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The Innovation Issue

The Innovation Issue

The Magic Nexus team

Innovation plays an important role in policy-making, especially when it comes to the water-energy-food nexus. Sometimes, however, innovation cannot meet the needs of all sectors at the same time, causing various tradeoffs. For example, while desalination technology produces extra water for residential and industrial use, it also requires extra energy inputs. In such situations then, how can policymakers reconcile diverging policy goals? And how can decision-makers analyse and account for the possible adverse effects of certain policies in other areas, for example the effects of agricultural policy in the water and energy sectors?

In the MAGIC project we analyse the role of innovations in the policy-making process and in the emergence of “nexus policies”. In this issue, we invite you to take a look at some of our case studies and the core theoretical issues surrounding the role of innovations.

In our first article we analyze the classic energy-food nexus issue, bioenergy. While it may be seen as a policy solution towards meeting climate goals, bioenergy also increases demand for land, water and agricultural inputs. Land and water resources are already heavily exploited in Europe, both directly and indirectly. In the European Union an important proportion of biomass is imported (for example through animal feed). Upscaling bioenergy production would thus raise new sustainability concerns: would Europe have enough land and water to meet its bioenergy use? To what degree does Europe depend on biomass from outside the EU? Would sustainability in Europe come at the cost of sustainability elsewhere?

Our second article explores hydraulic fracturing for shale gas extraction (fracking). This technology exemplifies some of the major challenges of the water-energy nexus. From a bio-economics viewpoint, shale gas is only viable if gas prices are high, making it a risky investment. From a geopolitical standpoint, shale gas may help increase energy security in countries that depend on natural gas imports, thus reducing risk. This case study illustrates the difficulty of assessing technological innovations, amid political and economic complexity when contrasting judgements can be made.

The third article takes a deep dive into green bonds, an increasingly popular option to finance climate and sustainable development policies. However, this policy solution may raise more questions than answers. If nation states act as issuers of green bonds, new debt may be created. If nation states act as regulators, questions arise with regard to what constitutes “green”, especially in the context of the nexus in which different factors, and the interactions between them, must be taken into account.

The issue closes with a more theoretical discussion of the issue of trust in the use of innovations as a policy solution. Scientific research and innovation do not necessarily translate into clear policy solutions. Innovations should thus be assessed not only as a solution to a practical problem, but also with regard to social impacts, political interests, and power asymmetries. The current erosion of trust in policy solutions points to the need to take into account potential benefits and uncertainties alike.

 

Is Shale Gas Dead?

Is Shale Gas Dead?

Cristina Madrid-Lopez

It’s been a rough ride for the shale gas sector. The market boomed in 2008 shortly after natural gas prices reached USD $6 per million BTU ($/MMBTU). Then, lower gas-prices during 2014-2016 marked what many considered the beginning of the end of the shale gas extraction era – producers could hardly afford the high costs of horizontal drilling and hydraulic fracturing at a time when prices were close to USD $2/MMBTU. But then, as prices inched up in mid-2018 to USD $3/MMBTU, there was a mixed reaction. While shale gas enthusiasts regained optimism about the sector’s future and its potential contributions to energy policy objectives, critics were and still are skeptical of its potential due to the impacts and financial costs of extraction. With such uncertainty then, is there cause for optimism for shale gas, or is the market facing a bleak future?

Finding consensus on the answer to this question is going to be difficult because shale gas extraction is a component of what Stephenson has called “the fracking phenomenon”. In other words, “fracking” is a complex issue and as Roger Strand has put it, it is more useful to accept that some questions might not have one straight answer, but many valid ones. And that is fine.

Considering different answers as valid is not the same as falling into vague or “unscientific” methods. Analysts that follow the principles of Post-Normal Science (PNS) often use the same tools as other scientists and take into account factors other than facts, such as people’s perceptions and knowledge. Consequently, they do not look at quantitative results as an absolute truth but understand them as the final step of an analytical process influenced by a (mostly social) context.

 

The Bioeconomics view

Bioeconomics is a useful lens with which to understand the energy and material flows associated with a productive activity such as shale gas extraction. Figure 1 maps the productivity of all wells in Pennsylvania, US, at different ages where three main stages can be observed. During the early stage of drilling and fracturing, productivity increases. At the same time, the adverse impacts on water, air and land and the local population also increase. During the production phase, the well is capable of providing enough gas to recover production costs and the environmental impacts are usually minimal. Finally at the decay stage, gas production is too low to provide benefits and adverse impacts are usually the result of a lack of proper maintenance.

Figure 1: Average productivity and life stages of a shale gas well (from Madrid-Lopez, under review)

The point at which a well leaves the production stage and enters the decay stage is determined by the price of the gas. Clearly, once a well enters the decay stage, the gas company might prefer to plug it up and open another one, creating a more significant impact on land and water ecosystems. In a situation of lower gas prices, the production stage is minimized. The shale gas sector can only maintain a regular level of daily production if the number of wells (and their impacts) are increasing.

 

The Geopolitical view

When shale gas is saved for the times when gas prices are higher, however, the production of natural gas decreases, endangering the energy security of the producer. Wood Mackenzie reports that China’s shale gas extraction has doubled since 2016 and that, despite the relatively higher costs of shale gas development in China, the government’s commitment to the sector is grounded in energy security and geostrategic reasons. Since mid-2016 the sector’s productivity in the US has increased again, even when prices are close to USD $4/MMBTU which is about the average cost of production in the US. The Trump administration has heavily supported shale gas producers in Pennsylvania and other states, partly in order to fulfill local-development campaign promises that made Pennsylvania swing from a Democrat to a Republican majority state and partly to maintain a strong influence over the world energy market.

With Dutch natural gas reserves close to exhaustion and the international relations between Europe’s main gas provider, Russia, and the European Union in a critical moment, being a trade partner of Europe sounds like an appealing option for exporting countries. Consequently, despite low gas prices and high environmental and social impacts, governments might choose to promote shale gas development for strategic reasons.

 

Power relations and public participation

Power relations play an important role in defining political agendas and, consequently, what actions are taken. Trade-offs between global, national and local strategic policies are very important to determine the future of shale gas development. It can be argued that the high income states of New England in the US suffers from a global scale ‘NIMBY’ effect, meaning that they benefit from a regular and low-cost gas supply, while extraction has been banned in most of the state.

In order to ensure that the analysis that we are carrying out will provide answers to questions that are relevant for stakeholders, the obvious step is to involve them in the analysis. Traditionally, public participation is included in research either to gather information about a case study prior to the analysis or to gather feedback afterwards. In MAGIC, public participation is also included before the design of the analytical method. Thus, in the WP6 case study on shale gas we include a consultation to key actors in the European Commission.

 

Innovation to policy

Shale gas fracking can be viewed from different perspectives, as discussed here with framings from Bioeconomics or Geopolitics. What does this mean in terms of policy measures, and more broadly for the governance of innovations? The contribution of technological innovations to policy objectives is uncertain but can nevertheless be studied. Some have argued that having shale gas at hand will delay the energy transition to renewables. However, natural gas, due to its market-readiness and its potential for use in decentralized systems, has been proposed as an energy source that can contribute to achieving a Low Carbon Economy.

Shale gas development might not have the potential to make a major contribution to climate or energy policy. However, it has a high geopolitical value. It would be wise for Europeans to keep an eye on its mid-term development in the current scenario of fracturing diplomatic relations among the major external gas providers, which happen to coincide with the depletion and closure of one of Europe’s most productive gas fields, the Groningen field in the Netherlands.

Can Europe utilize bioenergy without compromising sustainability?

Can Europe utilize bioenergy without compromising sustainability?

Abigail Muscat

Humans use biomass for multiple uses, mainly as sources of food, feed for livestock, energy generation and, recently, biomaterials. With a growing global population, a shift in diets towards one based on animal-source food, and higher expected demand for bioenergy and biomaterials, the pressure on biomass and the resources needed for its production will continue to increase. These growing demands can be met by increasing biomass production, but the intensification of production is often associated with higher input agriculture, which has effects on soil and biodiversity. In the EU, the potential for increased productivity is limited as yield gaps are small. Expanding the areas for biomass production could potentially avoid the damaging effects of higher input agriculture, however this could come at the expense of natural areas of high biodiversity value. For these reasons, the expansion of areas for biomass production to meet EU demands has occurred mostly outside of the EU. In fact, the imported share of the biomass footprint in the EU has grown by 33% from 1995 to 2009. If Europe decides to achieve all the Sustainable Development Goals while minimising its need for imports, trade-offs among goals of food security, climate change mitigation and sustainability may appear.

This raises the question of how the multiple claims on biomass can be handled sustainably. Bioenergy still remains one of the major renewable energy sources, with 64% of all renewable energy in the EU-28 coming from biomass in 2016. Many potential solutions are available to avoid the competition for biomass and minimise its impacts. Solutions include using marginal lands that do not compete with food production, the use of biorefineries that produce many high-value products from few resources or making use of biomass residues that currently go to waste. Therefore the question becomes, what is the scale of the current problem and which solutions may present likely futures?

Such integrated problems and solutions will require a new kind of policy-making, as the trade-offs linked to expanding bioenergy touch upon a number of policy domains in the EU, especially the Circular Economy and Bioeconomy policies. Synergies between policies will have to be better exploited and policy-design will likely have to address consumers as much as producers. Given that the EU increasingly relies on biomass imports and on natural resources worldwide, this also has implications for the EU’s ability to meet the Sustainable Development Goals. To what degree does the EU need to take responsibility for the impacts of its material consumption?

To answer some of these questions we will assess the current situation. We will look at biorefineries processing biomass and producing a host of outputs such as fuels, feed, chemicals, materials and heat. Does Europe have enough land and water to meet its bioenergy use? Are capital and labour being displaced from elsewhere? To what degree does Europe depend on biomass from outside the EU, and is this socially desirable? Furthermore, we will ask what solutions represent likely futures and what their possible effects would be. Many biorefinery configurations are possible, generating different products and sourcing different feedstocks from different types of land. Such innovations will need a careful assessment from a range of perspectives as the innovations themselves are constantly developing.

The problem of using biomass in a resource efficient way to meet the EU’s goals has been chosen for MAGIC because it is at the crossroads of sustainability governance and the water-energy-food nexus.  It provides an excellent opportunity to discuss such a key innovation right when key EU policies, such as the Bioeconomy strategy and the Renewable Energy Directive are being re-assessed and the bioeconomy is gaining ground. Many solutions exist to address the competition for biomass but often these solutions come with their own trade-offs; for example, increasing biomass availability will be difficult in Europe and the dependency on biomass imports could worsen. Other examples include using marginal lands that don’t compete with food production, but this may interfere with other possible uses, such as nature conservation or livestock production. MAGIC will help in acting as a quality check for such solutions, to best avoid the pitfalls of being locked into incoherent policies.

Green bonds: how could they affect Nexus governance?

Green bonds: how could they affect Nexus governance?

Luis Zamarioli

The implementation of the Paris Climate Agreement and the Sustainable Development Goals follow an underlying narrative that public investments are insufficient to fund countries’ financial needs. As a solution, innovative financial mechanisms and structures have been created in order to attract private capital and bridge this gap. The expression “shifting the trillions” is now a common phrase alluding to the perceived size and importance that the private sector represents in terms of public value creation. In this context, green bonds have emerged as one such increasingly important policy innovation, being used by governments to boost environment-related public budgets. It has also been promoted as a policy nudge to the financial sector away from unsustainable  activities. Below, we aim to present green bonds and raise a few questions relating to the roles played by governments in this new market and in the greening of the financial sector.
 

What are green bonds?

Green bonds function similarly to normal bonds. A title is issued and bought, providing ready money for the issuer while giving the buyer the chance to trade it freely in secondary markets. The “green” component differentiates them from normal bonds, as the issuer pledges to use the money only in recognised  green activities. In return, the issuer pays a price to the title’s owner for a number of years until the bond matures and must be repaid in full. By adding green instruments to debt markets, it’s expected that environment-related projects can tap into the “big money” of large-volume funds, such as institutional investors. From a policy perspective, governments can participate in the green bond market in two ways - as an issuer or regulator - each raising  questions regarding the government’s role, and responsibility in terms of limitations and possible interventions.
 

Governments as issuers of green bonds

First, as issuers of green bonds, local and national governments have sought to increase the present available funding for green activities by selling their debt. The European public sector has been at the forefront of green bond issuances, The European Investment Bank issued its first Climate Awareness Bonds in 2007, followed by cities such as Paris and Stockholm, the region of Île-de-France, and the Polish and French national governments. Understanding the relationship between issuance, the use of proceeds and the public interest matter enormously to safeguard the interest of present and future generations in Europe.

An immediate question regarding public issuance of green bonds is (i) to what degree tax-based revenues might be disadvantaged politically in favour of innovative financial instruments such as green bonds, since debt instruments must be repaid and incur an increase in public debt – unlike tax-based revenues. What’s more, while promoting the narrative of budget additionality for green sectors, it remains to be seen (ii) whether state capitalisation through financial markets indeed delivers capital additionality for “green” priorities. For example, does the capital raised from issuing green bonds actually represent an increase in the overall budget for green policies in the following years? If the budget for sustainable activities remains flat or increases less than that earned from bond proceeds, we can infer that the tax-based budget previously used for sustainability is now freed-up for other budgetary uses. This hardly indicates an interest in green additionality. How can we ensure that freed-up money is not used to subsidise polluting activities or to incentivise unsustainable growth? If that is the case, in light of the need for public accountability, a call should be made to reform the political narratives that seek to justify the issuance of green bonds. Also, (iii) while offering the possibility to channel larger amounts of capital into areas needed for achieving internationally agreed climate targets and sustainable goals, financial markets have the potential to shape sustainability governance based on financial criteria. Project bankability, sector capacity to generate profits, conditions of debt markets and the credit ratings of issuing governments add an additional and strengthened component to the decision for any given policy. This so-called financialisation can create a bias towards certain sectors to the detriment of others, affecting the governance of the Nexus.
 

Government as regulator

Secondly, the public sector can act as a regulator, as above all else it has (iv) the power to legitimise the characteristic of “green” attributed to financial titles, as opposed to definitions derived from self-regulation within the financial market. This creates procedural smoothness to issuances, which can be translated into lower transaction costs and reduced reputational risks from greenwashing claims against issuers. Going forward, another challenge lies in (v) defining green, which is not a straightforward task. A wide array of environmental complexities must be simplified into static or semi-static numerical indicators, so they can be operationalised by financial players in the form of benchmarks and used to compare and value different titles. How then, as it is the specific case of the Nexus, (vi) can we represent the constantly adapting relationships and context-dependent flows and funds across different sectors?  After all, it’s not a static picture of the environment that provides us with the best assessment of how much stress we’re putting on planetary boundaries, but often the sum of those stresses and the interdependency between different environmental functions. Under the regulatory perspective, the European Commission has been moving swiftly to discuss and develop a taxonomy of which investments might be considered “sustainable” and what might the definition of a “green” bond entail. Innovating in such unchartered waters is no easy task, but a necessary one if we’re to expect financial markets to hold their share of responsibility in shifting our economy away from environmentally unfit and unsustainable levels. Under the MAGIC project we have been closely following these policy developments, aiming to create a dialogue with the Commission for clarifying the narratives and task dimensions. We will feed this process with timely assessments from a complexity perspective and Nexus considerations and exploring the broader discussion and analysing a number of case studies in selected areas.

 

What is the role of scientific innovations in EU policy?

What is the role of scientific innovations in EU policy?

Jan Sindt

The European Union sees scientific innovation as vital for economic growth and competition in global markets. This perspective is so deeply rooted in the self-perception of European political and scientific elites that it is hard to argue with. In times of economic crisis, the European Union has kept this focus, even increasing its financial support to scientific research. In addition, efforts are made to mobilize private capital for research and development.

Scientific communities submitted 400,000 proposals during the first three years of Horizon 2020, The European Union’s flagship research programme. Some 700,000 Europeans are pursuing a PhD or equivalent and European scientists roll out well over 430,000 peer-reviewed scientific publications each year*. Albeit only providing a coarse measure, these figures hint at substantive progress toward making Europe a world-class science performer. The volume of scientific output might support the assumption that a lot of innovative capacity is available to support the European Commission’s policy-making as well. And indeed, policy-making is increasingly making use of - and relying on - cross-disciplinary scientific expertise to tackle the increasing complexity of the problems faced across Europe. Making the water-energy-food nexus sustainable can serve as an example: no single person would claim expertise in all the relevant aspects of that challenge.

No single scientist does either, and at a certain level of complexity, deliberation and the force of the better argument ultimately surrender to the limitations of human brains. When that happens, we have to trust in the expertise and best intentions of the other. Pushing innovation in any area further will sooner or later result in complexity beyond the intellectual capacity of individuals, and they have to build trust within mostly interdisciplinary teams. This would appear obvious, but it is important. It means that innovators cannot claim the benign innocence of rational thinking since a social component, including their motivations, is woven into their scientific outputs. Public debates around innovations respond to that, for example by questioning the motives behind introducing genetically modified organisms into the food chain, rather than discussing the impact on health and biodiversity or uncertain long-term effects. Substituting scientific argument with trust in experts opens the door for all kinds of competing knowledge claims by actors whose motives by far outweigh their expertise in the field of study. This in turn ultimately undermines public trust in science per se.

Innovations in information technologies contribute to the problem by lowering access barriers to broadcast competing knowledge claims, hence removing the traditional noise filters employed by scientific communities (like scientific methods, peer-review and editorial decisions). While the free exchange of ideas greatly benefits from open access web based platforms, the individual has to determine the quality of available information. Combined with the aforementioned substitution of scientific argument by trust in experts, this introduces a new social component to knowledge generation and innovation. In extreme cases, the self-selection of trust-worthy sources of knowledge traps individuals in echo chambers, reinforcing trust in specific knowledge claims, filtering out access to competing knowledge claims, and creating frictions in the socio-political sphere. The public debate over health risks posed by glyphosate could serve as an example, even though it is not a recent innovation**. With a broader non-scientific stakeholder base being able to engage in discussions about innovations and how they are being used, building trust is becoming even more important to avoid misinformed debates potentially leading to poor policy decisions.

How does the European Commission address the social component of innovative science? In addition to helpful measures like improving stakeholder participation and making the many involved interest and lobby groups transparent, the Commission is also increasing the share of private capital and profit-oriented actors in research and innovation. While having companies that benefit from innovative research foot a part of the bill may appear to be in taxpayers best interest, a collusion of private capital incentives and scientific curiosity may not help to build trust with a broader political stakeholder base. If people increasingly ask who proposed an innovation instead of what argument supports its implementation, business interests and their motivations will need to be clearly identifiable. This is important, because scientific solutions to political problems ultimately have to convince the broader public rather than comparably well-informed policy-makers in order to inform democratic decision-making.
 

* The figure only counts those publications registered by the Science Citation Index of Thomson Reuter’s Web of Science. So-called grey literature, which is scientific assessments not published in dedicated peer-reviewed journals, would drastically inflate this figure.
 

** Glyphosate was found to potentially cause cancer for humans as well as to be toxic for bees, which triggered a debate about banning the pesticide in Europe. During the public debates, one author of the cancer study was discredited for being paid by US lawyers bringing a related civil case against a main producer of Glyphosate. The European Chemical Agency’s Risk Assessment Body was later also criticized for a conflict of interest of several of its members due to their involvement in chemical business operations. Furthermore the same Body was criticized for using unpublished evidence provided by the industry. On the other side, some farmer interest groups claimed that large parts of Great Britain would be overgrown by weeds and there is no other way to control those, should Glyphosate be banned in the European Union. It turned very difficult to find unbiased scientific assessments in the middle of the debate.