As countries strive to cut carbon emissions and transition to cleaner economies, innovation has become one of the key contributors on the climate policy agenda. From green hydrogen and steel to batteries and electric vehicles (EVs), the technologies that can help us decarbonise our energy, transport and industrial systems are already being developed and deployed – but at very different speeds.
In some areas, innovations have rapidly delivered more sustainable solutions, while in others, they remain in the early stages of development. What's behind this uneven progress? Which countries are leading the way, and what more is needed to accelerate the green transition, reduce greenhouse gas emissions, minimise pollution, and preserve natural resources and biodiversity?
The state of green innovation across four sectors
Green innovation is not advancing at the same pace across all technologies. While electric vehicles and batteries have entered a phase of rapid growth, green hydrogen and green steel are still in the early stages. In 2023, nearly one in five cars sold worldwide was electric, reflecting years of public investment, private sector competition, and rising consumer demand. In contrast, low-emission hydrogen accounted for only 1% of global hydrogen production, and green steel production represents a mere 0.05% of global steel output.
Various innovation efforts are critical to advance on green development goals, including improving the safety of EVs and batteries, enhancing the performance of battery technologies and their life cycles, developing new battery chemistries that reduce reliance on scarce critical minerals and introducing innovations that improve possibilities for battery recycling. Green steel requires breakthroughs in production technologies. For green hydrogen, innovation is needed in areas such as electrolyser efficiency, integration with renewable energy systems, and safe storage and transport solutions.
Non-technological innovation is just as important
While technological progress is essential, it is only part of the story. New business models and options to change polluting consumption patterns also require further development.
In the case of green hydrogen, for example, transporting hydrogen over long distances is both technically challenging and energy intensive. One solution is to relocate energy-intensive production steps closer to hydrogen sites. This requires not just infrastructure investment but also setting up new supply chains.
For EVs, innovations in urban and rural mobility services require further efforts for more sustainable transport, including through urban planning, the expansion of electric micro-mobility options, and car-sharing platforms to maximise EV usage.
In the steel and batteries sectors, advances in recycling, reuse, and logistics are essential. Efficient collection and processing of steel scrap can significantly lower emissions from steel production. Similarly, new strategies and business models for battery reuse and recycling can reduce demand for critical minerals and strengthen supply chain resilience.
Who are the innovators?
Several jurisdictions play an outsized role in the development of green innovation. Japan, the United States, Korea, and the European Union (EU) – including Germany – are major hubs of green patenting activity and investment. China in turn is positioned as a mass manufacturer of green innovations in the green hydrogen (electrolysers), batteries and electric vehicles sectors. Within countries, green patenting tends to follow the same regional concentration patterns as patenting in general, as evidence for Germany and the United States suggests.
Innovation ecosystems also benefit from interactions between incumbent actors and newcomers, where the entry of disruptive actors acts as stimulus for innovations. Moreover, across value chains, interactions of upstream suppliers, such as battery and electrolyser manufacturers, with downstream providers, such as automakers, collectively have played crucial roles in advancing green innovation. Contributions from public institutions and researchers have provided additional contributions.
What are the hurdles to green innovation?
Despite clear progress, green innovation continues to face major challenges:
Not enough is invested in green innovations. Environmental damage is not adequately priced into markets, so private incentives to invest in developing green innovations fall short of what is socially desirable. Technology, market and regulatory uncertainties also hinder private investments.
Many industries are deeply entrenched in existing technologies, making it difficult – and costly – to transition to greener alternatives. Infrastructure requirements and the shortage of specialised skills in green-related technology areas, such as expertise in renewable energy systems, reinforce reliance on traditional polluting technologies. Prevailing consumer preferences and behavioural patterns also create barriers to change.
The higher production costs of green products compared to their more polluting alternatives is a common barrier to adoption across the four sectors explored here, although the cost gap is gradually narrowing for EVs and batteries. The expansion of charging infrastructure is a key condition to provide the same level of convenience and accessibility for EVs as for refuelling ICE cars.
Sector-specific supply-side challenges hamper progress. Green steel production demands, for instance, large up-front capital investments. Steelmaking plants have long investment cycles, with a lifetime of about 50 years, making rapid change difficult. In turn, global steel excess capacity reduces firms’ profitability and their ability to invest in green steel production technologies. Transforming the entire car industry from ICE cars to EVs requires reskilling of the workforce and producing new inputs (such as batteries) while shifting away from redundant inputs (e.g. transmission/gear box).
What needs to happen next?
Overcoming the challenges explored here requires a mix of technological and non-technological solutions, strong policy support, and coordinated global efforts. The existence of ambitious and sustained environmental policy targets and commitments, and the adherence to international agreements, standards and regulations, play a critical role in incentivising investments in green innovation, creating markets for these innovations and incentivising changes in consumer behaviours.
Explore further
For deeper insights into key trends and ecosystem conditions for green innovations in these four selected sectors, read the latest OECD working paper on What is unique about green innovation? Evidence from green hydrogen, green steel, batteries and electric vehicles.
