The power sector is a key target for reducing CO₂ emissions. However, little attention has been paid to the sector’s vulnerability to climate change. This paper investigates the impacts of severe weather events and changes in climate variables on the power sector in developing countries, focusing on Indonesia as a country with growing electricity infrastructure, yet being vulnerable to natural hazards. We obtain empirical evidence concerning weather and climate impacts through interviews and focus group discussions with electric utilities along the electricity supply chain. These data are supplemented with reviews of utilities’ reports and published energy sector information. Our results indicate that severe weather events often cause disruptions in electricity supply—in the worst cases, even power outages. Weather-related power outages mainly occur due to failures in distribution networks. While severe weather events infrequently cause shutdowns of power plants, their impact magnitude is significant if it does occur. Meanwhile, transmission networks are susceptible to lightning strikes, which are the leading cause of the networks’ weather-related failures. We also present estimates of financial losses suffered by utilities due to weather-related power disruptions and highlights their adaptation responses to those disruptions.

A global shift to low-carbon economies needs five times larger annual investments in renewable energy and energy efficiency compared to the present USD₂₀₀₅ 200 billion. The question about how to finance those large investments is discussed with particular attention to the citizens' savings because they are hardly used so far, except a few countries. If good conditions are created, activation of these savings is sufficiently large and it is rewarding regarding the cost-reducing technological change and many civil initiatives. High international prices of fossil fuels create favorable conditions but they are unpredictable whilst the present policy support for energy business and CO₂ taxes do not compensate for the low prices. High CO₂ taxes could do but meet opposition. Innovations in the USA and EU add value to the energy businesses by USD₂₀₀₅ 9.2 billion a year based on average during 2005–2015, which exceeds their R & D on renewable energy and energy efficiency. Innovations in energy business also generate spin-off that exceeds 1% of the global GDP though the spin-off strongly varies across countries. The value addition motivates the supply-oriented and demand-oriented policy support for those energy innovations, in particular subsidies and price guarantees, respectively. Experiences with the subsidies in the USA compared to the price guarantees in the EU show that the latter involved larger expenditures but generated many more new firms and jobs per USD₂₀₀₅. A price guarantee per CO₂ would invoke distributed energy systems entailing higher more energy-efficiency and energy security. Innovations generate adaptations when applied on larger scale. Their cost-reduction is function of scale; the projectable cost-reduction reduces the financial risks. Estimates show that the global investments in wind and solar power are efficiently allocated and operations are cost-effective. In addition to the power generation, those renewable energy with storage technologies deliver co-benefits to the energy producers and consumers and business models emerge tuned to the local conditions. The citizens' participations in energy-efficiency and renewable energy would be enhanced if policies guarantee the annual value of the participants' savings. Such guarantee would generate tax returns due to more companies and higher value of assets. The citizens participation with policy support enables the global shift to sustainable energy.

Ongoing environmental innovation is the only way to reduce pressures on environmental qualities while maintaining income growth. However, the views on how to initiate and foster environmental innovations differ. In the essay we discuss three theoretical approaches. From neo-classical economic theory we distill the message that research and development of new technology thrive on economic incentives. The evolutionary theory describes patterns in technological development but in our view it exaggerates the importance of technological interlinkages that cause lock-in, as barriers to environmental innovation and it overlooks the organisational impediments within the firm. From the behavioural theory of the firm we learn that innovations can only get through in situations of urgency. The conclusion is that a strict environmental policy can create the sense of urgency and strong incentives for environmental innovation. Ambitious and inflexible targets at macro-level but flexibility at micro-level of the firm are unsurpassable as a policy to foster environmental innovation.

How can the governance of nature areas foster the sustainability of ecosystems? This is discussed with regard to larger threats on ecosystems despite larger global nature areas that reach 19 million km² of land along with larger costs per area unit. Moreover, monetization of nature with payments for ecosystem services is sometimes demanded for justification of the nature areas; however, this does not resolve the threats but faces scientific and ethical scrutiny. An alternative is the governance that incubates sustainable innovations in the nature areas for broad dissemination which generates interests in the sustainability of ecosystems. Opportunities are due to demands for ethical products, ecotourism and images of nature which generate USD 1100 billion in global markets. Sustainable innovations of using reed for insulation walls, furniture panels and upholstery in the EU can generate a few hundred million dollars in addition to present roof thatching, fodder and fuels if good functional qualities of the reed products are developed. Their functionalities can be supported by the inclusive economics, CO₂ storage, treatment of water pollution, richer biodiversity, and other ethical qualities. The governance of nature areas can prevent the present deadlock but needs the development of technical and entrepreneurial capabilities.