Fostering Innovation Ecosystem Partnerships to Tackle Energy Challenges

By Greg Goodwin

Less than three miles southeast of Fletcher in bordering Somerville, MA sits Greentown Labs—the largest cleantech incubator in the United States—where more than 50 cleantech startup companies, mostly in the hardware segment, hone their ideas, prototypes, and business models as they seek customers and funding.

I’ve been here for the past several weeks working on a specific project involving corporate/startup partnership in modernizing the electric grid through improved hardware and software management. Before going in to the details of my work, it’s worth describing the Greentown building, an impressive example of how a physical space nurtures a diverse group of dedicated tinkerers who feed off the environment in improving their businesses.

The 33,000-square-foot building was formerly part of the Ames Safety Envelope Company and is split between shared lab/prototyping space, an open-air co-working space, and a large event space in a way maximized to facilitate collaboration and knowledge spillover. With a pool table and large kitchen complete with brews on tap—both the cold-caffeinated and hops-laden variety—it’s almost impossible not to pass through without rubbing elbows with someone working on something related to your latest challenge. On any given day, there may be investors, corporate sponsors, state or local officials, or manufacturing/technical advisors present to tour the facility and engage with the leaders of these budding companies or each other, making Greentown’s role as a convener and a hub of discussion palpable among innovation ecosystem players and casual onlookers alike.

In October 2017 Greentown Labs is expanding its facilities to a 58,000-square-foot building just across the street that will feature an even bigger event space for larger public gatherings and a wet lab to attract startups that work with chemicals and hazardous materials.

An Incubator’s Role as Accelerator

The main project I’ve been working on here is helping to conceptualize and pitch a startup accelerator program focused on e-mobility and grid management hardware/software to a utility currently making strategic moves in this area. As an extremely broad issue, one of the key ways incubators like Greentown add value is to narrow the top of a broad funnel of promising startups to a targeted few through their extensive networks—experts in subject matter, legal/IP, academics, finance, public officials, and so forth—to accelerate and de-risk startups. This can present a valuable partnership for a corporate entity’s strategy when it supports open innovation initiatives within the organization.

This is essentially Greentown’s “Launch,” program—a six-month umbrella offering that accelerates and de-risks startups through a series of workshops and events. It’s a program that has been run so far in the solar and sensor industries. Success looks different depending on startup and corporate individual goals, but investment, joint development agreements, and purchase orders are examples of outcomes that a startup might find with a sponsoring entity, and might get them to the next level of growth in their business. 

For my purposes, these startups are working broadly in areas like materials science, seen in the development of higher energy density batteries, quicker and more efficient electric vehicle charging stations and components, and also algorithmic endeavors, like distributed energy resource management software to effectively manage demand and load as new grid resources come online and energy distribution shifts from the old, unidirectional model from plant to customer via the grid, to a multidirectional one where customers with stored or excess energy in the form of batteries or behind-the-meter solar panels can sell it back to the grid or to a neighbor down the street.

Industry Trends and the Push from Public Policy

There have been plenty of industry trends and policy developments in energy, particularly in electric grid modernization and electric vehicles, the latter of which has shown tremendous growth in the past year and lofty projections for the coming few. This is due in no small part due to the multi-state Zero Emission Vehicle (ZEV) initiative, which requires automakers to sell a certain number of plug-in hybrids (PHEV), battery electric hybrids (BEV) and hydrogen fuel cells vehicles as a percentage of sales.

Within the utility sector there is also public policy-sparked activity. State legislatures—particularly in Massachusetts and New York in the East and California in the West—are piloting various projects like large-scale solar farms, microgrids, and greater storage integration to meet strategic goals like improving the reliability/resiliency of the grid, better meet customer expectations and experience as demographics shift, and meet renewable energy standards.

At the end of last month, here in Massachusetts the Department of Energy Resources (DOER) released an announcement highly anticipated in the energy storage and utility industries—the state is targeting 200 MWh of energy storage deployed by 2020, part of a mandate given to the DOER through a broad and bi-partisan bill signed into law by the Baker Administration in August of last year. In doing so, it becomes just the third state in the nation to adopt an energy storage target through state policy (joining California and Oregon) and the first on the East Coast.

Massachusetts was criticized by a few industry players within energy storage and trade publications for setting the bar too low, well short of the 600 MW recommended in the “State of Charge” report, an exploratory study on the economics and logistics of energy storage that was also part of the aforementioned law. However, it’s notable that the State of Charge’s recommendation was on at timeline to 2025 where the established target is by 2020, with the economics of energy storage projected to become far more favorable due to R&D developments and market signals provided by the target.

While the state has a number of battery and storage pilots in place right now to prove their viability and cost effectiveness, none are currently operating at commercial scale and the 2020 deadline will require a ramp-up of about 100 times the current installed capacity. It will be interesting to see what role Greentown and other incubators within the innovation ecosystem play in meeting it.

 

Kickoff event from a recent Launch program at Greentown Labs

Kickoff event from a recent Launch program at Greentown Labs

Markets and Non-Market Approaches for International Cooperation in the Paris Agreement: Open Questions in the International Negotiations

By Rishikesh Bhandary

In an agreement where every country makes its own pledge, how do you increase ambition by increasing collaboration between countries? One of the answers provided by the Paris Agreement is in Article 6 (international cooperative approaches). Article 6 actually contains three distinct elements: emissions trading (referred to as internationally transferred mitigation outcomes or ITMOs), a mechanism to mitigate greenhouse gases while supporting sustainable development (Article 6 Mechanism), and non-market approaches (activities that do not involve the commoditization of carbon to support sustainable development). The common principles uniting these three elements are that they involve voluntary participation, help increase ambition of both mitigation and adaptation actions, and promote sustainable development.[1]

While we can view Article 6 as a successor to the Kyoto Protocol’s mechanisms that were designed to provide flexibility to countries to meet their mitigation obligations, there are three major differences that are worth highlighting. First, under the Paris Agreement all parties have nationally determined contributions (NDCs). This comprehensive coverage indicates the potential for Article 6 to have tremendous scope but it also points to the work that needs to be done to bring some order to the sheer diversity of NDCs. Second, the overriding goal of the cooperative approaches is to go beyond providing flexibility in how countries meet their goals but to increase global ambition altogether. Finally, Article 6 acknowledges that many actors beyond national governments now drive climate action and makes an explicit provision to facilitate participation by non-state actors.

In this blog post, I will highlight some of the major issues at play in each of the three elements of Article 6 and provide a status update on what happened at the most recent round of climate negotiations in Bonn (May 2017). Countries have given themselves until the climate conference in Poland next year to agree on the rulebook to support the Paris Agreement.

Internationally Transferred Mitigation Outcomes

Article 6.2 acknowledges and encourages the patchwork of bilateral and minilateral arrangements that currently exist to link emissions trading programs, among others. For example, states such as California could link their cap-and-trade program with South Korea’s. This element keeps the scope of these voluntary collaborations open but stipulates that they promote sustainable development, ensure environmental integrity and apply robust accounting.

Governing Arrangements

The Paris Agreement foresees a light touch process as countries only have to agree on guidance for Article 6.2 as opposed to rules, modalities and procedures for Article 6.4, for example. Yet, there is a need to strike a balance between encouraging these bottom-up initiatives and ensuring environmental integrity. The debate on how centralized oversight needs to be for Article 6.2 reflects this concern.

Supplementarity

Under what conditions can a country use ITMOs towards its NDCs? A number of countries have called for the principle of supplementarity to be applied. This principle implies that ITMO transfers should be supplemental to domestic action. Supplementarity can also imply that the seller country may be able authorize a transfer only after it has fulfilled its own pledge. While supplementarity is not explicitly mentioned in Article 6.2, a case can be made about the need for ITMOs to allow countries to go beyond what they have committed to in their NDCs (given that paragraph 6.1 calls for higher ambition). Of course, not everyone agrees with the application of supplementarity to Article 6.2, or with this particular interpretation, but one may expect it to be an object of contention in the months ahead. 

NDC Guidance, Reporting, and Corresponding Adjustments

As countries discuss and elaborate the finer details of the Paris Agreement (the so called “Paris Rulebook” negotiations that are due for completion in 2018), countries are considering how guidance on the Paris pledges (NDCs) are linked with discussions on ITMOs. Countries need to consider the full cycle of ITMOs: formally recognizing ITMOs, the reporting vehicle for ITMOs (some have called for using the same vehicle as that for NDCs), and how the reporting will be reviewed (if they get the same level of scrutiny as the rest of the NDC).

It is also clear from the supporting decision text of the Paris Agreement that countries need to declare and make relevant adjustments if they use ITMOs to fulfill their NDC obligations. Parties have different views on the mechanisms of making these corresponding adjustments. Some have argued for adjusting emissions inventories while others want NDCs to be adjusted. The consequences of these two differing approaches have to be explored.

Open Questions

Taken together, Articles 6.2 and 6.4 have the potential to nudge developing countries towards economy-wide targets: by quantifying their NDCs, expanding scope and coverage, and eventually making economy wide commitments. Negotiators need to consider the risk of creating perverse incentives to keep certain sectors uncapped if those sectors generate reductions that can be transferred internationally.

Apart from these issues specific to the operation of the Paris Agreement, countries need to pay attention to how linking carbon markets may actually work out in practice. You can read CIERP Professor Metcalf’s article on how to linking may work between different jurisdictions here. Similarly, Green, Sterner and Wagner have written about the political challenges of linking bottom-up markets.

 Article 6 Mechanism

The Article 6 Mechanism is inspired by the Clean Development Mechanism. It would allow the host country to benefit from activities that mitigate GHG emissions and also allow a different country to use those emission reductions in meeting its NDC obligations. 

Additionality and Double Counting

From the submissions of parties and discussions thus far, it is not clear how much appetite there is to come up with an operationalization of additionality that is different from the Kyoto Protocol’s. The Clean Development Mechanism followed a baseline-crediting approach where projects are considered additional if they would not have been executed without the CDM. With every party having an NDC, it has become a little trickier to ascertain additionality (especially as there may also be activities under this mechanism that may take place outside the scope of the host party’s NDC). In addition, given the diversity of NDC types, there is a need to consider how additionality can be made contextually relevant.

Furthermore, some countries contend that corresponding adjustments apply only to Article 6.2 and not to Article 6.4 as it is not explicitly mentioned in the supporting decision text of the Paris Agreement (1/CP.21). This position has important implications for delivering overall mitigation and double counting. Properly distinguishing between ITMOs and transactions under the Article 6.4 would help to bring some clarity.

Transitional Issues

A number of countries have pointed to the need to address what happens to the projects and programs under the Clean Development Mechanism and the Joint Implementation. Proposals range from a wholesale grandfathering approach (which would involve Article 6.4 carrying over all of the institutional arrangements of the CDM and JI including their approved methodologies, credit issuing projects, and pipelines) to a back-to-the-drawing board approach that would take the Article 6.4 Mechanism as an opportunity for a fresh start. The key challenge here is in providing assurance to those investors who have spent considerable resources engaging with the UNFCCC and using Article 6 as an opportunity to learn from the CDM/JI by improving the nature of activities and projects that it supports.

Sustainable development

That mitigations actions pursued using the Article 6 Mechanism should support sustainable development is clear from the language that establishes this mechanism (Article 6.4) as well as the overall chapeau of the article (paragraph 6.1). What is less clear, however, is how the mechanism’s focus on sustainable development will be made operational. Some countries have proposed linking Article 6.4 firmly with the Sustainable Development Goals. A few others hold the view that there is no need for multilateral guidance on this matter as sustainable development is a national prerogative. The CDM reflects this view as each country determines on its own whether a CDM project contributes to sustainable development or not. While this hands-off approach recognizes the sheer diversity, by necessity, of CDM projects, concrete guidance could probably have provided some confidence on the value of CDM projects (beyond mitigating greenhouse gases). Leaving things open to each country has also made it difficult to systematically study CDM’s impact on sustainable development, for instance.

Open Questions

Article 6.4 provides ground to reflect the Paris Agreement’s commitment to human rights as laid out in the preamble (“Parties should...promote and consider their respective obligations on human rights”). Such language can provide a number of potential entry points for addressing human rights, for example: when methodologies for projects and programs under A6M are developed to include safeguards and standards; by providing guidance to countries to consider human rights when authorizing activities; and when the governing body of the A6M recognizes projects and programs.

As discussed, one of the key distinguishing features of this mechanism is to help achieve a higher level of ambition. To generate additional mitigation, ideas on the table mostly include shaving off a certain fraction of mitigation units generated. For example, if a project generates an emission reduction of 500 tCO2, a 10% shave-off can be applied so that 50 tCO2 becomes canceled and only 450 tCO2 is eligible to be used for NDC obligations. (See this article by Warnecke et al. (2014) for an analysis of four net mitigation delivery options).

The Adaptation Fund receives a share of proceeds from the CDM. A similar provision has been built into the Article 6 Mechanism though it does not specify who the recipient would be. While some countries have sought to direct the funds towards the Adaptation Fund, others want to wait until the arrangements of the Adaptation Fund under the Paris Agreement are clear. Similarly, some countries have argued for a share of proceeds to be generated from ITMOs as well.

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