Expert Perspectives

Breaking Carbon Lock-In through Innovation and Decline

To meet the Paris climate commitment of keeping global temperature rise well below 2 degrees Celsius, industrialized economies will need to reduce their greenhouse gas (GHG) emissions by 25 percent of 2010 levels by 2030 and move to carbon neutrality by about 2070 (IPCC 2018). This implies a dramatic transformation of societal systems such as electricity, mobility, and agri-foods as they are decoupled from fossil fuels in a handful of decades. It is increasingly well understood that this low-carbon transition will involve profound changes to not only technologies and infrastructures but also policies and institutions, business models and markets, as well as lifestyles and norms (Geels et al. 2017). Given this depth and scale of transformation, climate change is often referred to as a super wicked (Levin et al. 2012), fractal (Bernstein and Hoffman 2019), or systems (Geels et al. 2017) problem. This expert perspective focuses on a prominent dimension of this challenge: path dependency. It concentrates, in particular, on how path dependency manifests in carbon lock-in and through what means this can be overcome.

Understanding Path Dependency and Carbon Lock-In

Research (Pierson 2000; Berkhout 2002; Unruh 2000) suggests that carbon-intensive development trajectories are sustained and reinforced through path-dependent processes. Path dependency can be understood as a kind of historical inertia, whereby early choices close down the envelope of possible future choices in such a fashion as to reproduce established societal arrangements (see Figure 1). Studies have identified a range of self-reinforcing mechanisms that promote path dependency: (1) the sunk costs associated with current technologies and infrastructures (e.g., long-lived physical capital); (2) accumulated experience with established technologies and institutions (e.g., human capital); (3) self-fulfilling expectations about the persistence of these arrangements (e.g., common perceptions that carbon-intensive practices are somehow natural); (4) the benefits of moving in a set direction (e.g., standardization); and (5) positive feedbacks between an institutional setup and its beneficiaries (e.g., vested interests). The following discussion illustrates how these mechanisms can interact to perpetuate fossil fuel arrangements or drive low-carbon pathways.

Figure 1: Illustrative Path-Dependent Process

Source: Adapted from Rosenbloom et al. (2019)

When self-reinforcing mechanisms manifest in such a way as to perpetuate the use of fossil fuels and prevent the emergence of alternatives, they represent a powerful form of carbon lock-in. While there are many historical examples of how fossil fuels have become deeply embedded in society (e.g., how the design of cities has developed alongside the diffusion of gasoline-powered personal automobiles [Sheller and Urry 2002]), the recent shift from coal to natural gas–fired power represents an unfolding form of carbon lock-in that is taking place across many jurisdictions. In Ontario, for instance, over 9,000 megawatts of natural gas units have been constructed and contracted to provide electric power since 2006. Natural gas now accounts for roughly one-third of installed capacity, with much of this infrastructure expected to last for 30 years. These assets not only represent considerable sunk costs but are also tied to interests who seek to maintain and even expand the position of natural gas in long-term energy system planning (Rosenbloom 2019). And still broader societal actors (from industry to energy firms) have invested in natural gas infrastructure, developing operational experience and human capital linked to this source of power. Moreover, natural gas aligns with the existing guiding principles of the electricity system, requiring limited changes to market functions in comparison to alternatives (e.g., distributed renewable energy sources such as wind and solar). In this way, although a shift from coal to gas may reduce GHG emissions in the near-term, investment in natural gas extends the use of fossil fuels in the electricity system and delays the eventual adjustments associated with the widespread adoption of renewable energy and complementary innovations (e.g., energy storage and demand response) that are likely to make up electricity systems of the future. Together, these mechanisms interact to promote further movement along a high-carbon development trajectory, illustrating that near-term choices to invest in fossil fuels may lead society along dead-end paths that will be costly to reverse later on (see Figure 2). This experience is common to many jurisdictions (e.g., the United States and the United Kingdom), where ongoing investments in natural gas infrastructure (from power stations to pipelines) could extend carbon-intensive arrangements out to midcentury and beyond.

Figure 2: Pathways

Source: Author

Path-dependent mechanisms may, however, also manifest in ways that reinforce (Levin et al. 2012; Bernstein and Hoffman 2018; Meckling et al. 2015) and even accelerate (Rosenbloom et al. 2019; Roberts et al. 2018) low-carbon pathways. Studies show that green industrial policies supporting wind and solar have helped to create important constituencies with material interests in decarbonization who later advocated for more ambitious climate policy (Meckling et al. 2015; Pahle 2018). In Germany, for instance, early public expenditures on research and demonstration projects around solar energy helped create a technological niche for experimentation (with new solar cell technologies, applications, and manufacturing processes) and coalition-building (among the scientific community, entrepreneurs, and environmental advocacy groups). Government financing sheltered this niche from the competitive forces of the electricity market, which was dominated by large utilities relying on coal and nuclear. The niche for solar energy was progressively expanded as policies extended beyond research and development to incentivize infrastructure deployment (through feed-in-tariffs and renewable portfolio standards), simultaneously promoting learning opportunities and associated price and performance improvements, supply chain maturation, and strengthened constellations of actors involved in the industry (from solar module manufacturers to installers to consumers). At each step of the way, interests aligned with solar energy played an integral role in defending investments in this innovation against challenges and securing important political victories to deepen commitments (Jacobsson and Lauber 2006). This experience is reflected elsewhere and in relation to other low-carbon technologies (e.g., Denmark and wind power [Simmie 2012]), suggesting that early sequences of choices can also generate momentum for long-term decarbonization pathways.

This discussion raises two interrelated questions for climate-energy policy. First, through what means could carbon lock-in be confronted? And, second, in what ways might path dependency be leveraged to promote decarbonization? I conclude by responding to these questions, pointing to the important role of innovation and decline in simultaneously eroding fossil fuel arrangements and building up alternatives.

Confronting Carbon Lock-In

Low-carbon innovation has emerged as a common approach to confront carbon lock-in and build momentum for postcarbon development trajectories. A growing body of research suggests that social and technological innovations can be nurtured in niche markets and then emerge when windows of opportunity occur (Geels et al. 2017). Returning to the example of new renewables, these energy sources were supported through a sequence of efforts: initial innovation policies and specialized applications (e.g., photovoltaics in space flight and off-grid), later deployment and industrial development policies, and more recent market-integration initiatives. This not only created sunk costs in renewable energy infrastructure but also generated learning around these sources and built up interests with an important stake in decarbonization. With this, new renewables now appear poised to diffuse more rapidly and challenge fossil fuel arrangements (Markard 2018).

However, incumbent technologies and actors actively resist the emergence of low-carbon alternatives given their disruptive potential (Geels 2014). In jurisdictions where new renewables have penetrated the market in sufficient quantity (e.g., Germany and the United Kingdom), they are now upsetting the operation of the electricity system and established business models. Given that new renewables produce power at near zero marginal cost, they have led to periods of surplus power and negative real-time electricity prices. This has eroded the functioning of the electricity market. Rather than accelerate the adoption of complementary innovations (e.g., demand response and energy storage) to usher in electricity systems of the future, energy firms and grid operators have responded by constraining new renewable deployment (e.g., repealing incentives) and introducing new rules that reassert the favored position of incumbent generators (e.g., the proliferation of capacity-based markets that tend to value reliability over clean power). Similar experiences are also unfolding in the transport system, where new innovations based on ridesharing and mobility-as-a-service (e.g., Uber and Lyft) are disrupting traditional business models (taxis) and norms surrounding car ownership. However, incumbent actors have attempted to limit these disruptive forces by calling for regulatory constraints. This indicates that while innovation represents a powerful force for change, it is often insufficient to overcome lock-ins as incumbent actors seek to shift the playing field back in their favor.

This has led to a growing recognition that ending reliance on fossil fuels will require more direct and conscious efforts to manage their decline. These efforts target carbon lock-in directly and ramp down carbon-intensive arrangements in such a way as to create space for low-carbon innovation (see Figure 3). Research (Kivimaa and Kern 2016) points to several functions policy may play in facilitating this process, including disincentivizing or banning incumbent technologies (from phaseouts to carbon pricing), reforming institutions and market rules (to support broader societal goals), eroding the financial resources of carbon-intensive interests (by removing fossil fuel subsidies), and weake­ning actor networks and access to decision-makers (by rebalancing advisory boards to limit incumbent involvement). In practice, many examples are beginning to take shape. Phaseouts are targeting coal-fired power and internal combustion engines, signaling the end of these technologies and infrastructures to avoid further investment. Divestment strategies are targeting the financial assets of fossil fuel companies and delegitimizing carbon-intensive business models (Ayling and Gunningham 2017). There are also other efforts to rework decision-making bodies to reduce the representation of fossil fuel interests. Despite the promise of these initiatives, current efforts remain largely fragmented and will need to be further coordinated to erode the deep lock-ins perpetuating fossil fuel arrangements.

Figure 3: Driving Low-Carbon Pathways through Innovation and Decline

Source: Adapted from Rosenbloom et al. (forthcoming)


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All the interpretations and findings set forth in this expert perspective are those of the author alone.