of the global energy system will need to be over the longer term to address the threat of climate change. The research funding commitment from Gates and other philanthropists, as well as developing and developed nations alike, is a major step forward to catalyze clean energy innovation breakthroughs in the years ahead.

Commentary by Jason Bordoff, a White House energy advisor to President Obama from 2009 to 2013. He is also a professor of professional practice in international and public affairs and founding director of the Center on Global Energy Policy at Columbia University. Follow him on Twitter @JasonBordoff.

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