Pursuing the cleantech path - the technologies that will enable a net-zero future
Nearly ten years have passed since the historic signing of the Paris Agreement, a binding treaty that united 195 countries with a shared goal: to slow the advancement of climate change. The signatories pledged to take the necessary actions to limit the Earth's global temperature rise to well below 1.5°C above pre-industrial levels. To achieve this, reducing CO2 emissions by around 45% from 2019 levels by 2030 was identified as a critical first step toward reaching net zero by 2050—one of the most significant challenges humanity has ever faced.
Recognising the severe consequences of inaction, societies in the 21st century have accelerated the transition to a more sustainable future, primarily through the rapid growth of renewable energy. While many green technologies have been successfully deployed, reducing emissions across various sectors, time is not on our side, and this progress alone isn't enough. To truly address climate change, it’s essential to develop and scale emerging clean technologies (cleantech) that can expedite emissions reduction. The good news is that this transformation is unstoppable.
Despite global fragmentation and uncertainty, the clean technology revolution presents a tremendous opportunity and will be a key driver of competitiveness for businesses. Investment in innovation and the widespread deployment of cleantech will have increasingly significant economic implications.
For Spain and Europe, fostering an investment-friendly environment is crucial to accelerating this opportunity for businesses. This requires radical simplification of bureaucracy, promoting public-private mechanisms to mitigate investment risks, and establishing clear, predictable industrial policies that signal future demand.
This publication highlights some of the emerging technologies that are critical to the path to net zero. While some may be less familiar, they are poised to play a vital role in achieving our climate goals. We focus on leading clean technologies that fall into four progressive categories: electrification, green molecule development, circularity, and carbon capture and storage. All of these innovations also present promising economic opportunities.
According to the International Energy Agency’s Energy Technology Perspectives report (2023), the clean technologies market could triple in the transition to a low-carbon economy, potentially reaching $650 billion annually by 2030. Given the cross-sector nature and global impact of cleantech, investment in this field is set to be one of the most substantial in decades. There’s no doubt that the challenges posed by decarbonization come with a wave of optimism, providing the momentum needed to achieve the net-zero goal.
Innovation - Turning necessity into opportunity
A straightforward accounting identity reveals that the greenhouse gas emissions contributing to climate change are influenced by both GDP growth and emissions intensity per unit of GDP. From 2000 to 2022, global GDP grew by 114%, while emissions intensity decreased by 33%. However, assuming a trend economic growth rate of 3%, the current annual rate of improvement in emissions intensity makes it unlikely that we will meet one of the Paris Agreement’s key goals: limiting the global temperature rise to below 2°C above pre-industrial levels, with concerted efforts to keep it below 1.5°C. In other words, net emissions must reach zero by 2050.
To stay on track for this goal, we must reduce energy intensity and drive innovation to shift emissions and align them with a net-zero trajectory. This becomes even more urgent considering that climate policies focused on economic degrowth to reduce emissions are unfeasible due to their detrimental effects on public welfare.
Climate change mitigation policies, although diverse in their approaches, ultimately aim to increase the cost of emitting greenhouse gases to encourage necessary transformations in production and consumption patterns. A historical example of making a virtue out of necessity is the oil crisis of the 1970s. The rise in oil prices, coupled with the real threat of rationing, made oil drilling profitable in more geopolitically stable regions outside the Middle East. This situation led to stricter efficiency standards for combustion engines in transportation, as well as greater innovation and investment in both nuclear power and renewable energy.
According to World Bank data, the intensity of oil use per unit of GDP fell from 0.12 tons of oil equivalent in 1970 to 0.05 in 2022, a 58% decline. Similarly, decarbonization requires innovation, driven not just by geopolitical and energy security concerns but also by the internalized costs of climate change in economic systems. The growing price competitiveness of renewable energy sources, which are already cheaper than fossil fuels for power generation, further incentivizes the shift away from fossil energy.
Empirical analysis indicates that countries with stronger climate policies tend to file more patents for climate change mitigation technologies and attract more "green" foreign direct investment, which can, in turn, spur economic growth in the medium term. However, it is not guaranteed that innovation will automatically translate into increased activity. While Europe shares leadership with the US and China in basic scientific research—the first stage of innovation—advances in the US are more likely to be commercialized as products. Europe faces challenges, including suboptimal private risk financing mechanisms, and public financing also needs to better support the various stages of project development to attract more private investment.
The recent Draghi report highlights several strategies to enhance public goods financing, such as innovation, pointing to Europe’s low productivity and the financing gap compared to the United States. Addressing this gap requires increasing public financial capacity, potentially through the issuance of a safe asset by the European Union. Additionally, Europe must tackle the fragmentation of its capital markets by completing the Capital Markets Union, reforming the financial securitization market, and expanding the European Investment Bank’s (EIB) mandate to collaborate with venture capital initiatives.
The key challenge will not be a lack of ideas but the ability to leverage these opportunities to address the climate crisis effectively and achieve a meaningful increase in socially and environmentally sustainable welfare.
