E3G - Third Generation Environmentalism 1 Innovation & Technology Transfer: Framework for a Global Climate Deal 15 November 2008

Innovation & TechnologyTransfer: Framework for a Global Climate Deal

15 November 2008

E3G - Third Generation Environmentalism

2

• Risks associated with innovation

• What is needed to transfer technology to developing countries?

• Managing IPR issues

• What should be done inside the UNFCCC and what should be done outside?

Contents


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Climate change poses a unique challenge for innovation

• Need to develop new technologies and business models within a given timeframe to avoid carbon lock-in

• Need to deploy innovations simultaneously in developed and developing countries

• Need to shift economic growth onto a low carbon development pathway

Meeting this challenge will require a new approach to innovation


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Innovation and diffusion will need to be significantly increased across a range of key sectors

Deployment of existing and new clean technologies including CCS

Deployment of breakthrough technologies

Deployment of renewables, nuclear, CCS at fossil fuel plants and additional RD&D

Deployment of renewables, nuclear, CCS at fossil fuel plants and additional RD&D

CCS deployed commercially

Efficiency & conservation, nuclear energy, renewables & biostorage, fossil fuel based strategies (CCS)

Immediate scale-up of existing clean technology strategies

PrincetonStabwedges

CCS – 90% OECD, 50% non-OECD for coal and gas-fired power stations

RenewablesNuclearPartial CCS

Efficient infrastructure developmentCongestion managementCHP at the local levelEnergy efficiency

Shell Blueprint

Near commercial technology developmentCCSSolarSecond generation biofuels to 2030

Diffuse existing low carbon technology to 2030

Stern & IPCC

19% CCS (all)6% nuclear21% renewables54% energy efficiency (all sectors)

Increased energy efficiencyIEA BLUE Map

Increased energy efficiencyIEA ACT Map

N/A4% second generation biofuels19% renewables in power sector16% nuclear21% CCSImproved efficiency in fossil fuel use in industry and buildings account for ¼ of total avoided CO2 emission (compared to Alternative Policy)

IEA 450

2050203020202010

Immediate scale-up of existing clean technology strategies

PrincetonStabwedges

CCS – 90% OECD, 50% non-OECD for coal and gas-fired power stations

RenewablesNuclearPartial CCS

Efficient infrastructure developmentCongestion managementCHP at the local levelEnergy efficiency

Shell Blueprint

Near commercial technology developmentCCSSolarSecond generation biofuels to 2030

Diffuse existing low carbon technology to 2030

Stern & IPCC

19% CCS (all)6% nuclear21% renewables54% energy efficiency (all sectors)

Increased energy efficiencyIEA BLUE Map

Increased energy efficiencyIEA ACT Map

N/A4% second generation biofuels19% renewables in power sector16% nuclear21% CCSImproved efficiency in fossil fuel use in industry and buildings account for ¼ of total avoided CO2 emission (compared to Alternative Policy)

IEA 450

2050203020202010

Three major risks:

• Policy failure – efficiency, infrastructure and REDD

• Climate Sensitivity – may have to act faster than anticipated

• Technology Failure – key technologies such as next generation biofuels may nor be viable

Managing these risks suggests an increased focus on delivering innovation and diffusion sooner rather than later


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Aggressive mitigation implies large investment shifts inside – and out of - the energy sector

Investment in RD&D

Investment in RD&D

Emergence of new financial, insurance and financial markets to help finance major investments (CCS)

Investment in deployment of disruptive technologies (CCS)Immediate investment in existing clean technologies

PrincetonStabwedges

Global participation in emissions trading schemes leads to investment in new energy technologies

Clean technology investment begins in developing countries

Shell Blueprint

1.0% GDP$1,364 billion p/a

Invest in breakthrough technology0.7% GDP$484 billion p/a

Invest in near commercial technology0.3% GDP$173 billion p/a

Stern & IPCC

Additional investment USD 45 trillion1.1% global GDP per year to 2050Deployment costs make up USD 7 trillion to 2050

IEA BLUE Map

Additional investment in the energy sector USD 17 trillion0.4% global GDP per yearDeployment costs make up USD 2.8 trillion to 2050

IEA ACT Map

N/ACumulative investment (to 2030) in the power generation sector is USD 7.5 trillion.

Early retirement of fossil fuel generating capacity makes up USD 1 trillion of additional investment required.

Immediate policy action on clean technology deployment leads to high initial investment costs

IEA 450

2050203020202010

Immediate investment in existing clean technologies

PrincetonStabwedges

Global participation in emissions trading schemes leads to investment in new energy technologies

Clean technology investment begins in developing countries

Shell Blueprint

1.0% GDP$1,364 billion p/a

Invest in breakthrough technology0.7% GDP$484 billion p/a

Invest in near commercial technology0.3% GDP$173 billion p/a

Stern & IPCC

Additional investment USD 45 trillion1.1% global GDP per year to 2050Deployment costs make up USD 7 trillion to 2050

IEA BLUE Map

Additional investment in the energy sector USD 17 trillion0.4% global GDP per yearDeployment costs make up USD 2.8 trillion to 2050

IEA ACT Map

N/ACumulative investment (to 2030) in the power generation sector is USD 7.5 trillion.

Early retirement of fossil fuel generating capacity makes up USD 1 trillion of additional investment required.

Immediate policy action on clean technology deployment leads to high initial investment costs

IEA 450

2050203020202010

Key uncertainties:

• Investment shifts are not automatic and will require significant action to achieve (both market size and certainty will be important)

• Need to shift patterns of investment both across sectors and countries

• System lags between investment and innovation mean that urgent action is required


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The scale of investment needs to be large enough to make the shift to low carbon development pathways possible

• Effective action on scale required to tackle climate change requires a widespread shift to new or improved technology in key sectors such as power generation, transport and energy use

• We recommend an additional $15-$20 billion per annum over and above the current spending for global public energy RD&D over the next 10 - 15 years

Source: Stern Review (2006)

Estimated scale of current and necessary global public R&D support


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Deployment and diffusion support will also need to be increased

• Deployment incentives for low-emission technologies should increase two to five times up to $66- 165 billion globally from current levels of around $33 billion

• A significant share of this increase could be met through the carbon market

Estimated scale of current and necessary global deployment support


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Innovation in adaptation technologies is urgently required but little work has been devoted to this area so far

• Climate change will impact the poorest people in the poorest countries first; all poverty reduction will be affected. OECD estimates 15-60% of aid spending is vulnerable to climate change.

• Innovation in adaptation technologies such as drought resistant crops and improved infrastructure are urgently needed. However, lack of ability to pay may undermine incentives for private firms to invest in adaptation innovations

• Estimates for overall adaptation spending in developing counties range from $40-$86 billion per annum for conservative assumptions. However, little work has so far been devoted to innovation needs with regard to adaptation

Sources: OECD, 2005; Christian Aid, 2007; Kings College London, International Policy Institute, 2006; World Bank, 2006; Tyndall Centre, 2007; UNDP HDR, 2007


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Contents






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Barriers to optimal provision and potential responses

• The OECD finds that one of the main barriers to optimal innovation provision is because it is largely dealt with at the national level and tends to be viewed as an extension of R&D policy

• This has led to tensions within the current policy system of many states:– Competing rationales: individual policy domains such as R&D and industrial

policy have their own communities. This can lead to competition for resources both within and between different countries

– Short-termism in resource allocation– Different imperatives for innovation policy: typically national economic

imperatives dominate which can lead to difficulty when it needs to be coordinated with environmental or development policy

– Fragmentation and segmentation: Increasing fragmentation in national policy responses to innovation at a time when greater coordination is required

– Competition and rival ambition: competition and turf wars between policy officials

Source: OECD (2005) Governance of Innovation Systems

New international mechanisms need to help overcome these existing barriers: Innovation priorities in OECD countries will also need to become more cooperative


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Three types of innovation are particularly relevant for climate change

Source: Foster, R.1986. “The S curve: A New Forecasting Tool.” Chapter 4 in R. Foster, Innovation, The Attacker’s Advantage.

Incremental innovation moves along the curve

Existing technology curve

Per

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Time/Effort

New technology curve

Disruptive innovation moves to a new curve

Adaptive innovation may be required to

use the new technology

This has three major implications for developing countries

• First, creating enabling market structures and regulations which will facilitate the penetration of new technologies into the market; supporting new business models which might have a disruptive impact through the development of new technologies;

• Second, ensuring that countries have the capacity to adapt innovations to suit their local circumstances;

• Third, ensuring that ‘orphan’ areas of research are covered by international action.


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Scientific innovation and invention is almost exclusively a high-income activity

Scientific innovation and invention (2000-03)

Source: World Bank (2008) Global Economic Prospects: Technology diffusion in developing countries


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The penetration of older and more recent technologies depends on more than income

Penetration of older innovations (2000–03)

Penetration of newer innovations (2000–03)

Low correlation with income -The highest utilization rates tend to have rates that match the average rate of the next highest income group

More directly correlated with income – Competitive environment, responsive to market demand

Source: World Bank (2008)


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Developing countries require increased innovative capacity not narrow technology transfer

• Traditional concepts of public technology transfer follow a relatively narrow approach with limited funding and capacity building support

• Private sector approaches focus on balancing market access with limited licensing to local industries, including joint ventures.

• This is unlikely to transform the way technologies are diffused to developing countries, especially those without fast growing markets.

• Successful diffusion has strong relationship with core economic attributes such as ease of doing trade and tertiary education (see next slide)


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Detailed analysis of high and low performers suggests a range of factors such as trade and education contribute to technology penetration

Penetration of Old Innovations - Top and Bottom Countries (2000-03)

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A new approach to technology transfer is therefore required

• Diffusion of new innovations is as much about the institutions, structures and organisations in a country as it is about narrow funding support to access specific technologies;

• A new approach to technology transfer is required which emphasises system-wide capacity building to enable developing countries to develop their own innovation systems.

• Developing countries might need administrative and technical support to fully undertake Technology Needs Assessments (TNAs). To be effective the TNAs should be linked with poverty reduction strategy papers (PRSPs) and other strategic goals.

• International support must be provided to create incentives for developing country innovation and cooperation


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Contents






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A failure to tackle IPR and competitiveness issues will limit innovation and diffusion and potentially poison the international climate negotiations

• The vast majority of patents are held by private firms. Globalisation has led to a rise in cross-border ownership increasing the role of multilateral action to ensure effective regulation;

• The implications of IPR vary massively across different technologies. A flexible approach should therefore be taken when dealing with climate related innovation and diffusion;

• Competitiveness concerns do not have to limit diffusion. Concern over loss of IPR has limited companies willingness to license new technologies in developing countries. However, while genuine risks exist, in some cases companies may also have incentives to strategically withhold technology from the market to gain a competitive advantage;

• Action is required to break the deadlock between developed and developing countries over IP. A system of ‘protect and share’ which provides government-to-government agreements on strengthening IP protection and a diffusion framework for the use of segmented markets, advance purchase commitments and compulsory licensing can achieve this.


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However, at present our understanding of the impacts of IPR on climate technologies is relatively weak• The implications of IPR protection on diffusion of technology vary massively across

different technologies:– In pharmaceuticals IPR is absolutely central to the industry’s business models as a

single patent or copyright can capture the majority of returns for the innovator; this type of case may be relevant for biofuel catalysts, GM crops and advanced materials in turbines and fuel cells.

– In other sectors the importance of IPR may be limited either through the ease of reverse engineering processes (e.g. in information technology) or because competitive advantage is concentrated in tacit knowledge associated with its production; many complex power plants technologies exhibit this structure.

– A final case is where a large number of small patents are used in a process, often referred to as a ‘patent thicket’. Where a single company holds the majority of the patents this can create significant access issues; these cases are often seen in vehicle sector

• Our interviews showed that there is limited, but increasing understanding of the role of patents in specific technologies. The patents’ role within the wider innovation systems were not fully captured by many, and comments rarely moved beyond asserting a position rather than analysis.

Therefore, caution is still needed with dichotomised and simplistic analytical frameworks over IPR discussion


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Contents






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The analysis in this report points to critical features needed in the UNFCCC system, but action will also be required outside it

• A focus on increasing absolute levels of both innovation and diffusion for adaptation and mitigation, through outcome based strategic approaches based on mitigation pathways and worst case scenarios of climate responses and impacts;

• The need for action both within the UNFCCC framework and outside it to ensure healthy diversity, and encourage continued work on innovative approaches at the regional and national level;

• The importance of developing overall innovation systems for low carbon development and the use of sectoral approaches to engage all stages of the innovation chain to accelerate technology development and deployment;

• The importance of supporting developing countries and international institutions in driving appropriate innovation in areas vital for developing economies;

• The need to explicitly rebalance the incentives for innovation and diffusion, including around the use of intellectual property rights, inside the UNFCCC.


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Proposal for action both inside and outside the UNFCCC

Inside UNFCC

Outside UNFCC

MRV CriteriaTechnology development

objective: Executive Agency and Technology Action

Plans

Global Innovation and Diffusion Fund

•RD&D Window

•Diffusion Window

Market creation mechanisms

• Carbon Market

• Developing country enhanced actions

• Mandate for public sector purchasing and international standards ‘Protect and share’ IPR and

licensing agreement

National spending

• RD&D programmes

• Mainstreaming adaptation in bi-lateral aid

Country Technology Needs Assessments (TNAs)

Continued development of national/regional carbon

markets

Detailed design and implementation of

purchasing commitments and standards

National implementation of IPR and licensing measures

Implementation of developing country sectoral

agreements and other enhanced actions

Integration of existing multilateral funds e.g. CIF

Within the UNFCCC we recommend five key actions:


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Agreement to a Technology Development Objective

• The technology development objective would establish a set of critical climate change technologies (for both mitigation and adaptation) which must be developed to meet the goals of the agreement

• The achievement of the technology development objective would be supported by a set of Technology Action Plans (TAPs) for each identified technology and a Technology Development Executive

• The role of the Executive would be to monitor global efforts to deliver a portfolio of critical technologies – including public and private efforts - and propose complementary support and activity at the multilateral level needed to deliver agreed technology outcomes


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Establish criteria for measurable, reportable, verifiable (MRV) action

• The MRV criteria should set out the conditions under which national R&D and development spending by developed countries – including on sectoral agreements – would qualify as a contribution to their UNFCCC commitments on technology, financing and capacity building support

• These conditions would need to be carefully negotiated but could contain the following main elements:

– Additionality to existing ODA and R&D spending; – Reciprocal knowledge sharing with other related R&D programmes; – Demonstrable link to a developing country’s low carbon development

plan; – Meeting criteria for enhanced developing country access to new

technology; – Increasing developing countries’ capacity to innovate and adapt; and – Climate proofing ODA.


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Market creation mechanisms

• Market creation mechanisms could include:

– Technology-led sectoral agreements for developing country enhanced actions;

– International standards agreements; and

– Public sector purchasing commitments.

• These may be developed inside or outside the UNFCCC system, but must be guided by its principles and procedures if they are to count towards Parties’ commitments.


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A new multilateral Global Innovation and Diffusion Fund

• In order to implement the Technology Action Plans the Copenhagen Agreement should establish a new Global Innovation and Diffusion Fund

• This fund could integrate existing activity (e.g. the World Bank Climate Investment Funds) into a single facility under UNFCCC governance

• The fund would operate through two windows under the new Technology Development Executive: an RD&D Window and a Diffusion Window


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Global Innovation and Diffusion Fund: RD&D Window

Technology Development Executive

Technology Development Objective

Africa board Asia board Europe board Inter-America board

Funding bids: countries + companies

Technology Action Plans (TAPs)


Technology Development Objective

Africa board Asia board Europe board Inter-America board

Funding bids: countries + companies

Technology Action Plans (TAPs)

Technology Action Plans (up to 20): Parties would agree a comprehensive Technology Action Plan (TAP) with a set of financing, regulatory and market creation elements to bring the technology to commercialisation inside a specific timescale;

Technology Development Executive: development, implementation and monitoring of the TAPs would be devolved to an executive body, supported by expert groups.


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Global Innovation and Diffusion Fund: Diffusion Window

Enhanced Actions (e.g. sectoral

agreements, SD PAMs etc.)

Standards agreements

(appliances etc.)


Africa diffusion centre

Asia diffusion centre

Europe diffusion centre

Inter-America diffusion centre

Individual projectsCarbon finance Other funds


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A ‘Protect and Share’ agreement for IPR and licensing

• The agreement would provide government-to-government commitments to ‘protect and share’ low carbon technologies and encourage joint-ventures and public-private partnerships.

• Support would be made available under the Fund to strengthen IPR protection measures in developing countries, consistent with their existing international commitments under WIPO and WTO. Enhanced IPR protection would be balanced by a Framework Agreement for the accelerated sharing and licensing of low carbon technology to ensure rapid diffusion. This could consist of a range of standardized agreements covering five main areas:

– Segmented/Parallel markets: to provide free licensing in certain developing country markets but prevent re-importation to developed countries for a limited period of time so innovators can earn a fair rate of return;

– Public sector buy-out: to provide advanced purchase commitments under the Global Technology Innovation and Diffusion Fund for ‘orphan’ areas of research to guarantee a return to innovators and swift deployment of technology;

– “Use it or lose it” agreements (compulsory licensing): to allow countries to take legal steps for the compulsory licensing of technology if innovators withhold technology from the market after a certain time period;

– Pay to license: to provide direct subsidies or risk guarantees to increase licensing, and to ensure access when public funds are used to develop technology;

– Global commons: to allow countries to provide open access to IPR where they have control of patents.

• Countries that were found not to robustly protect low carbon IPR would risk having their access to the diffusion and RD&D funds blocked. Countries failing to ensure enhanced sharing of IPR and cooperative R&D spending would also be blocked from international funding and lose “MRV credit” in the agreement for their relevant technology programme.

Documents

E3G - Third Generation Environmentalism 1 Innovation & Technology Transfer: Framework for a Global Climate Deal 15 November 2008