Green technology to save the world, or not?

November 21, 2022

Patent activity for green technologies has surged in the first decade of the 21st century but has significantly slowed down since 2018. The slowdown raises serious questions about the ability to meet the Paris Agreement and net zero goals. The need for a boost in inventive activity was recently confirmed in a report by the European Patent Office (EPO) and the International Energy Agency (IEA).

Before diving deeper, let us define the terminology ‘green’, which is to some degree subjective. According to the UN, green technologies protect the environment, are less polluting, use all resources in a more sustainable manner, recycle more of their wastes and products, and handle residual waste in a more acceptable manner than the technologies for which they were substitutes. These include know-how, procedures, goods and services, and equipment as well as organizational and managerial procedures. It is important to highlight that this definition of green patents includes climate change adaptation and mitigation technologies. Improved input or output efficiency of combustion technologies or nuclear energy are considered as climate change mitigation technology.

Cooperative Patent Classification (CPC) codes, an extension of the International Patent Classification (IPC) and jointly managed by the EPO and the U.S. Patent and Trademark Office (USPTO), consists of approximately 250,000 classification entries, with section Y devoted to new technological developments. Within section Y, there is a particular focus on green technologies, which in combination with carefully chosen other CPC codes enables to track green innovation on a granular level.

Patent grants have steadily increased over the past 20 years (see Figure 1 showing patent grants by the USPTO). Within this, green patents have increased from 4.8% in 2002 to 8.3% in 2018. Figure 2 shows a two- to ten-fold increase in the different categories of green patents over the period 2002-2018 versus Q1 2002. Carbon capture and storage technologies peak earlier in 2013, but the general trend is a slowing down in green patent grants after 2019. It is too early to tell if there is any Covid effect in this slowdown, but the numbers are worrisome. Interestingly, all climate change mitigation themes and GHG capture and storage experienced a second peak in Q3 2022. It will be interesting to track if this is a one-off event or a reversal to the trend to innovate in climate change mitigation.

Not all technological progress can be tracked by patents. As the Financial Times reported in June 2022, artificial intelligence has the potential to help organisations to meet between 11% and 45% of industry emissions targets by 2030. However, these algorithms are usually treated as trade secrets and not directly patented. Examples of algorithms to mitigate climate risk are weather forecasting or flood planning algorithms, or improved route planning to reduce fuel costs for heavy sea or land transportation.

The speed of innovation in green technologies needs to increase. Climate policies, energy prices and public R&D expenditure will have a large impact on future developments. It will be interesting to see how the current geo-political and macro-economic environment towards energy independence and higher inflation translates in green innovation. A first reaction appears to be a renewed enthusiasm for nuclear power. The Swedish government recently decided to seek expansion in nuclear energy and the Dutch plan to build two new nuclear units.

For green innovation to make an actual difference for meeting net-zero emissions by 2050, robust market deployment right after completion of only single commercial-scale demonstration is key, which is not common practice. It took consumer products such as LEDs and lithium-ion batteries 30 years to go from first prototype to mass market. And these were the fastest energy-related examples in recent decades.

As an impact investor, there is a strong incentive to invest in companies with a track record for green patents. These companies do not necessarily have current low carbon emissions, but they create technology that makes it possible for the whole economy to transition to a Paris-aligned trajectory.

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