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Scenarios featuring low-energy demand (LED) have the potential to meet climate stabilization targets while also pursuing inclusive well-being and multiple Sustainable Development Goals. Recent papers have assembled detailed bottom-up estimates to inform integrated assessment modeling and show that LED outcomes are feasible and have beneficial effects across multiple goals. But realizing the full potential in LED depends on innovation—i.e. improvement in LED technology and widespread adoption of both LED technology and behavior—as well as policies supporting innovation. We review the literature to better understand the role of technological innovation in enabling LED scenarios and how policy interventions can stimulate those innovations. We structure our review using a policy analysis framework that includes specifying multiple LED policy goals, describing the distinct characteristics of LED technology to understand policy needs. The distinct characteristics of LED innovation include multiple attributes and new services; many heterogeneous adopters; small granular scale, many iterations; local system integration; and rebound effects, among others. We also consider five important drivers of change in LED innovation: higher living standards and preferences for clean environments, urbanization, digitalization, demand for novel services and the emergence of prosumers. The analysis in this review of the literature leads to nine LED policy design guidelines.

Innovation in low-energy demand and its implications for policy