Ambuj D. Sagar is Vipula and Mahesh Chaturvedi Professor of Policy Studies at the Indian Institute of Technology, Delhi, India. E-mail: email@example.com
Cath Bremner is Head of International Development at The Carbon Trust, London, UK.
Michael Grubb is Professor of Economics at the University of Cambridge and Chief Economist at The Carbon Trust, London, UK.
Meeting the climate challenge will require both mitigation and adaptation. New, improved, or adapted technologies will play an important, often central role, in both of these activities. The scale of the problem is obviously enormous; at the same time, its complexity is underlined by the wide range of technologies that will be required for mitigation and adaptation and the vast differences among the countries where these technologies will be deployed. This is particularly important for developing countries, where technological capabilities are often limited, where financial, institutional and other constraints make the innovation challenge even starker, and where other developmental challenges — such as enhancing energy access and, sustaining livelihoods — are equally pressing. Given this context, it is imperative to explore institutional arrangements that can advance technology innovation to meet the energy and climate change needs of developing countries. This paper suggests ‘Climate Innovation Centres’ (CICs) as a way to advance and strengthen the energy innovation process in developing countries through a partnership between them and industrialized countries.
1. Technology and innovation for a changing climate
It is well understood that meeting the climate-change challenge will require significant action on both mitigation and adaptation. On the former front, while there is no consensus at present on what levels of GHG concentrations in the atmosphere might lead to ‘dangerous’ climate change (which must be avoided, if we are to meet the primary objective of the UNFCCC), it is increasingly likely that steep cuts in greenhouse gas (GHG) emissions will be required. Experts have suggested that levels of 400 ppm CO2-equivalent (Hadley Centre, 2005) or even lower (Hansen et al., 2008) are needed for a relatively-high likelihood of avoiding dangerous climate change. This would entail reductions of 80% or even more (compared to 1990 levels) in global GHG emissions, which will require a drastic reorientation of the world's energy system, the single biggest contributor to climate change. Transformation of energy technologies, which underlie energy production, conversion and use, will be a critical element of the solution to the climate problem. The GHG emission profile of energy technologies will need to be drastically different from business-as-usual if significant emissions reductions are to be achieved.1 Similarly, new, improved, or adapted technologies will also play a role in mitigating GHG emissions from other sectors.
At the same time, it is increasingly clear that we have already entered a changed climate regime and that embarking on adaptation strategies is urgent. This, in turn, will also require adaptation technologies that suit the particular needs of developing countries while ensuring that developmental imperatives are also given appropriate attention.
The complexity of this enormous challenge is further underlined by the wide range of technologies involved and the vast differences among the countries where these technologies are to be deployed. This is particularly significant in developing countries, where technological capabilities are often limited, where financial, institutional, and other constraints make the innovation challenge even more stark, and where other challenges — such as enhancing energy access and sustaining livelihoods — are equally pressing.
Given this context, there is a clear need to explore institutional arrangements that can advance technology innovation to meet the energy and climate change needs of developing countries. This paper discusses ‘Climate Innovation Centres’ (CICs) as a way to advance and strengthen energy- and climate-relevant innovation processes in developing countries through a partnership between them and industrialized countries.
2. Technology innovation: interplay of public and private actors
Broadly, technology innovation comprises a set of activities that include research, development, demonstration, and deployment. We suggest six stages to technology innovation in a market economy,2 as illustrated in Figure 1:
• basic research and development;
• technology- and product3-specific design, development, and demonstration;
• market demonstration and technology/product selection — in which potential purchasers and users (‘the market’) can start to evaluate technology/product options and support the most promising offering(s);
• commercialization — either adoption of the technology by established firms, or the establishment of firms based around the technology;
• market accumulation — in which the use of the technology expands in scale, often through accumulation of niche, protected or subsidized markets;
• diffusion on a large scale.
Successful innovation involves not just the development of new and improved technologies but also their introduction into the marketplace through specific products. Thus the innovation process requires both ensuring the availability (i.e., supply) of new energy technologies and products based on these technologies, as well as creating and sustaining markets (i.e., demand) for these products.
The front and back ends of the innovation chain are intimately inter-related in that the kind of research, design, and development carried out to develop new energy technologies and products are shaped by the markets, i.e., the perceived needs and preferences of consumers (this is referred to as ‘market (or demand) pull’); on the other side, the availability of new technologies also shapes markets by changing the economics of the market or by offering new and attractive options to consumers (referred to as ‘technology (or supply) push’).
Furthermore, a technology or product will undergo many cycles of modification before it is commercialized (and even subsequent to commercialization, numerous incremental improvements generally continue to be made), leading to additional linkages and feedbacks among the various stages. For example, data collected during demonstration projects or pilot projects may suggest a modification of the technology; similarly an improvement in the technology may trigger a change in product characteristics and designs.
Product firms, as the ultimate developers and purveyors of products, are key actors in the innovation process, especially as the link between the basic scientific and technical advances in research laboratories (partly funded by the government) and the markets. Government policies, by shaping the rules of the game under which markets operate, play a different but no less important role in mediating the downstream part of the innovation process. In addition, there may be a whole gamut of other actors (financing institutions, academic and other research institutions, marketing and consumer research firms, etc.) that play different roles in different parts of the innovation cycle.
2.1. ‘Supply side’ barriers for energy and climate technologies
In the R&D phase, the financial support for the development of a technology and demonstration of its technical and commercial feasibility comes from the government and from the private sector. The focus of most R&D expenditure by governments is on basic energy sciences or technologies that are far from market applications. Furthermore, these expenditures have risen only slightly in the past few decades, notwithstanding the emergence of the climate problem.
Funding for developing new energy technologies in the private sector is relatively difficult partly because energy is a commodity business. This severely limits the economic margins associated with innovation: since the product is the same (e.g. electricity, heat, or liquid fuel), a new way of producing energy (or saving it) has to compete primarily by being cheaper than incumbent technologies. The rewards to innovation are thus intrinsically much smaller than in product-driven markets, and the funding consequently much less. At the same time, the nature of the energy market (i.e., slow turnover times for capital stock, large engineering requiring costly and time-consuming demonstration projects) raises the costs and risks and may make other investment opportunities more attractive investments, both within firms as well as in the private-capital business (Holdren et al., 1997).4
While firms are the dominant players and provide the relevant financial outlay in the commercialization phase, there is a big gap between R&D and commercialization: the first one focuses on the development of a technology and the second requires the development of a product that then will need to compete in the market with other existing products (or in the case of an altogether new product, offer consumers sufficient reason to use the product). Private efforts to develop or commercialize a new technology can be impeded by several factors, e.g., project scale and cost, lack of full range of expertise in any one firm, and technical and market risk, even if the outcome may offer substantial benefits to the firm, the industry, and to the society as a whole. The underlying reasons may often be partly internal to firms, such as a cultural gap between the technical and commercialization personnel and the availability of resources to carry out product development (Markham, 2002; Wessner, 2005).
2.2. ‘Demand side’ barriers for energy and climate technologies
Demand side barriers for energy and climate technologies are equally complex. Cost is often the dominant barrier to deployment of new technologies. Any new and improved technology has to compete with an established technology in cost terms, but the cost of any technology is higher in the early stages of its production, thus hampering the ability of this technology to compete with technologies already in widespread use.5 In most cases, the costs of energy use or of climate impacts are still not internalized into the relevant activities; therefore environmental, social, and other gains that result from the development of mitigation or adaptation technologies are not reflected in market transactions. These price distortions further inhibit the deployment of climate-relevant technologies. At the same time, innovative mitigation technologies (energy-supply and end-use) are often more capital intensive (although less fuel intensive) than conventional technologies, which can deter potential users (Holdren et al., 1997). As the technology becomes more established in the market, benefits from economies of scale and learning-by-doing6 can help lower the costs significantly — but the scale of investment is amplified. And in the case of adaptation technologies, market signals are very limited since many of the climate-impact-related costs have not yet become apparent, and even when they do, most of the costs will be borne by poor people in the developing world who do not have much market power.
Existing market organization can hinder the establishment of a new product in the market; even if it is possible to introduce a product into the market, other factors — slow capital stock turnover, consumer information and financing options — can contribute to reducing the rate of uptake in the market. (IEA, 1997; IEA, 2000).
Thus the signals for energy and climate innovation on both ‘supply side’ (technology push) and ‘demand side’ (demand pull) are weak — as are carbon-market incentives at present. These weak supply-side and demand-side signals for mitigation and adaptation technologies also exacerbate an existing hurdle in technology innovation, which is commonly referred to as the ‘valley of death.’ This refers to the stage between the RD&D phase, when a technology is advanced enough that its application can be demonstrated, and the stage when the deployment of the technology/product takes place at a sufficiently large scale to make it viable in the market (see Figure 3).
While this gap exists in all technology areas, it is particularly critical for energy and climate technologies. In some areas, such as information or health technologies, the attraction of the market potential of innovations is so compelling and change so rapid that the sector is almost defined by its capacity to innovate and deliver new and exciting products and therefore private players have a strong incentive to translate products of research to goods and services. However, this is not so in the energy and climate area (at least, not yet). While technologies for enhancing adaptation or delivery of low-carbon energy offer large public benefits, there are no clear (or strong) market signals for the delivery of these technologies. Thus we have a ‘resource gap’ that stands in the way of taking these technologies into the market (see Figure 4).
Government can play a key role in enhancing the ‘supply side’ of technologies by helping overcome these barriers to commercialization and enabling or accelerating the development of industrial processes, products, and services (Wessner, 2002). One way is to promote programmes and partnerships involving cooperative research and development activities among industry, universities and government laboratories. In fact, most industrialized countries promote and support partnerships, although with some differences in their approach (see, for example, Audretsch et al., 2002; EU, 2006; Hayashi, 2003; Wessner, 2002). In other cases, the government may also provide financial resources aimed at overcoming the valley of death — for example, programmes such as the Small Business Innovation Research and National Institute of Standards and Technology's Advanced Technology Program in the United States are precisely intended to address this resource gap (Wessner, 2005). Private investors such as early-stage venture capitalists/angel investors may also target this gap (as illustrated by recent data on the rise of private-equity investment in clean energy — see footnote 5).
Furthermore, overcoming this gap within a firm requires champions, resources, and formal development processes (Markham, 2002). The champion must be able to demonstrate the technical and market potential of the end product so that the firm/organization commits to its development.
Generally, moving from concept to commercial product availability requires overcoming a diverse range of technology, business, market and regulatory barriers. From a broad perspective, these involve four respective ‘journeys’, all of which have to occur to deliver fully commercial technologies deployed at scale: (Figure 5)
• The technology proving itself and being able to compete at cost with the market equivalent;
• The company growing into a successful business from lab/pilot-scale to many employees with manufacturing capability;
• The market being ready for the transition to the new technology; and
• Regulation being in place to support the early stages of demonstration through to general application of the technology in the local market.
2.3. Additional challenges for developing countries
Developing countries face even greater hurdles to innovation than industrialized countries. Their innovation systems are much weaker in terms of both scale and scope: public and private investments in innovation in general are much lower (in 2002, developed countries' R&D investment equalled 2.3% of their GDP, while the corresponding number for developing countries was 1% (UNESCO, 2005)) and the various components of their innovation systems are often not as strong or well-coordinated. Thus the barriers discussed in the previous section take on even more salience.
Furthermore, products that suit developing country needs often have very different specifications from the products in industrialized countries. Thus there is a specific need for product adaptation/development (although the core technology may remain the same) to make them suitable for developing countries' needs and contexts. And in many cases, international technology markets do not focus on the products that meet the specific need of developing countries (for example, cleaner cook stoves). Thus there is a particular need to enhance capacity for adaptation of existing products and development of altogether new ones.
Equally importantly, systematic steps to bring new and improved energy technologies/products to markets are key to their dissemination, but in developing countries where the markets are often fragmented or consumers have only limited purchasing power, large-scale deployment becomes even more challenging. In this context, approaches such as innovative delivery models, supporting entrepreneurs and energy service companies (ESCOs), provision of information and financing, and appropriate policies take on great importance. The development of domestic policy and market analysis capacity, of course, is a key need.
Lastly, while much focus in the climate arena is on deploying technology for GHG mitigation, technologies for adaptation often don't get much attention. Here, again, developing countries' needs and constraints will be very different from those in industrialized countries. Moreover, the need to incorporate climate mitigation and adaptation challenges into existing energy challenges will add further pressure on relatively-limited technological capabilities in many developing countries.
Innovation is the surest way to ensure that developmental and climate challenges do not conflict. Therefore international cooperation to help developing countries meet these challenges is not only desirable but essential. The rest of this paper considers a specific approach to fostering such cooperation that is motivated and informed by the above understanding of the barriers to the innovation process.
All the evidence summarized above demonstrates a clear need for new partnerships to advance energy innovation. Governments, energy companies and markets as they exist do not foster adequate investment in energy innovation, especially to meet the particular challenges facing developing countries, for clear and identifiable reasons. Carbon markets cannot change this underlying fact, nor do they provide sufficient incentives to drive such innovation as exists in low carbon directions. Furthermore, the innovation systems of developing countries, to the extent they exist, are not up to meeting these challenges by themselves.
There are two sets of issues that are particularly pertinent to existing public–private partnerships for climate change:
• partnerships aimed at technology development and deployment have generally been targeted at specific sectors and not aimed at building a local innovation ecosystem; for such a broad-ranging challenge as the energy sector, including all dimensions of energy efficiency, this is a fundamental problem;
It is therefore important to look for evidence of successful models on which to build new proposals. Outside the energy–environment sector, one such model is the CGIAR network of agricultural innovation centres (Gagnon-Lebrun, 2004). Within the energy–environment world, a recent UNEP study (UNEP/NEF, 2008) examines a number of examples and identifies the UK's Carbon Trust as a particularly interesting example.
Combining these antecedents leads the authors of this paper to propose consideration of a network of regional ‘Climate Innovation Centres’ to be located in developing countries.8 This would be a new kind of public–private, North–South, and South–South partnership, intended to advance the development and availability of suitable technologies (i.e., support ‘technology-push’), underpin the creation and development of markets (i.e., support ‘demand-pull’), and carry out other enabling activities to overcome implementation barriers in developing countries (Carbon Trust, 2008; Sagar, 2008).9
A network of such innovation centres can serve three goals: (1) accelerate the transition to low-carbon development by focusing on innovation needs specific to sectors and technologies that are of particular relevance to a region/country; (2) advance sustainable development while making a positive contribution to climate mitigation in developing countries by enabling the development of technologies that serve the unmet energy needs of developing countries, especially for the energy poor; and (3) support climate adaptation programmes by developing technologies that are suitable for specific countries.
The main function of these Centres would be to expedite technological innovation towards these three goals by:
○ Advancing technical collaboration between public- and private-sector researchers on specific projects to deliver technologies and products;
○ Focusing resources and activities towards the development and/or adaptation of the most appropriate energy and climate technologies for a country, given its capabilities, resource base and needs;10
○ Proactively identifying and addressing technology and market barriers to move technologies up the adoption curve — this includes helping create a favourable national political and regulatory framework for deployment of these technologies, providing information and raising awareness nationally; and exploring innovative delivery models that promote local entrepreneurship and employment.
These Centres would provide appropriate, sustained, and significant support to promote the development and deployment of energy technologies to meet key global energy challenges, especially climate change, energy security, and enhancing energy services for developing countries and the poor, while also meeting the goals of the Climate Convention.
Moreover, they would build domestic human and institutional capacity for technical, policy, and market analysis and implementation. They would also help develop, assist, and strengthen local energy enterprises. This kind of activity will be particularly important for countries with limited technological capability, which, unfortunately, are also often the countries with the greatest energy challenges (see Figure 6). Dechezlepretre et al. (2008) also indicate that the likelihood of technology transfer is higher for a recipient country that has stronger technological capabilities.
A network of regional CICs located in selected developing countries could enhance local and regional engagement with global technological developments, and catalyse domestic capacity to develop, adapt and diffuse beneficial technologies. Experience indicates that effective technological innovation needs to encompass the ‘software’ of commercial, institutional and financial structures, as well as the ‘hardware’ of the technology itself, and to learn from experience in the field. The Centres would nurture these capabilities through targeted interventions including field trials, business incubation, capacity building and seed capital (see Table 1 for a more detailed list of potential activities). Hence these Centres would reduce technology costs through innovation, help to leverage private and public resources to bridge the clean energy financing gap that currently exists, and advance the deployment of technologies. They would play a role in all stages of the innovation process, more directly in the early stages and as a facilitator for the later stages, thereby strengthening the local innovation system.
Table 1. Types of interventions required to address specific local barriers to technology innovation and diffusion
Applied research and development Grant funding, open and/or directed at prioritized technologies.
Inadequate support for relevant applied research for technologies where existing efforts are minimal or non-existent because of lack of market signals or existing (technical and other) capacity.
Adapt existing technologies or develop new technologies to meet local energy and climate needs, leveraging local knowledge base, if possible. Applied research and product development for potential commercial relevance. Promote North–South and South–South technical cooperation.
Technology accelerators Designing and funding projects to evaluate technology and product performance e.g., demonstration, field trials
Uncertainty, lack of information, and scepticism about in-situ costs and performance, and lack of end user awareness.
Reduction in technology risks and/or costs by independent collection and dissemination of performance data and lessons learned.
Business incubator services Strategic and business development advice to start-ups.
Lack of seed funding and business skills within research / technology start-ups – the ‘cultural gap’ between research and private sectors.
Investment and partnering opportunities created by building a robust business case, strengthening management capacity and engaging the market.
Enterprise creation Creation of new businesses by bringing together key skills and resources.
Market structures, inertia and lack of carbon value impede development of start-ups or new corporate products and services.
Creation of new high growth businesses to both meet and stimulate market demand Development of local commercial and technical capabilities.
Early stage funding for energy and climate technology ventures Co-investments, loans or risk guarantees to help viable businesses attract private sector funding.
Lack of financing (typically first or second round) for early stage technology/product development due to classic innovation barriers combined with perceived energy technology market / policy risks.
Enhanced access to capital for emerging businesses that demonstrate commercial potential Increased private sector investment in the sector through demonstrating potential investor returns.
Deployment of existing energy-efficiency technologies Advice and resources (e.g. interest-free loans) to support organizations to reduce emissions.
Lack of awareness, information, and market structures limit uptake of cost-competitive energy efficiency or low carbon technologies.
Improved use of energy resources through enabling organizations to implement energy efficient measures and save costs Catalyse further investment from organizations receiving support.
Skills / capacity building Training of human resources in various areas related to technology innovation Designing and running training programmes.
Lack of capacity to research emerging energy and climate technologies, develop appropriate products; and install, maintain, finance emerging low carbon technologies.
Enhancement of technical, policy, and market analysis and implementation skills Growth in business capacity and employee capabilities to enable more rapid uptake of carbon and climate technologies.
Domestic policy and market insights Analysis and recommendations to inform domestic policy and businesses.
Lack of independent, objective analysis that can draw directly on practical experience to inform the local government and the market.
Enhancing the policy and market landscape to support the development of the energy and climate technology economy.
To achieve this, we believe that these Centres would need to be set up as Public–Private Partnerships that could work collaboratively with local academic organizations, businesses and governments to ensure the most cost-effective projects are supported and to catalyse the large commercial investment required to achieve a transition to a low carbon economy. These regional Centres would be independent, but could be supported by an umbrella organization which ensures lessons are shared between Centres and with other countries with similar characteristics.
Based on observations about the scale of existing technology/product development laboratories, other international collaborations, on the Carbon Trust's own experience and of those active in supporting early-stage clean technologies, we estimate that each CIC would require an investment of US$ 40 million to US$ 100 million per year. At an overall level this would require a total investment of US$ 1 billion to US$ 2.5 billion over five years to establish five regional Centres, as a first phase of activity.11 Given the long lead times involved in energy research, development and deployment projects, a five-year funding budget is the minimum necessary to establish the network and achieve measurable progress. Future funding for additional Centres and subsequent time periods should be considered in light of the success of the first phase.
Such public sector support could leverage 5–10 times as much as private sector investment. It could enable up to 50 projects per year to be supported in each Centre, many of which could lead to self-sustaining technologies and businesses, given appropriate policy environments, with considerable carbon and economic benefits. Locating the first set of such Centres in key developing countries, to develop capacities appropriate to fundamentally different kinds of operating environments, could accelerate the wider international impact. Establishing such a programme thus holds the potential to make a major contribution to the combined goals of meeting the twin climate challenges of mitigation and adaptation, energy security, and sustainable development.
The activities listed in Table 1 provide a continuum of support from the early stages of technology demonstration to full market deployment. By combining all these mechanisms in one centre of expertise the Centres can create more value than stand-alone approaches: business intelligence from investors and the market would inform early stage technology support and project selection. Conversely, a deep understanding of early stage technologies can be fed back to the market – enabling early sight of new opportunities and catalysing private sector investment.
In particular, a network of such CICs could greatly reduce the size of the financing gap, a key barrier to successful technology innovation, in developing countries by addressing:
• High or uncertain costs of new technologies;
• Limited or uncertain suitability of technologies and products for local conditions;
• Limited business capacity or skill base to identify useful technologies, adapt them for local use, and provide installation and maintenance services;
• Uncertain market demand;
• Limited access to capital due to a conservative banking sector and very thin, and highly sector-specific venture capital and private equity sectors; and
• Unfavourable regulatory and political climate (including competing priorities, vested interests, market distortions and subsidies in favour of fossil fuels).
In many developing countries these barriers are frequently compounded by the lack of a central organization acting as the focal point bringing together the academic, business and government communities to address the energy and climate innovation challenge in a co-ordinated manner.12 Where focal points do exist, they generally lack the scale and experience needed in order to have a significant impact.
Targeted interventions can reduce the future cost of deploying low carbon technologies, providing the conditions for increased private sector investment. For every unit of public sector investment, the Centres could leverage in up to ten times this amount in private sector investment either by creating breakthroughs in the cost and market readiness/acceptance of technologies so that they can be adopted at scale without further support, or by defining the additional public policies (local or international) to help stimulate their adoption. The total cost of these Centres should be relatively low when compared with other larger infrastructure projects.
The Centres could address both local and international barriers and help create a favourable domestic and international policy and regulatory framework for mitigation and adaptation technologies, avoiding lock-in to high carbon development pathways. The network could also enable lessons learnt to be codified and promulgated across developing countries to accelerate the process.
Whilst no analogy will be perfect, the Consultative Group on International Agricultural Research (CGIAR) offers an obvious model, although from another field. This network, consisting of fifteen centres, played a valuable role in deployment of agriculture science and technologies in developing countries, where each Centre focused on agricultural issues particularly relevant to the region in which it was situated. The International Energy Agency (IEA)/OECD Report on CGIAR concluded that international collaboration on technology R&D was valuable, and highlighted the potential importance of having a network of national centres with a coordinating structure at the international level. However, the IEA warned that it is important to ensure that the solution be ‘tailor made’ to the specific local circumstances and characteristics of the energy–environment problem (Gagnon-Lebrun, 2004).
Suitably set up, such Climate Innovation Centres could be well placed to work in ways that traditional government approaches cannot, by drawing in expertise and resources from not only government, but also business, the energy sector and investors. As independent organizations they would be impartial, seeking the most appropriate solutions to low carbon development and deployment. Their business-oriented approach would ensure that all activities would be focused on increasing the commercial potential of clean energy technologies, leveraging private sector investment alongside public funding. (See Box for some key factors for success of the CICs.)
Key success factors for innovation centre model
• Funding, goals and governance:
○ Agreed goals, terms of public (multi-lateral and/or local Government) support and success criteria (what return if any are public sector funds expecting?)
○ Appropriate local ownership of the solution and local control of project prioritization
○ Sufficient funding certainty and time horizon to allow planning and implementation of complex projects
○ Sufficient public funding to undertake pre-commercial activities
• Activities and approach:
○ Independent viewpoint, but collaborative relationship with government
○ Collaborative relationship with the private sector to leverage funding
○ Effective project prioritization process (mitigation/adaptation potential, relevance to local developmental needs, economic viability)
○ Full spectrum of activity from R&D to deployment to knowledge sharing (tailored to local needs)
The Centres could provide further benefits by collecting data from technology projects, businesses and the market, analysing the information and feeding key insights back to policy makers and to business. By identifying successes (e.g. niche markets, early adopters, particular technology installations, new business models) and the barriers that remain (e.g. regulatory hurdles, perverse subsidies, technology and market barriers), such a network of Innovation Centres could help governments and business work together to improve the market environment for clean energy.
There is a need to accelerate the development and deployment of GHG-mitigation and adaptation technologies to meet the climate challenge in developing countries. To bring such technologies into widespread use successfully, there is a need to provide both push and pull mechanisms and create local capacity to deploy technology at scale.
There is a significant gap between existing innovation processes and what is needed, especially in developing countries, to meet the range of inter-related energy, climate and developmental challenges facing them. Therefore an international effort aimed at overcoming these hurdles to innovation in a systematic and targeted manner should be of great help.
In this regard, a network of CICs which uses public–private sector partnerships aimed at developing/adapting technologies and products for climate mitigation and adaptation and overcoming barriers to market, informed by local needs and contexts, could play an important role. Locating these Centres in selected developing countries would enhance local and regional engagement with global technological developments, and catalyze domestic capacity to develop, adapt and diffuse a range of technologies to help these countries meet their energy and climate challenges. At the same time, exchange of learning, practices, and even technologies among a global network of such Centres would further amplify these gains and play an important role in the global energy transition and climate adaptation and mitigation.
A version of this paper was published as part of the Background Paper for the Beijing High-Level Conference on Climate Change: Technology Development and Technology Transfer, held in November 2008.
The IEA has estimated that the global energy system requires technology investments of about US$ 254 trillion between 2005 and 2050 under a baseline scenario (IEA, 2008); an additional US$ 17 trillion would be needed to bring global CO2 emission levels back to 2005 levels by 2050; reducing these emission levels by 50% (of 2005 levels) by 2050 will require an additional US$ 45 trillion (IEA 2008). (The operating costs of this energy system (per unit of energy service delivered), however, would be lower because of increased efficiency and reduced dependence upon volatile fossil fuel markets.) In this low-carbon scenario, the structure of energy technology investments will have to be radically different.
This is a slightly modified version of the stages proposed by Grubb (2004).
We differentiate between ‘technology’ and ‘product’ here. A ‘product’ is an engineered system — built around a core ‘technology’ or a set of technologies — that provides a particular energy service to the user (Sagar and Mathur, 2000). For example, a solar-PV light is a ‘product’ based on the core technology of a PV module; the same PV module can also be the basis of different products such as a solar-PV electric system that can power a house or feed into a grid. We differentiate between the two here because while most advanced energy technologies are developed in industrialized countries (e.g., gas turbines, coal gasifiers, internal combustion engines), product design can, and often does, take place in developing countries. In fact, designing a product that is appropriate for local conditions is key to its success — thus an improved cook stove design that is successful in Kenya may need to be modified to be successful in Sri Lanka. Note that designing a product for a specific market may also require modification and adaptation of the core technology. In other cases, a product from one country may itself be modified for use in another country.
Some of this might be changing, though, as the profile of the climate issue rises and as piecemeal policies and actions to address climate change become more common. As a result, new venture capital and private equity investments in the clean energy area have been rising, up from US$ 1 billion in 2003 to US$ 13.5 billion in 2008, although there was a sharp drop at the end of 2008 and early 2009 (UNEP/NEF, 2009).
Although technologies based on fossil fuels — oil, gas, and coal — traditionally have given stiff competition to new entrants because they are well-established and relatively cheap, the recent rise in the prices (and price volatility) of these fuels has given an impetus to other alternatives.
Cost reduction through ‘learning-by-doing’ takes place through improvements in manufacturing techniques and processes as well as in product design that result from the experience gained by a firm (or industry, through spillover effects). In fact, empirical data show that the total cost reductions of new technologies are related to their cumulative production, with the relationship between the two often referred to as ‘learning curves’ (on a log-log plot, this appears as a linear relationship).
It should be noted that the Indian government has also formally introduced the concept of the ‘Climate Innovation Centres’ into the UNFCCC negotiations, based on discussions with one of the authors (ADS).
Holdren et al., 1999 had suggested building research, development, and demonstration capacity in developing and transition countries through the establishment of sustainable energy centres.
Broadly speaking, there are four categories of activities that are particularly relevant: • Adaptation and deployment of existing technologies/products, so that international incremental funding/subsidies more effective; • Overcoming various barriers to promote technology deployment where costs are not the key issue; • Development of local low-carbon technology solutions/products to satisfy unmet energy needs — confluence of sustainable development and climate change; and • Leveraging technological capabilities and critical mass for adaptation technologies.
We believe that part of this investment could come from the host country, while the remainder would be provided by the industrialized countries as part of their obligation under the UNFCCC.
As mentioned earlier, most of the technology conversations in the climate context have centred around mitigation, there is also a need to promote a focused programme on adaptation technologies.