Long-Term Energy Futures: The Critical Role of Technology

The paper briefly reviews the results of a five-year study conducted by IIASA jointly with the World Energy Council (WEC) on long-term energy perspectives. After summarizing the study's main findings, the paper addresses the crucial role of technological change in the evolution of long-term energy futures and in responding to key long-term uncertainties in the domains of energy demand growth, economics, as well as environmental protection. Based on most recent empirical and methodological findings, long-term dynamics of technological change portray a number of distinct features that need to be taken account of in technology and energy policy. First, success of innovation efforts and ultimate outcomes of technological change are uncertain. Second, new improved technologies are not a free good, but require continued efforts. Third, technological knowledge (as resulting from R&D and accumulation of experience, i.e., technological learning) exhibits characteristics of (uncertain) increasing returns. Fourth, due to innovation - diffusion lags, technological interdependence, and infrastructure needs (network externalities), rates of change in large-scale energy systems are necessarily slow. This implies acting sooner than later as a contingency policy to respond to long-term social, economic and environmental uncertainties, most notably possible climate change. Rather than picking technological "winners," the results of the IIASA-WEC scenario studies are seen as most appropriate to guide technology and R&D portfolio analysis. Nonetheless, robust persistent patterns of technological change invariably occur across all scenarios. Examples of promising groups of technologies are given. The crucial importance of meeting long-term energy demand in developing countries, assuring large-scale infrastructure investments, maintaining a strong and diversified R&D portfolio, as well as to devise new institutional mechanisms for technology development and diffusion -- for instance through the flexibility and Clean Development mechanisms of the Kyoto Protocol -- are highlighted. The paper concludes with some methodological lessons to capture the essence of the above outlined characteristics of technological change in energy models and long-term scenarios