Business of Innovating: Bringing Low-Carbon Solutions to Market

October 2011

by Andrew Hargadon

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Executive Summary:

Climate change—and efforts to mitigate it—are creating an increasingly uncertain future for businesses. The long-term effects of a warming climate are enormously difficult to predict. In the near term, however, new policies, technologies, and market preferences are already altering the competitive landscape of entire industries. That is creating opportunities for companies that effectively produce and manage low-carbon innovations in their markets—and threatening those that, by choice or circumstance, do not.

Today’s policy environment, particularly in the United States, is creating an extraordinarily uncertain environment for business decision-making. In the face of such uncertainties, corporate executives must still make decisions that affect their company’s strategy and competitive opportunities for years. The challenge is to walk a narrow line, investing in low-carbon innovation strategies that keep them competitive without moving too far ahead of the curve. Some companies, like those in the transportation sector, have some regulatory certainty in the form of fleet fuel economy standards, which enables them to commit to low-carbon innovations. But without such industry-wide standards in many sectors, the demand for low-carbon innovations is less clear.

Opportunities for low-carbon innovations exist throughout the economy, especially anywhere that energy is used in the manufacture, delivery, and consumption of goods and services. And with world energy consumption expected to grow by 40 percent in the next two decades,1 these opportunities are growing. The replacement value of today’s aging global energy supply infrastructure is estimated to be $12 trillion, and that of existing energy consuming technologies is even larger.2 Global revenues from new low-carbon energy solutions, energy efficiency technologies and services, and other climate-related businesses reached $530 billion in 2009, and are projected to surpass $2 trillion by 2020.3 Moreover, between 2010 and 2020, the projected cumulative total investment in clean energy generation alone is expected to reach $2.3 trillion.4 Companies able to bring low-carbon innovations to market quickly and at scale will gain early advantages over competitors, such as product leadership, higher market share, and influence over emerging policies and standards.

Leading companies are already bringing low-carbon innovations to a wide range of markets, offering valuable lessons for others facing similar opportunities and uncertainties. This report documents the challenges and best practices of these companies, distilling insights for other businesses pursuing low-carbon innovation strategies. It was developed by the report author, by Center staff, and with members of the Center’s Business Environmental Leadership Council (BELC). The research project included a detailed innovation survey of BELC members and other leading companies, a series of BELC workshops, broader research on innovation, and in-depth case studies of eight low-carbon innovation projects from four large multinational companies:

Taken in its entirety, the report presents a set of practical lessons for organizations pursuing low-carbon innovation strategies. The results should be of interest to corporate decision-makers who are developing or considering low-carbon innovation strategies and to others seeking to understand how companies can effectively bring low-carbon innovations to market, including financial analysts, institutional investors, state and federal officials, non-governmental organizations (NGOs), scholars, and participants in international efforts to address climate change.

The report is authored by Andrew Hargadon, the Charles J. Soderquist Chair in Entrepreneurship and Professor of Technology Management at the Graduate School of Management at University of California, Davis and a Senior Fellow at the Kauffman Foundation. He is the author of How Breakthroughs Happen: The Surprising Truth About How Companies Innovate (Harvard Business School Press 2003).

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