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In late 2010, we invited 68 companies to participate in a 27-question survey designed to gather key quantitative data, identify trends, and gauge current activities in low-carbon business innovation. Thirty-five companies, ranging in size from $600 million to $285 billion in annual revenues and with a median annual R&D expenditure of $575 million, completed the online questionnaire; the survey questions for the electric power and banking/financial services sectors were slightly different, to capture the unique characteristics of innovation and technology adoption in those sectors.
The survey’s principal objectives were to gather key quantitative information and gauge business strategies for low-carbon innovation activities, with a particular focus on how companies perceive the associated risks and uncertainties. It is one element of a broader Center study on the most effective methods used by companies today to develop and bring low-carbon technologies and solutions to market. The aggregated results will be combined with a set of four in-depth case studies in a report, Business of Innovating: Bringing Low-Carbon Solutions to Market, to be published in October 2011.
Highlights of Key Findings and Analysis
This survey highlights several interesting insights into corporate strategies for low-carbon innovation.
- Importance of Low-Carbon Innovation. According to the survey results, respondents believe that low-carbon innovation will only become more important for the growth of their companies and the U.S. economy as time passes, ranking (on a 10-point scale from least to greatest level of importance) the importance of low-carbon innovation to their business growth an average 7.5 over the next 5 years, an 8.2 over the next 10 years and an 8.7 over the next 20 years.
- Role of Public Policy. Respondents emphasized the need for long-term, transparent climate and energy policies as critical to establishing a business environment that would allow for greater certainty and stability for decision-making and investment in low-carbon innovations. Among the nine policy tools listed in the survey, putting a price on carbon was by far the most important action that respondents think the U.S. government could take to advance low-carbon innovation: nearly half (47%; 16 companies) chose establishing a carbon price while the second-most selected tool, with 4 responses, was establishing national low-carbon performance standards, for example, for fuels and/or electricity. Only one respondent believes that low-carbon innovation would be encouraged by the government getting out of the way or doing nothing. The absence of clear policy signals in the United States makes it difficult to anticipate and adapt to regulatory changes, derails low-carbon business innovation strategies or redirects them to markets with more policy certainty.
- Business Drivers. The survey results suggest that bringing low-carbon innovations to market is a strategic decision to enhance financial growth and respond to customer demand, and is less about the public relations benefits of promoting environmental solutions. All of the five drivers for pursuing low-carbon innovations listed in the survey ranked as important (in the 6.7 to 7.3 range) except for the reputational benefits of “going green” which ranked as only somewhat important to respondents (ranking an average 5.0). Financial growth, anticipating or shaping regulatory changes, establishing expertise in emerging technologies or markets, and current customer demand received approximately equal weighting—on average ranking 7.3, 7.2, 6.9, 6.7, respectively.
- Beliefs about Customer Adoption. Respondents believe that the most important factor for their customers’ adoption of new low-carbon innovations is the energy or total lifecycle cost reduction afforded by the solution (ranking an average 8.6). Moreover, companies find that customers look for solutions that have a lower total cost of ownership without compromising on the product's reliability or performance, suggesting that customer expectations are quite high when moving from a more traditional, energy-intensive solution to a low-carbon solution. Often, the customers want the new product to cost less and perform as well as, if not better, than the previous solution. Customer concerns about a product’s environmental performance (6.8) and an ability to have a distinctive competitive advantage (7.0) in their market also ranked on average relatively high as drivers for adoption.
- Risks and Uncertainties. Reflecting these survey findings about the importance of public policy and customer expectations to low-carbon innovation, the majority of respondents (65%) believe that the most significant uncertainty is policy (regulatory changes, tax/subsidy changes) and nearly one-quarter believe that market uncertainty (customer adoption, competing technological standards) is the most significant.
- Conducive Business Environments. Public policy also played a strong role in respondents’ beliefs about the country or region with the best business climate today for domestic low-carbon innovation. A large majority of respondents find that China and the European Union (EU) have the best overall business climate—representing 45.8% and 37.5% of the responses, respectively—primarily due to supportive government policies and, in China’s case, a strong domestic market. Some of the views on selecting China as the best environment for low-carbon innovation specified that, while the United States has the best business climate for low-carbon innovation, China has a stronger level of investment in low-carbon technologies and supporting public policies.
- Functional Expertise. Respondents believe that the CEO, Business Unit Leadership, Strategy, and R&D groups are relatively more important than other functions to be involved in all innovation, including low-carbon innovation. Perhaps not surprisingly, given findings about the importance of public policy to bringing low-carbon innovations to market, the companies believe that the Government Relations group is relatively more important for low-carbon innovation than for other types of business innovation. This finding suggests the need to better incorporate policy considerations, opportunities and challenges into the strategy and R&D activities within companies.