Watch the Innovation, Not Just the Regulation
Updated: Jun 21, 2021
U.S. Climate Envoy and former Presidential contender John Kerry is a techno-optimist.
“Innovation is going to be a critical component of what we have to achieve,’’ Kerry said in his closing remarks during last month’s virtual leaders’ summit on climate.
If his focus on technology wasn’t obvious, he also highlighted an appearance by Bill Gates at the summit. Kerry, famous for his military service in Vietnam, was also keen to cite the Pentagon as an authority for his arguments about reducing emissions: the U.S. defense establishment views climate change as a “threat multiplier.”
How seriously does the Pentagon take climate? It’s worth looking at its Twitter feed. On May 19, the generals announced they had completed their first “climate and environmental security tabletop exercise.” It was called Elliptic Thunder, a name worthy of a Hollywood geopolitical thriller. It imagined a world where extreme weather such as floods and cyclones leads to failed states in East Africa, unleashing a tragic combination of desperate human migration and opportunities for extremist political groups amidst the misery. “High-end conventional combat capabilities were of little use in the scenario, as our adversaries instead engaged in irregular warfare to gain advantage.”
The connection between guerrilla warfare and climate innovation might not be obvious, but the broader strategic thinking -- and vast funding budget -- of the U.S. Defense Department has been the driving force behind technological leaps from the Apollo moon missions to the Internet.
Kerry, who rose to prominence after his military service in Vietnam, highlighted that the well known “net zero” goals for 2050 can’t be reached only by reducing the emissions produced by the industrial world of our daily lives. Someone is going to have to figure out how to suck the carbon out of the atmosphere that is already there.
“We need the innovative technologies to do that, or to be able to know that we can store it or turn it into something,'' President Biden’s point man on climate said. "We haven’t discovered that yet.”
The climate summit included European representatives who had just been through a bruising negotiation amongst themselves, pitting the veiled interests of German automakers and the Finnish forest industry against the eco-utopianism of the Green Party as the bloc aims for consensus on environmental, social and governance (ESG) metrics. It’s tempting to see broad regional stereotypes as the two sides of the Transatlantic relationship move forward on climate strategies. Europeans focus on regulation; Americans are more keen on innovation.
Of course, it’s not that simple. The U.S. might be a laggard, but it will regulate. And Europe doesn’t have a Silicon Valley, but it will innovate.
Which companies are doing the most promising work in carbon capture? In “green” versus “blue” hydrogen? Some of these companies are going to catch the eye of Kerry, Biden and other policymakers, and there’s potential to scale up when industry and government collaborate — just as they did in the space program and the development of devolved computer networks.
Increasingly, investors know they must identify the groundbreaking tech companies — both for their own ESG data objectives, and for some impressive stock-market performance. Exchange-traded fund companies know this too, and are introducing thematic ETFs focused on climate innovation.
One way to get an edge is using sustainability analytics to track that innovation, in the U.S., Europe and Asia, through non-traditional data sources, like patent registrations. Companies that do the work have a chance of profiting handsomely from American techno-optimism.