Abstract The international debate on addressing global climate change increasingly points to the role that companies can play by using their innovative capacity. However, up till now companies have been rather cautious in taking decisive steps in facilitating an innovation‐based transition towards a low‐carbon economy. This paper conceptually explores some key challenges related to innovating for climate change, in the broader context of technological change, complementary capability development and sociotechnical systems, to point to trade‐offs to be made by companies. We adopt a firm‐level perspective to discuss (a) how companies strike a balance between further development and deployment of emissions‐reducing technologies, in view of the fact that there is no ‘silver bullet’ solution for climate change yet, (b) how and in what way low‐carbon solutions are brought to the market, by targeting consumers in either mainstream markets or niche markets, and (c) to what extent the success or failure of climate change innovations depends on companies' bargaining power and willingness to cooperate with others. The paper shows how several industry‐ and firm‐specific factors – technological dynamism, complementarity between new technologies and existing assets, and ownership of specialized assets for commercialization – influence how companies strike a balance between the different trade‐offs and deal with the uncertainty created by the current ‘climate policy deadlock’. Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment.
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