Technology and innovation: toward a global deal - China Dialogue
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Technology and innovation: toward a global deal

As countries meet in Poland to discuss the future of the climate, the development and deployment of low-carbon technologies will be a key issue. Pelin Zorlu and Shane Tomlinson report.


The latest report from the Intergovernmental Panel on Climate Change (IPCC) provides compelling evidence that human-induced climate change is already underway, posing serious risks and requiring an urgent global response. Stabilising global temperature increase below 2° Celsius, the report says, requires about 85% reduction of global carbon dioxide (CO2)emissions below 2000 levels by 2050. In addition, emissions will need to peak in the next 10 to 15 years and then decline. Achieving such rates of reductions will involve a rapid increase in the development and deployment of existing and new low-carbon technologies, which would otherwise be extremely expensive and difficult to achieve. Innovation will also be required to enable countries to adapt effectively to climate impacts that are already occurring. Between now and the 15th UN Framework Convention on Climate Change (UNFCCC) Conference of the Parties (COP) in Copenhagen, Denmark, next year, the international community needs to come together and establish an effective framework for innovation and technology cooperation in order to mitigate emissions and adapt to climate change.

This article explores the current debate about technology transfer in the context of climate change. Drawing from a recent publication by E3G and the Royal Institute of International Affairs (Chatham House), it proposes a framework to overcome the potential deadlocks around risk, innovation and intellectual property rights (IPR) issues in developing countries.

Current innovation programmes are inadequate to manage the risk of policy and technology failures and enhanced climate sensitivity. A number of mitigation models have attempted to assess future energy mixes and roadmaps across a range of different emissions reduction targets. In general, these models focus on a combination of specific technologies like large-scale carbon capture and storage (CCS) deployment, substantial diversification in the energy mix through renewables and energy efficiency across four key sectors (industry, buildings, transport and power). The International Energy Agency (IEA) estimates that 18 times the current level of investment will be needed in clean-energy technologies and energy efficiency. It also highlights that over 50% of reduction will come from energy efficiency measures, while CCS delivers about 20% of the reduction. However, these scenarios are not predictions; instead they show the least-cost pathways to meet energy policy objectives, based on a set of technology assumptions. In reality, future mitigation pathways are highly uncertain. For example, there are currently no commercial-scale CCS demonstration plants, and at present it is unlikely any will be in operation before 2015. Given all new power plants in developing countries will need to be zero carbon by 2030, the schedule for delivering 20% abatement through CCS is highly uncertain.

Similarly, it is likely that these scenarios underestimate the amount of research-and-development (R&D) and demonstration needed to achieve their CO2 emissions reduction targets. Significant additional investment will be needed for R&D and demonstration of new and emerging technologies. The Stern Review estimates that globally the public sector spending is half of the level 25 years ago (currently US$10 billion per year), and recommends doubling to a total of US$20 billion. Various other studies suggest increases of between two and 10 times current levels.

Overall, there are major risks associated with the presumed technology mixes that current models describe. These include policy and technology failure and enhanced climate sensitivity. Experience of delivering energy-efficiency savings shows that achieving real reductions is often very hard to achieve. Therefore there is a significant risk that policies will fail to deliver the large improvements shown in many of the models, requiring increased action through innovation. Some technologies, which play a major part in many scenarios, such as second generation biofuels or advanced nuclear power, may fail to emerge due to technological barriers or public opposition. Finally, scientific understanding increasingly suggests that climate tipping points are lower than initially estimated with more serious impacts at lower temperature changes. This will necessitate acting faster than currently anticipated by scaling up existing technologies and increasing investment in developing and deploying new technologies.

In order to manage these risks, we need a comprehensive portfolio of technology innovation and diffusion, which would enable us to hedge against potential failures and increased climate sensitivity sooner rather than later. These should be formalised as Technology Action Plans within the UNFCCC, setting clear objectives and guidance for future investment and cooperation.

However, developing countries require support to build effective innovation systems, not only narrow technology transfer. Low-carbon technologies will need to be deployed both in developed and developing countries if they are to reach commercialisation. However, this requires more than narrow technology transfer, since diffusion of new innovation is as much about institutions, legal and regulatory frameworks as it is about physical access to technology. Therefore, a broad approach to capacity building is required to enable developing countries to generate their own innovation systems.

Not surprisingly, innovation and invention is overwhelmingly a high-income activity. Market demand is also concentrated in high and upper middle income countries, which means the private sector has strong incentives to develop innovations that are only suitable for those markets. Yet, a recent study showed that although income was clearly important, it may not be sufficient in isolation; policies and measures played an important role in driving the rate of technology penetration.

In order to mitigate and adapt to climate change, efforts should focus on building or strengthening adaptive and disruptive innovation capacity in developing countries. The first type of innovation would make sure that mature technologies are adapted, through some R&D or demonstration, to work in developing countries as well as in their country of origin (most likely a developed country). Second, new technologies accompanied with new business models can have disruptive impact in developing countries and speed up the move to more advanced technologies sooner than usual rate of adoption. Finally, particular attention should be paid to potential “orphan” areas of research, such as drought-resistant crops, which would not receive private-sector interest otherwise.

Another major barrier to optimum-level innovation provision remains the fact that it is largely dealt at the national level and seen as an extension of R&D policies, and is therefore framed around national competitiveness. National policies alone cannot capture the global public good element of low-carbon innovation. In addition to this, private markets tend to under-invest in innovation, relative to global social optimum. Therefore, multilateral action is required to correct the market and policy failure in innovation.

The Copenhagen agreement must provide incentives for developing-country innovation, cooperation and sharing.

A failure to tackle IPR and competitiveness issues will undermine the pace and scale of innovation and diffusion and might poison the international climate negotiations. A number of technology-specific, IPR-related factors, such as the ratio of R&D to total costs, ease of copying and IPR enforcement, affect the rate of innovation and diffusion. Concerns over loss of IPR have limited companies’ willingness to license new technologies in developing countries with potentially weaker institutions and enforcement capacity.

From 2003 to 2005, about 80% of patents were held by private firms. Climate technologies are likely to provide significant high-value-added industries to the countries that gain a comparative advantage in their development and production. There is already tension between securing these benefits and maximising public benefit through their fast diffusion. In global climate negotiations, the IPR issue has become a lightning rod for wider competitiveness debates, and therefore might potentially stalemate the negotiations.

Currently, there are few well-founded empirical studies examining the role of IPR in the diffusion of particular low-carbon technologies. Nevertheless, the implications of IPR seem to vary across different sectors and technologies. Therefore, a flexible approach is required. For example, in pharmaceuticals, patents are absolutely central to the industry’s business model, as a single patent can capture the majority of returns to the investor. This type of barrier might be relevant for biofuel catalysts, fuel cells and advanced materials in wind turbines. In other sectors (information technology, for example) IPR might be of limited importance due to the ease of reverse-engineering or the fact that the competitive advantage is concentrated in tacit knowledge (e.g. complex power plant technologies). The cost of IPR as a barrier to access may apply to a small number of climate technologies such as biofuel catalysts. Finally, where a large number of patents are used in a process (a “patent thicket”), if a single company holds the majority of these patents, this can create significant access issues (for exampole, in the vehicle sector associated with pollution control technologies).

While there may be legitimate concerns over IPR protection, in some cases, companies also strategically withhold technologies from the market to maximise profits. This may in part stem from a desire to limit their exposure to export competition in domestic markets that may result from technology diffusion.

Therefore, there is a need to revisit the balance of incentives for IP holders and for maximising rapid diffusion. Government-to-government agreements can help to build the trust. Strengthening protection from unauthorised use would be balanced with a clear framework requiring different forms of sharing, such as licensing, parallel markets and public-sector buyout. Countries that would like to cooperate with each other under the “protect and share” principle could be supported by a multilateral R&D, demonstration and diffusion fund under the UNFCCC.

The upcoming negotiations have to deliver a politically viable, equitable and scientifically sound agreement in order to adapt to a changing climate and stabilise below dangerous levels of greenhouse-gas concentrations. An unprecedented global effort is required to accelerate innovation and diffusion of low carbon and adaptation technologies. The challenge is formidable but the history has shown, from the space race to the pharmaceuticals, that concerted effort can deliver immense transformation.

 

Pelin Zorlu is a researcher and Shane Tomlinson is a programme leader at E3G. They are the lead authors of the joint E3G-Chatham House report entitled ‘Innovation and Technology Transfer: Framework for a Global Climate Deal’. The full report is available for download at www.e3g.org; the executive summary is also available in Chinese.

Homepage photo by Pierre.J.