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I S S U E B R I E F

Date

IssueBrief#

TechnologyTransfertoChinato

AddressClimateChangeMitigation

U.S.GlobalLeadership:AnInitiativeoftheClimatePolicyProgramatRFF

TakahiroUeno

August2009

IssueBrief#0909

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2 U E N O | R E S O U R C E S F O R T H E F U T U R E

ResourcesfortheFuture

TheClimatePolicyProgramatResourcesfortheFuture(RFF)

providesaframeworkforpolicymakersandstakeholdersto

betterunderstandandaddressoneofthemostcomplex

environmentalissues

of

our

time:

climate

change.

The

program

hastwocoreobjectives:todevelopdomesticpoliciesthatare

politicallyandeconomicallyviableandtoarticulateanew

architectureforaglobalclimatepolicyregime.Program

scholarsworktobothsupportcurrentpolicyeffortsaswellas

fosteringtheevolutionofthesepoliciesovertime.

U.S.GlobalLeadershipisoneoffourinitiativesoftheClimate

Program.Itsobjectiveistoengagewithpolicymakersto

developintegratedU.S.foreignclimatepolicyoptionsandto

conductin

depth

research

on

specific

foreign

policy

issues

to

supportdevelopmentoftheseoptions.

TheClimatePolicyProgramatRFFisfundedbycontributions

fromfoundations,governments,corporations,andindividuals.

Currentsupportersinclude:theDorisDukeCharitable

Foundation,SmithRichardsonFoundation,DavidandLucille

PackardFoundation,SimonsFoundation,Foundationfor

StrategicEnvironmentalResearch(MISTRA),G.UngerVetlesen

Foundation,AlcoaFoundation,U.S.EnvironmentalProtection

Agency,CenterforEnvironmentalMarketsatGoldman,Sachs&

Co.,AmericanHondaMotorCompany,Inc.,Cargill,Inc.,Duke

Energy,SaltRiverProject,ExxonMobilCorporation,Honeywell

International,Inc.,Novelis,Inc.,andPacificorp.Formore

information,contactRayKopp,seniorfellowanddirectorofthe

ClimatePolicyProgram,[email protected].

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TechnologyTransfertoChinatoAddress

ClimateChangeMitigation

TakahiroUeno1

Summary

ThispaperanalyzeswhetherandhowtransferofclimatemitigationtechnologiestoChinaoccurs,by

studyingcasesofseventechnologiesthatareatthestageofdeploymentordiffusion.Mostofthese

technologieswerealreadytransferredtoChinaintermsofbothtechnologyadoptionandlocalproduction.

InternationaldivisionoflaborofmanufacturingandlocalizationpoliciesbytheChinesegovernment

facilitatedlocalproductionbyChina,whichresultedindeepcutsinproductioncosts.Suchcostreduction,

coupledwithtechnologydiffusionpoliciesbytheChinesegovernment,thenaccelerateddeploymentand

diffusioninChinaandotheremergingeconomiesthatimportChineseproducts.Thereisarisk,however,

thatasacrificeinqualityasaresultofChineselocalizationcouldmakethosewhopurchaseanduseChinese

productshesitantandpreventfurtherdiffusion.Tostimulatefurtheradoption,developedcountriescan

providetechnicalassistanceforimprovingChinesedomesticpolicies,includingtechnologydiffusion

policies,productqualitycontrol,andcreationofsoundbusinessenvironmentswhereforeignfirmscan

safelytransfertheirhighqualitytechnologies.Thus,consideringtheuniquepositionofChinaasthe

factoryoftheworldthateventuallyabsorbsvarioustechnologies,effectivepolicywillbesuchinstitutional

supportratherthandirectaidfundingfortechnologytransfer.

1.Introduction

Addressingclimatechangerequiresglobalresponsesbecauseoftheglobalnatureofclimate.Technology

transferisexpectedtofacilitatesuchglobalresponsesbybridgingagapbetweendevelopedand

developing

countries.

As

is

shown

by

technical

assessment

of

emissions

reduction

potential,

huge

potential

residesinthedevelopingworld(IPCC2007).Ontheotherhand,technologiesforreducinggreenhousegas

emissionsoriginatemainlyindevelopedcountries.Transferofthesetechnologiesisakeyforeffective

reductiononaglobalscale.

.1Researcher,CentralResearchInstituteofElectricPowerIndustry(CRIEPI),Japan.ThispaperwaspreparedfortheClimatePolicyProgramatRFF.

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Currently,countriesareengagedinnegotiatingpost2012internationalclimateagreements.Although

technologytransferisconsideredoneofthemajorpillarsoffutureagreements,itsnegotiationsfrequently

stall,asdevelopedanddevelopingcountriestendtobeinconflict,especiallyovertreatmentofintellectual

propertyrights

(IPRs)

and

the

role

of

public

funding.

Developed

countries

typically

argue

that

technology

transferoccurscommerciallyandtheroleofnationalgovernmentsistocreatebusinessandregulatory

environmentsthatenablecommercialactivities.Forthem,IPRprotectionisthecoreofenabling

environmentsfortechnologytransfer.Ontheotherhand,developingcountriesemphasizetheroleof

publicassistancebydevelopedcountries.Eveniftheyagreeonthecriticalandcentralroleoftheprivate

sector,theycontinuallyrequestlargescalepublicfundingfromdevelopedcountries.Inaddition,they

believethatprotectionofIPRsmakestechnologieslessaccessibleandaffordableandrequestspecial

treatmentssuchascompulsorylicensing.Althoughmuchtimealreadyhasbeenspentonthenegotiations,

discussiontherestilltendstobeconceptualandabstractwithouttalkingaboutconcreteexamplesand

actualexperiences.

Thispaper

therefore

aims

to

provide

knowledge

based

on

the

reality

of

technology

transfer

by

analyzing

sevencasesandthenderivingdynamicsoftechnologytransferfromthem.ThecasesarelocatedinChina,

asthisisoneoftheworldslargestemittingcountries,withmassivepotentialforemissionsreduction.

Furthermore,Chinaisfrequentlyregardedasrepresentativeofdevelopingcountries.Inthefollowing

discussion,Section2brieflyreviewsexistingliteratureontechnologytransferandsummarizesmajorissues

ontechnologytransferinpost2012climateagreements;Section3offersaframeworkforthecasestudies;

Section4providesoverviewsofthesevencases;andSection5examinesthefactorsaffectingtechnology

transfer.Builtontheanalysesofthecasestudiesintheprevioussections,Section6looksatpolicy

implicationsandhowtoengageChinaintopost2012internationalclimateagreementsthroughtechnology

cooperation.

2.LiteratureReview

Theaimofthissectionistoidentifyhistoricalrootsofdivergenceinviewsontechnologytransferbetween

developedanddevelopingcountriesandpointsofdiscussionatnegotiationsbyreviewingtherelevant

literaturebriefly.

2. 1DEFINITIONSOF TECHNOLOGYTRANSFER

Beforeexploringtheliterature,technologytransfershouldbedefined.Thetermmaygenerallyencompass

alltheactivitiesrelatedtoflowsoftechnicalknowledge,experience,andequipment(IPCC2000).Forthe

purposeof

analysis

of

climate

policy,

this

paper

defines

technology

transfer

in

two

simple

ways:

(a)

all

the

flowsthatendupindeploymentanddiffusion2ofmitigationtechnologies,and(b)alltheflowsthatleadto

localproductionofmitigationtechnologiesindevelopingcountries.Figure1schematizesthetechnology

developmentprocessinbothdevelopedanddevelopingcountries.Technologicalknowledge,experience,

.2AccordingtoUNFCCC(2009),atechnologyatthedeploymentstageiswellunderstoodandisavailableforselectedcommercialapplications butismore

costlythantheestablishedtechnology, andatechnologyatthestageofdiffusioniscompetitivewiththeestablishedtechnology.

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andequipmentcanbetransferredfromtheupperleveltothelowerlevelthroughvariouschannels

betweenthem,suchasexport;foreigndirectinvestments(FDI),includingjointventures(JVs);licensing;and

imitation.Whereasallthechannelsarerelevantforthefirstdefinition,exportsbydevelopedcountriesare

excludedfortheseconddefinition,whichbypasseslocalproduction.

Figure1.

Two

Definitions

of

Technology

Transfer

Fromthestandpointofclimatechangemitigation,technologydiffusionismorecrucialthanlocal

production,becauseactualinstallationofmitigationtechnologiescanreduceemissions,regardlessoftheir

origins.Nevertheless,localproductionshouldalsobeafocusofanalysis,asitcanfacilitatedeploymentand

diffusionbyreducingthecostsofmanufacturing.Thisiswhythispaperkeepsthesetwofocuses,while

puttingmoreemphasisontheformer.

2. 2LITERATUREON ECONOMICDEVELOPMENT

Technologytransferoftenappearsintheliteratureoneconomicdevelopmentofdevelopingcountries,

includingdevelopmenteconomics.Atypicalstartingpointofdiscussionontechnologytransferand

economicdevelopmentistheclassicaleconomicstheoryofinternationaltrade.Inthistheory,goodsare

producedincountrieswherecomparableadvantageexists,whichresultsininternationaldivisionoflaborin

production.Twotypesoftradedrivenspecializationexist:horizontalandvertical.Horizontalspecialization

isthesituationwhereinacountryhascomparableadvantagesinallthestagesofmanufacturingof

products,from

upstream

(component

production)

to

downstream

(assembling).

In

vertical

specialization,

a

countryhasadvantagesonlyinpartofastreamofmanufacturingstages.Thetechnologicalcapacity

necessaryformanufacturingproductsissupposedtobetransferredthroughvariouschannelstothe

countrieswherecomparableadvantagesexist.

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Oneofthemajorissuesofeconomicsliteratureontechnologytransferiswhethertransferof

manufacturingtechnologiesdrivenbyinternationaltradehasknowledgespilloverthatenhances

productivityoftheentirerecipienteconomiesbeyondthefirmsreceivingthetechnologies.Evidenceonthe

natureandpaceofsuchupgradingoftechnicalcapacityismixed,asfollows.3

Accordingto

the

flying

geese

model

of

economic

development,

latecomer

countries

can

catch

up

with

the

frontrunnersafteracertaintimelagandentertechnologicallyadvancedsectorsinwhichthefrontrunners

originallyspecialized.Thenfrontrunnersmoveuptomoreadvancedproducts(Figure2;Suehiro2008).Case

studiesinChina,onwhichthispaperfocuses,haveshownthatthecountryisrapidlycatchingupwithother

industrializednationsformanymanufacturingproducts.4Startingfromalaborintensiveassemblingstage,

Chinagraduallyshiftsuptomoreadvancedstages,includingproductionoftechnologicallydifficult

components.

Figure2.InternationalProductCycleandTechnologicalAdvancement5

Internationaldivisionoflaborinproduction

Time

Progressoftechnologyaccumulationandproductcycle

A

B

D

C

A

C

B

B

A

A

Shiftofmajormanufacturers/exporters

Country

ASEAN

countries

Taiwan

Korea

Japan

USA

Internationaldivisionoflaborinproduction

Time

Progressoftechnologyaccumulationandproductcycle

A

B

D

C

A

C

B

B

A

A

A

B

D

C

A

C

B

B

A

A

Shiftofmajormanufacturers/exporters

Country

ASEAN

countries

Taiwan

Korea

Japan

USA

Source:Suehiro(2008)

Ontheotherhand,anotherstudybasedontradestatisticsarguesthattechnologicalupgradingoccursonly

atforeignaffiliatesanddoesnotextendtotheentirelocalChineseeconomy(LemoineandnalKesenci

2004).Then,theauthorsofthestudycautionthatimportingforeigntechnologiesleadstoanever

increasingdependencyandemphasizetheimportanceofsustainedeffortstoimprovethedissemination

ofimportedtechnologiesandstrengthenChinasownresearchanddevelopmenttoavoiddependence.

.3Fordetailedsurveysoneconomicsliterature,seeMaskus(2004)andSaggi(2000).Thesesurveystreatchannelsoftechnologytransferrespectivelyand

highlightdifferencesamongthem,whereasempiricalstudiestheysurveyeddonotnecessarilyprovidedecisiveconclusionsonwhatkindsofeffectsrespective

channelshave.4Forexample,seeHan(2004).

5ASEANstandsforAssociationofSoutheastAsianNations.

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Inthe1960sandearly1970s,amoredeterministicversionofthelatterargumentprevailedasdependency

theory,whicharguedthatdevelopingcountrieswerestructurallydependentondevelopedcountriesand

theirmultinationalcompanies.Thetheoryregardedasymmetryoftechnicalcapacitybetweendeveloped

anddevelopingcountriesasoneofthesourcesofstructuraldependenceandarguedthattechnology

transferwasarequisiteforeconomicindependenceanddevelopmentofthesouth(UNCTAD1976).Those

whoshared

the

structural

views

supported

substantial

revision

of

patent

systems

and

requested

prohibiting

businesspracticesofmultinationalcompaniestorestricttechnologytransfer,forexample,atthemeetings

oftheUnitedNationsConferenceonTradeandDevelopment(UNCTAD),themajorforumontradeand

development,inwhichdevelopingcountriesarewellrepresented.Evenaftertheriseofnewly

industrializedeconomies(NIEs)suchasKoreaandTaiwaninthe1980scounteredthevalidityofstructural

dependence,developingcountriestosomeextentstillholdthestructuralviewofdependencetheory.

Thecurrentdivergenceintheviewsontechnologytransferseemsrootedinthehistoricaldivisionbetween

developedanddevelopingcountriessince1960s.Developingcountriesbeliefinstructuraldependencemay

bepartofthemotivationbehindtheirstrongrequestsforlargeamountsofpublicfundingfortechnology

transferandcompulsorylicensingofadvancedtechnologiesatthepostKyotonegotiations.Ontheother

hand,developedcountriesdonotsharesuchaviewandemphasizetheroleofcommercialactivitiesand

theimportanceofenablingenvironmentsindevelopingcountries.

2. 3LITERATUREON CLIMATEPOLICY

TechnologytransferhasbeenacontinuousconcernsincetheestablishmentoftheUnitedNations

FrameworkConventiononClimateChange(UNFCCC).TheBaliActionPlan,whichwasagreedonbythe

PartiestotheUNFCCCCin2007andlaysoutnegotiationagendasforpost2012agreements,renewed

interestintechnologytransferamongtheinternationalclimatepolicycommunity,astheplanmakesfuture

mitigationactionbydevelopingcountriescontingentonsupportfortechnologytransfer.Notingthe

differenceof

views

between

developed

and

developing

countries,

literature

on

climate

policy

treats

policy

questions,includingtreatmentofintellectualpropertyrightsandrolesoffinancialmechanisms,asfollows.

Oneofthemostcontentiousissuesatthenegotiationsistreatmentofintellectualpropertyrights.As

mentionedinSection1,developingcountriesrequestcompulsorylicensingandotherpreferential

treatments.ThebigissueiswhetherIPRsarebarriersfortechnologytransfer.Mostofthestudiesthispaper

reviewedprovidenodecisiveconclusion,andrecentevidencetendstoshowthatIPRsarenotnecessarily

significantoruniquebarriers.Basedoncasesofrenewableenergytechnologies,Barton(2007)pointsout

thatIPRsdonotseemtopreventtechnologyaccessbydevelopingcountries,andevenstrongerprotection

mayhelpadvanceddevelopingcountries,asforeignfirmsaremorewillingtotransfertheirtechnologies.

Ontheotherhand,basedonthecasesoftransferoffiveenergytechnologiesinIndia,Ockwelletal.(2007)

reportlimited

access

to

the

most

advanced

technologies

by

Indian

firms,

but

they

also

emphasize

other

significantbarriers,suchasalackofabsorptivecapacityandtacitknowledge;evenifIPRsaresharedwith

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Indianfirms,theycannotmanufactureadvancedproductswithoutimprovingtheirtechnologicalcapacity

andlearningtacitknowledge.6

Althoughevidenceisnotdecisivetodate,policyproposalsforaddressingIPRconcernshavebeen

presentedrecently.ApaperpreparedbytheUnitedNationsDepartmentofEconomicandSocialAffairs

(UNDESA)mentions

loose

application

of

IPRs

for

environmentally

sound

technologies,

from

the

perspective

ofdevelopingcountries,especiallyleastdevelopedcountriesthatareunabletolicensenewtechnologiesor

arenotbenefitingfromtheinflowsofforeigndirectinvestments(UNDESA2008).Tomlinsonetal.(2008)

alsosuggestflexibletreatmentsofIPRsbygovernmentalinterventions.Forexample,governmentscan

makecommitmentstobuyouttechnologiesthatsatisfycertaindefinedstandardsandputpurchased

technologiesintothepublicdomain.Thisarrangement,calledadvancepurchasecommitmentsor

innovationprizes,canmotivateprivatefirmstoinvestinprematureresearchareasbypartiallyremoving

theirconcernsaboutrecoveryofresearchanddevelopment(R&D)costs.JointR&Dbetweendeveloped

anddevelopingcountrieshasalsobeenproposedbydevelopingcountriesasameanstosharenew

technologiesbetweendevelopedanddevelopingcountries.

Therole

of

financial

mechanisms

for

technology

transfer

is

another

issue

that

attracts

attention

at

negotiations.Asexplainedbymanystudies,therolesofpublicandprivatefinancearevariedfordifferent

stagesoftechnologydevelopment.PublicfinancesareimportantforR&Dactivitiesthatareriskyforprivate

firms,whereasprivatefinancesaremoresalientindownstreamdeploymentanddiffusionstages.Builton

thisunderstanding,arecentresearchreportcommissionedbyUNFCCCreviewscurrentlyavailablefinancial

resources,gapsandbarriers,andpotentialnewfinancialsourcesforvariousstagesoftechnology

development,basedontheresearchliteratureavailabletodate(UNFCCC2009).

Todate,evidenceontheeffectivenessofdifferentfinancialchannels,includingOfficialDevelopment

Assistance(ODA)andCleanDevelopmentMechanism(CDM),isstilllimited;severalexpostevaluations

have

been

presented

recently.

Reviewing

eight

energy

efficiency

projects

funded

by

the

Global

EnvironmentFacility,oneofthemultilateralenvironmentalODAchannels,BirnerandMartinot(2005)show

theeffectivenessoftheprojectstargetinginstitutionalandregulatorychangesthatsupportadoptionof

energyefficienttechnologies,suchasenergyefficiencystandardsandlabeling.Ontheotherhand,another

projecttheyreviewedwaslesssuccessful.Theintentionoftheprojectwastobuyoutadvancedboiler

technologiesfromfirmsindevelopedcountriesandsharethemwithfirmsinhostcountries,butitfaceda

seriesofdifficulties,mainlybecauseitsdesignwasnotflexibleenoughtorespondtorapidchangesinboiler

technologymarkets.Severalstudies(forexample,Seres2008)reportthatabouthalfofCDMprojectshave

broughtintechnologiesthatwerenotavailableinhostcountries,butitislessclearwhetherCDM

contributestotechnologydiffusionindevelopingcountriesefficientlyandeffectively.CDMprojectsare

sometimescriticizedasreceivingexcessivesubsidiesforcheapprojects,andwhethertheybringabout

additionalemissions

reductions

has

been

questioned

(Wara

and

Victor

2008).

.6Severalreportspointoutdifferencesofsituationsamongtechnologyareas,especiallybetweenpharmaceuticalandenergysectors.Whereasproductsand

technologies areeasilycopiedwithouttheprotectionofpatentsintheformersector,tacitknowledge, ratherthanpatents,iscrucialforproductioninthe

lattersector,andIPRsarenotconsideredtobeamajorbarrier.

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2. 4SUMMARY

Thebriefreviewoftheliteratureoneconomicdevelopmentindicatesthatthecurrentdivergenceofviews

ontechnologytransferbetweendevelopedanddevelopingcountriesisrootedinahistoricaldivisionthat

canbetracedbacktothe1960s,eveniftherealityoftheworldeconomyhaschangeddrasticallysince

then.Noting

the

difference

of

views,

climate

policy

literature

considers

possible

options

for

post

2012

agreements,includingflexibletreatmentsofIPRsandrolesoffinancialmechanisms,althoughthereislittle

empiricalevidenceonwhetherIPRsaresignificantbarriersfortechnologytransferandhowefficientand

effectivevariousoptionsoffinancialmechanismsare.

3.FrameworkforCaseStudies

Underthedivisionofviewsbetweennorthandsouth,countriesarecurrentlynegotiatingarrangementsfor

technologytransferinfutureinternationalclimateagreementswithoutsufficientempiricalevidence,as

discussedintheprevioussection.Thus,fillingtheknowledgegapwithactualcasesmayfacilitatethe

difficultnegotiations,andtherestofthispaperintendstoprovideanalysisofcasesinChina.

Throughcasestudies,thispaperseekstoidentifydynamicsoftechnologytransferinChinabyconsidering

whatkindsoffactorsaccelerateorpreventdeploymentanddiffusionofmitigationtechnologiesandwhy

productionofthemisshiftedtoChina.Toaddressthesequestions,thispapertakesthefollowingtwosteps.

First,itgathersfourkindsofbasicinformationforrespectivecases:(a)diffusioninChina,(b)productionin

China,(c)channelsoftechnologytransfer,and(d)exportsfromChinatoothercountries.Second,builton

thegatheredinformation,itidentifiescommonfactorsamongcasesthatdrivediffusionandlocal

productionoftechnologies(Figure3).

Figure3.FrameworkforCaseStudies

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Thispaperlooksatthefollowingsevenmitigationtechnologiesascasestudies,coveringelectricity,

industry,andresidentialsectors:

1. Supercriticalandultrasupercriticalcoalfiredpowerplants(SC&USC):oneoftheadvancedtechnologiesforconventionalcoalpowerplantsthatgenerateelectricitywithhightemperatureand

highpressuresteamsinsupercriticalorultrasupercriticalconditions.

2. Naturalgascombinedcyclepowerplants(NGCC):energyefficientgaspowergenerationcombiningagasandasteamturbine,inwhichrecoveredwasteheatisusedforrotatingasteamturbine

3. Photovoltaicpowergeneration(PV):renewableenergytechnologythatconvertsenergyofsunlightintoelectricitybyusingsemiconductors

4. Windpower:renewableenergytechnologythatgenerateselectricitybyusingthewindtorotateblades

5. Wasteheatrecoveryforsteelandcementplants(WHR):technologythatrecoverswasteheatfromindustrialprocessesandrecyclesitforvariouspurposes,includingpowergeneration

6. Energyefficientroomairconditioners(EERAC):airconditionerswhoseenergyefficiencyisimprovedbycontrollingarotatingspeedofcompressorswithinvertersormakingtechnicalimprovementsfor

compressorsandheatexchangers

7. Compactfluorescentlamps(CFL):fluorescentbulbsmadewithsocketsthatfitincandescentlampsasenergyefficientalternatives

4.OverviewofCaseStudies

Thissectionprovidesanoverviewofthesevencasestudiesbycomparativelydescribingdiffusion,local

production,channels,andexportstoothercountries.7

4. 1DIFFUSIONIN CHINA

InallcasesexceptPVandinvertercontrolledRAC,technologiesarealreadyatthestageofdeploymentor

diffusion,andtherateofdiffusionisrapidlyincreasing(Table1).AnimpressiveexampleisSCandUSCunits:

approximately40percentofallsuchunitsintheworldoperateinChina,andUSCplantsrecentlyhavebeen

installedat

an

accelerated

rate.

More

than

100

facilities

for

coke

dry

quenching

(CDQ),

one

of

the

WHR

technologiesforthesteelsector,arecurrentlyinoperation,whereasfewerthan20facilitiesexistedbefore

2000.Ontheotherhand,thediffusionrateofPVandinvertercontrolledRACsisstillverylow.

.7TheAppendixprovidesfiguresthatsummarizetheinformationinacasebycasemanner.

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Table1.StatusofDiffusionoftheCaseStudies

1.SC&USC Among713plantsplanned,constructed,oroperatedintheworldin2008,38percentexistin

China(Maeda2008).

2.NGCC In2006,capacityinoperationisabout10gigawattsandcapacityunderplanningor

constructionis21.8gigawatts(Ni2007).

3.PV

In

2007,

installed

capacity

of

PV

is

still

about

100

megawatts,

and

most

of

the

units

are

used

foroffgridcapacityinruralareas(JEPIC2008).

4.Wind Capacityofwindpowerhasexpandedincreasinglyfrom500megawattsin2002to12,000

megawattsin2008.

5.WHR Fewerthan20CDQfacilitiesexistedbefore2000,buttodaymorethan100areinoperation

(Nakano2008).WHRgenerationforcementplantswasinitiallydemonstratedjustafewyears

ago,between2000and2004,butby2008,morethan100plantswereunderplanning,

construction,oroperation.

6.EERAC Althoughapproximately30millionRACsaresoldannually,theratioofefficienttypesisstill

low(Mei2006).

7.CFL In2003,theaveragenumberofCFLsperhouseholdwas1.5in6.7lightbulbs.Thisfigureis

higherthantheOECDaveragein1999(IEA2006).

4. 2PRODUCTIONIN CHINA8

Inallthecases,technologiesaremanufacturedinChina,reflectingtheChinesepositionasthefactoryof

theworld(Table2).TheaccumulatedcapacityofmadeinChinaSCandUSCunitsalreadyexceedsthatof

madeinJapanormadeinEuropeunits.GasturbinesforNGCCaremanufacturedjointlybyChinese

manufacturersandforeignpartners.Withregardtorenewableenergy,Suntech,theleadingPV

manufacturerinChina,isthethirdlargestproducerofPVintheworld,andGoldwindandSinovel,Chinese

domesticfirmsofwindturbines,arerapidlyexpandingtheirshareinthedomesticmarketbyproducing

largerunits.DomesticfirmsandjointventureswithJapanesemanufacturersproducethefacilitiesforWHR

forthe

steel

and

cement

sectors.

For

the

residential

sector,

more

than

70

percent

of

RACs

and

80

percent

ofCFLsareproducedinChina.

.8Inthissection,onlyfinalproductsareincluded;componentproductionisconsideredinthenextsection.

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1 0 U E N O | R E S O U R C E S F O R T H E F U T U R E

Table2.StatusofLocalProductionintheCaseStudies

1.SC&USC Harbin,Shanghai,andDongfangproduceboilers,turbines,andgenerators.Accumulated

capacityofmadeinChinaunitsalreadyexceedsthatofunitsmadeinJapanorEurope(Epple

2004).

2.NGCC

Chinese

major

manufacturers

of

heavy

machinery

(Harbin,

Shanghai,

and

Dongfang)

produce

turbinesandgeneratorsjointlywiththeirforeignpartners(GE,Siemens,andMitsubishi)(Yao

2008).

3.PV In2008,SuntechwasthethirdlargestproducerofPVintheworld(PVNews2009).

4.Wind Chinesefirms,especiallyGoldwindandSinovel,areexpandingtheirproductionanddominate

morethanhalfofthemarketshareinChina(CWEA2009).

5.WHR BothChinesefirmsandjointventuresproduceCDQforsteelplantsandWHRgeneration

facilitiesforcementplants(Nakano2008;Soridaetal.2007).

6.EERAC Althoughmorethan70percentofRACsintheworldareproducedinChina,theratioof

energyefficientproductsisstillverylow(NikkeiBusinessPublishing2008).

7.CFL Chinaproducesmorethan80percentofCFLsintheworld(DuPontandTon2007).Morethan

2,500companiesmanufactureCFLs(GlobalSources2007).

4. 3CHANNELSOF TECHNOLOGYTRANSFER

Channelsoftransferarevariedacrossthecases,andforsome,technologiesaretransferredthrough

multiplechannels,asshowninTable3.

Technologylicensingisafrequentlyadoptedchannel.Forexample,Chinesecompaniesarelicensedbyfirms

indevelopedcountriestoproduceSCandUSCunits,gasandsteamturbinesforNGCC,andwindturbines.

Eveniftheyhavelicensestoproducefinalproducts,however,Chinesefirmssometimesdonothavethe

capacitytoproducekeycomponentsandfrequentlyimportthemfromforeignfirms.Chineselicensed

manufacturersof

SC

and

USC

units

import

materials

used

for

key

components

that

are

exposed

to

severe

physicalconditionswithhightemperatureandhighpressuresteams.Chinesemanufacturersalsostill

importcorecomponentsofgasturbines,suchasbladesandrotors,fromtheirforeignpartners.

SemiconductordevicesforinvertercontrolledRACaresuppliedbyforeignmanufacturersaswell.

Jointventures(JVs)betweenChineseandforeignfirmsareanotherfrequentchanneloftransfer.JVs

manufacturecomponentsofturbinesofNGCC,assembledwindturbines,WHRfacilities,andcompressors

forRAC.Fullormajorityownershipbyforeignfirmsalsoplaysarole.Forexample,Chineseaffiliatesof

JapanesemanufacturersproducemostinvertercontrolledRACs.

WithregardtoPVandCFL,Chineselocalmanufacturerseasilysetupproductionlinesbypurchasing

productionequipment.

Especially

for

PV,

manufacturers

of

production

equipment

provide

turnkey

solutions

thatinstallfullsetsofproductionfacilitiesinthefactoriesofPVmakers,allowingPVmakerstostart

productionsimplybyturningakeytothefacility.

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ItissaidthattechnologiesdevelopedbyJapanesefirmsforWHRforbothsteelandcementsectorshave

beencopiedbyChinesemanufacturers.

Table3.ChannelsofTechnologyTransferAdoptedintheCaseStudies

1.SC&USC Harbin,Shanghai,andDongfangacquiredmanufacturingcapacitythroughtechnologylicensing

(Zhuand

Zhao

2008).

Foreign

manufacturers

sometimes

export

core

components

to

their

Chinese

partners(MHI2003).

2.NGCC Harbin,Shanghai,andDongfangacquiredmanufacturingcapacitythroughtechnologylicensing.ForeignmanufacturerssometimesexportcorecomponentstotheirChinesepartners(Yao2008).

3.PV ChinesePVmanufacturersexpandtheirproductioncapacitybypurchasingproductionequipmentfromEuropeancompaniesspecializinginsemiconductorproductionequipment(Wadagi2008).

4.Wind Variouschannelsincludingexports,jointventures,andtechnologylicensingbroughtwindtechnologytoChina(Lewis2006;Ni2008).

5.WHR RespondingtoimitatedorsimilarproductsbyChinesefirms,JapanesemanufacturerstransferredproductiontoChinathroughjointventures(AsahiNewspaperAsiaNetwork2007;NikkeiBusiness

Online2008).

6.EERAC ChineseaffiliatesofJapanesefirmsproducemostinvertercontrolledRACs,butoneChineseelectricmanufacturerdevelopedthemonitsown(inhousedevelopment).ForeignmanufacturersexportsemiconductordevicesforinverterstoChina.

7.CFL Mediumandsmallenterprisessetupproductionlinesbypurchasingproductionequipmentontheirown.Largeforeignfirmscommissionoriginalequipmentmanufacturing(OEM)productiontoChinesefirmsandprovidetrainingforthem.

4. 4EXPORTSTO OTHERCOUNTRIES

Thissection

examines

the

status

of

exports

of

the

various

technologies

to

other

countries

(Table

4).

The

sevencasestudiescanbeclassifiedintothreegroupsaccordingtotheirvolumeofexports.Thefirstgroup

includesthosetechnologieswhosevolumeofexportsisalreadylarge:PVandCFL.Morethan90percentof

PVmodulesand70percentofCFLsproducedinChinaarecurrentlyexportedtoothercountries.The

secondgroupincludesthosetechnologieswhoseexportshavejuststartedrecently:SCandUSC,NGCC,

WHRforcementplants,andEERAC.Thetwomajormanufacturersofheavyelectricmachinery,Shanghai

ElectricandDongfangElectric,receivedordersfromIndiaforlargescaleSCplants,andDongfangTurbine

gotanorderforthemainmachineryforanNGCCplantinBelarus.Bothadomesticfirmandajointventure

exportWHRpowergenerationplantsforcementplants.Thethirdgroupincludesthosetechnologiesthat

havenotyetstartedexporting:windturbinesandCDQ.AlthoughGoldwindslicenseroriginallyprohibitedit

fromexportingitsproducts,itrecentlyacquiredanotherforeigncompanythathastechnologiesforlarge

scalewindturbines.Goldwindnowislookingfortheopportunitytoexport.

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Table4.StatusofExportstoOtherCountriesintheCaseStudies

1.SC&USC ShanghaiElectricandDongfangElectricreceivedordersfromIndiaforlargescaleSCplants(SteelGuru2008).

2.NGCC DongfangTurbinegotanorderforthemainmachineryforaNGCCplantinBelarus,anditsforeign

partner,Mitsubishi

Heavy

Industry,

will

supply

core

components

for

gas

turbines

for

Dongfang

(MHI2009).

3.PV Morethan90percentofPVmodulesproducedinChinaarecurrentlyexportedtoothercountries(Wadagi2008).

4.Wind Noexportyet.Goldwindrecentlyacquiredaforeigncompanywithtechnologiesforlargescalewindturbinesandisseekingtheopportunitytoexport(Lewis2007b;SchwartzandHodum2008).

5.WHR NoexportofCDQyet.BothadomesticfirmandajointventureexportWHRpowergenerationplantsforcementplantstoothercountries,includingThailand.

6.EERAC Althoughmorethan40millionunitsareexportedannually,theratioofenergyefficientproductsisverylow(NikkeiBusinessPublishing2008).

7.CFL Morethan70percentofCFLsproducedinChinaarecurrentlyexportedtoothercountries(Cheng2007).

5.AnalysisofCases

Asdescribedintheprevioussection,technologiesarealreadyatthestageofdeploymentanddiffusionin

mostcases,andtheyareproducedlocallyinallthecases.Insomecases,Chineseproductsareexportedto

othercountries.BuildingontheinformationgiveninSection4,thissectionanalyzesfactorsthataffect

technologytransferintermsofbothtechnologydiffusionandlocalproduction.

5. 1COMMONFACTORS AFFECTINGDEPLOYMENTAN DDIFFUSION

5.1.1GovernmentPolicies

AsdiscussedinSection4.1,mosttechnologiesexceptPVandinvertercontrolledRACsarealreadyatthe

stageofdeploymentordiffusion.Onecommontendencyobservedinthesecasesisthatpoliciesbythe

Chinesegovernmentpushtechnologydeploymentanddiffusion.

InChinaasasocialistcountry,governmentalplans,includingFiveYearNationalDevelopmentPlans,

frequentlyplayacrucialrole,suchasbysupportingthedeploymentanddiffusionofspecifictechnologies.

Forexample,thegovernmentputSCandUSCtechnologyonthelistofhightechsthatdeserveintensive

R&Dsupport

by

government

and

also

promoted

the

initial

deployment

through

state

owned

power

generationcompanies,ChinaHuanengGroupandChinaPowerInvestmentCorporation.Atthesametime,

thegovernmentrequestedthatpowergeneratorsscrapsmallscalepowerplants(lessthan1megawatt)

andreplacethemwithlargeplantssuchasSCandUSC.Likewise,duringtheperiodofthetenthand

eleventhfiveyearplans(respectively,20012005and20062010),thegovernmentdevelopedNGCCin

alignmentwithconstructionofpipelinestransportingnaturalgasandliquefiednaturalgas(LNG)import

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terminals(Ni2007).Concerningindustrialenergyefficiency,theeleventhfiveyearplanseta20percent

reductiontargetofenergyintensitypergrossdomesticproduct(GDP).Toachievethetarget,the

governmentstartedtheTop1000EnterprisesProgram,whichrequiredthetop1,000energyconsuming

companiestoreducetheirenergyintensitybyvariouspoliciesandprograms,includingenergyefficiency

diagnosis,reportingofenergyconsumption,voluntaryagreementswiththegovernment,andenergy

efficiencybenchmarking

efforts.

The

program

covers

many

companies

in

the

steel

and

cement

sectors,

and

thegovernmentrecommendsinstallationofWHRtechnologiesforthesesectors(JMC2007;Priceetal.

2008).

Regulationsandincentivesalsoplayaroleintechnologydiffusion.Withtaxbreaks,subsidies,and

mandatorypurchaseofelectricitybypowercompanies,thegovernmenthasboostedinstallationofwind

turbines(Lewis2007b;Ni2008).Intheresidentialsector,energyefficiencystandardsandlabeling(S&L)for

electricappliancescontributestoexcludingenergywastingproductsfromthemarketandmakingenergy

efficientproductsvisuallydiscerniblefromlessefficientones.S&Lfunctionswellforthenoninvertertypeof

efficientRACs(Mei2006).SubsidiesbyboththecentralandlocalgovernmentsboostdiffusionofCFLs.

5.1.2PriceReductionbyLocalProduction

Byswitchingfromimportstolocalproduction,thepricesofproductsandfacilitiesembodyingadvanced

technologiesgodownsharply.Forconstructionofthermalpowerplants,thepurchasingcostofthemain

machineryisreduceddramaticallybyswitchingtolocalproducts:comparedwithJapan,constructionunit

cost(costperkilowatt)ofSCandNGCCplantsismorethan70percentlowerinChina.9Localproduction

alsoresultsinsimilarpricecutsfortherestofthetechnologiesthisreportstudies(Table5).

Lowlaborcostisthebiggestfactorforpricereduction,especiallythecostoflaborintensiveassembling,

whichisdramaticallyloweredbylocalproduction.Thisisnotthesolefactor,however.Forexample,

ChinesemanufacturersandjointventuresstandardizespecificationsofequipmentforSCplantsandWHR

facilitiesforcementplantsandproducethestandardizedproductswithlowertotalcostsbysavingthe

additionalcostofcustomization.Anotherfactorisintensifiedcompetitionamongcomponentsuppliers.

Chinesemanufacturersofelectricappliancesmaketheirproductsfitwithcomponentsfromdifferent

suppliersandintensifycompetitionamongthem.Suchcompetitionlowerspurchasingcostsfor

manufacturersoffinalproducts(Marukawa2007).

.9Theunitcostincludesnotonlythepurchasingcostofthemachinery,butalsothelaborcostofconstruction. TheverylowlaborcostinChinamaylargely

explainthedifferenceinconstruction costperkilowatthour,butitaloneisnotsufficienttoaccountforsuchagreatdifference.Costreductionbylocal

productionshouldalsosignificantlycontributetothedifference.

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Table5.ReductionofManufacturingCostsandPricesbyLocalProduction10

1.SC&USC ConstructioncostsperkilowatthourofSCplantsareabout20percentofthoseinJapan.

2.NGCC ConstructioncostsofNGCCplantsareabout25percentofthoseinJapan.

3.PV

Manufacturing

cost

of

labor

intensive

module

process

is

significantly

reduced

(Marigo

2007).

4.Wind Pricesoflocalproductsareabout30percentofthoseofimportedproducts(JEPIC2006).

5.WHR InitialcostsofWHRgenerationplantsforcementplantsarereducedbyhalf;initialcostsofCDQareabout75percentofthoseinJapan(NDRC2008;NEDO2008).

6.EERAC Manufacturingcostsoflaborintensiveassemblingprocessaresignificantlyreduced;competitionamongcomponentssuppliersalsoreducespurchasingcostsofmanufacturersoffinalproducts(Marukawa2007).

7.CFL Evenbefore2000,thepriceoflocalCFLproductswasabout$4,whereasthepriceofimportedproductswasabout$10(Lin1999).

5. 2COMMONFACTORS ACCELERATINGLOCALPRODUCTION

Fromthestandpointofforeignfirms,thebiggestdecisioniswhethertoexporttheirproductstoChinaor

producethemlocally.Consideringthemotivationsunderlyingtheirchoiceofchannels,thissubsection

discussesfactorsacceleratinglocalproduction.

InthecaseswhereforeignfirmsshifttheirproductionorlicensetheirtechnologiestoChina,twotypesof

motivationsbehindtheirdecisionareobserved.First,economicrationalitydrivesinternationaldivisionof

laborofmanufacturing,astheclassicaltheoryofinternationaltradepredicts.Laborintensiveprocesses

suchasassemblingtendtobetransferredtoChinabecauseforeignfirmsseekthelowerlaborcosts.Among

thecasesthispaperexamines,theassemblingprocessesofturbinesforthermalpowergenerationand

RACshavealreadybeenshiftedtoChina.ProductionofmaturetechnologiessuchasCFLshasalsomovedto

China,asthetechnologicaladvantageofdevelopedcountriesisalreadymarginal.Thesocalledbigthree

lightingcompaniesGE,Philips,andOsramoutsourcemanufacturingoftheirproductstoChinese

companiesbyanoriginalequipmentmanufacturing(OEM)model.Ontheotherhand,foreignfirmsexport

toChinatechnologicallyadvancedcomponentssuchasmetalmaterialsforSCandUSCboilers,bladesand

rotorsforgasturbines,andsemiconductordevicesforinvertercontrolledRACs.Becauseitisstilldifficult

forChinesemanufacturerstoproducetheseitemsontheirown,theyhavetorelyonimportsfromforeign

companies.

Second,

localization

policies

of

the

Chinese

government

motivate

foreign

firms

to

license

their

technologies

toChinesemanufacturers.Localizationpoliciestypicallyrequiretechnologytransferfromforeignfirmsin

exchangeformarketentry.InthecaseofSCandUSC,becauseonlyChinesefirmscanbidforthemain

.10

Informationonconstruction costsofSC&USCandNGCCplantsisderivedfromFEPC(2003)andSERC(2007).Inthistable,construction costsinJapanare

comparedwiththoseinChina,butthissimplecomparisondoesnotadequatelyreflectthedifferencesinspecificationsforenvironmental equipmentbetween

JapanandChina;ifChinesepowerplantswererequiredtosatisfyasstringentenvironmentalstandardsasJapaneseplantsdo,construction costsinChina

wouldbemuchgreater.

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machinery(boiler,turbine,andgenerator)fornewpowerplants,foreignmanufacturershavetofinda

ChinesepartnerinordertosupplytheirproductstoChina(Imaietal.2007).Licensingisafamiliarwayto

collaboratewithChinesepartners.Underlicensingarrangements,foreignmanufacturersoftensupplykey

componentstoChinesepartners,andChinesemanufacturersproduceothercomponentsandassemble

themallintofinalproducts.AsforNGCC,inexchangeformarketentry,theChinesegovernmentrequested

foreignmanufacturers

to

transfer

their

technology

to

Chinese

firms

to

enable

them

to

produce

on

their

own(NikkeiNet2006).Asaresultofthearrangement,theproportionoflocalcontentshasincreased,while

foreignmanufacturerscontinuetoexportcorecomponentstoChina(Yao2008).Similarpoliciesarealso

pursuedforwindturbines(Ni2008;SchwartzandHodum2008).Thegovernmentsetatargetforlocal

contentat70percentandmakesitarequisiteforbiddingforlargescalewindpowerprojects.

CompetitionwithimitatedorsimilarChineseproductsdriveslocalproductioninthecaseofWHR

technologiesforsteelandcementsectors.Japanesemanufacturersoriginallyexportedthefacilitiesto

China,butChinesemanufacturersstartedproducingimitatedorsimilarproductswithverysmalllaborand

materialcosts.TocompetewithlowpricedChineseproducts,theJapanesefirmsneededtoreduce

manufacturingcostsbyestablishingJVswiththeirChinesepartnersandrelyingonlocalproductioninChina

(AsahiNewspaperAsiaNetwork2007;NikkeiBusinessOnline2008).

Insummary,internationaldivisionoflabordrivenbyeconomicrationalityoccursbetweenChinaand

developedcountries:laborintensiveprocessesandmaturetechnologiesareshiftedtoChina,while

technologicallyadvancedproductsarestillimportedfromdevelopedcountries.Inadditiontotheeconomic

dynamics,thelocalizationpolicyoftheChinesegovernmentmotivatesforeignfirmstolicensetheir

technologiesinexchangeformarketentry.Sometimescompetitionwithimitatedproductsalsodriveslocal

productioninChina.

5. 3POSSIBLECONTRIBUTIONOF EXPORTFROMCHINATO GLOBALDIFFUSION

Inadditiontodomesticdiffusion,productioninChinamaycontributetoglobaldiffusionofmitigation

technologies.Ingeneral,Chinaisthefactoryoftheworld:itexportsavarietyofproducts,taking

advantageoflowerlaborcost.AsdescribedinSection4.4,severalmitigationtechnologieshavebeen

alreadyexportedtoothercountries.Assumingthatthecurrenttrendcontinuesinthefuture,madein

Chinamitigationtechnologiescouldprevailintheworld.

QualityissuesmaymakeothercountrieshesitanttopurchaseChineseproducts,however,asillustratedby

thefollowingexample.Recently,subcriticalcoalpowerplantsinIndiaexperiencedserioustroubleswith

corecomponentsandstoppedoperation.11

Chinesemanufacturershadsuppliedthemainmachineryfor

theseplants.RespondingtothequestionsitreceivedabouttheperformanceoftheChineseequipment,the

Indiangovernments

Central

Electricity

Authority

set

up

atechnical

committee

for

quality

inspection

of

the

equipmentsuppliedbyChinesemanufacturers(Senguputa2008,Das2008).AlthoughlowpricedChinese

productstendtobepopularamongemergingeconomiessuchasIndia,theymayhesitatetoadoptChinese

products,especiallywhentheyareconcernedaboutthequalityofcorecomponentswhereproblemswould

.11

SubcriticalplantsaretechnologicallylessadvancedthanSCandUSC.

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causeseriousaccidents.Likewise,whiletheCFLsexportedtoothercountriesarecheap,thequalityis

reportedtobeverylow(USAID/ASIA2007).

5. 4OVERALLPICTUREEMERGINGFROMANALYSIS

Byconnecting

factors

affecting

diffusion

and

local

production,

an

overall

picture

of

technology

transfer

to

Chinaemerges,asshowninFigure4.Bothgovernmentpoliciespushingtechnologydiffusionandprice

reductionbylocalproductionaremajorfactorsfortechnologydiffusioninChina.Pricereductionalso

expandsexporttoothercountries,especiallyemergingeconomies,andmaycontributetoglobaldiffusion

ofmitigationtechnologies.LocalproductioninChinaisboostedbybothinternationaldivisionoflaborof

manufacturingandlocalizationpoliciesbytheChinesegovernment.Althoughlocalproductionreduces

productioncostsandthusprices,qualitymaybesacrificedinsomecases.Thequalityissuemaydiscourage

othercountriesfrompurchasingChineseproducts.

Figure4.DynamicsofTechnologyTransfertoChina

6.PolicyImplications

Thissectiontreatspolicyissuesbasedonthecasesexaminedintheprevioussections.Firstitdiscusses

desirablepolicyoptionsderiveddirectlyfromthefindingsofthecasestudies.Thenitexaminestwocentral

issuesintheliteratureonclimatepolicy:treatmentofintellectualpropertyrightsandpublicfundingby

developedcountries.Finally,itsuggestshowdevelopedcountriesshouldengageChinainthepost2012

internationalclimateregimethroughtechnologyandtechnicalcooperation.

6. 1POLICYOPTIONSDERIVEDFROMTH EFINDINGSOF TH ECASESTUDIES

Asdiscussed

in

Section

2,

from

the

perspective

of

climate

change,

technology

diffusion

is

amore

important

aspectoftechnologytransferthanlocalproduction.AsshowninFigure4,illustratingthedynamicsof

technologytransfertoChina,domesticpoliciesfortechnologydiffusion,internationaldivisionoflaborof

manufacturing,andlocalizationpoliciesbytheChinesegovernmentarepositivefactorsfordiffusion,

whereasthequalityissueisanegativeone.Takingthesedynamicsintoaccount,toboostdiffusioninChina,

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policiesarenecessarythatstrengthenthepositivefactorsandremedythenegativeone.Thefollowing

subsectionsexamineoptionsforpoliciesandinternationalcooperationregardingthevariousfactors.

6.1.1DomesticPoliciesforTechnologyDiffusion

Asshown

in

the

case

studies,

the

Chinese

government

has

already

adopted

asuite

of

policies

that

facilitate

technologydiffusion,includingthefiveyearplans,incentives,andregulations.Furthermore,itmay

reinforcepoliciesandprogramssupportingdiffusionofclimatemitigationtechnologies,asChinahasa

strongintentiontoacceleratethediffusionofenergyefficienttechnologiesandrenewabletechnologiesin

ordertoenhanceitsowninterestssuchasenergysecurityandsustainablesociety.

TosupporttheseChineseefforts,developedcountriescanprovidetechnicalassistancethatfacilitates

formulationandimplementationofsuchpolicesandprograms.Amongthecasestudiesinthispaper,

technicalassistanceforformulatingandimplementingstandardsandlabelingforRACshasbeen

continuouslyprovidedthroughpublicandcharitablefundingfromdevelopedcountries.Suchpolicy

developmentassistance(PDA)canbecoordinatedamongdonorcountriestomakeitmoreefficient,for

example,by

establishing

an

international

fund

dedicated

to

matching

mitigation

efforts

by

developing

countrieswithtechnicalassistanceandprovidingnecessaryfundingforthem(SugiyamaandOhshita2006).

6.1.2InternationalDivisionofLaborofManufacturing

Internationaldivisionoflaborisaresultoftradedriventransferofproduction.Asarguedbydeveloped

countries,enablingenvironmentsforcommercialactivitiesarecrucialforenlarginglocalproductionby

attractingforeignfirmsdirectinvestmentsorlicensingagreementswithChinesecompanies.Withoutsuch

environments,privatefirmsindevelopedcountriesmayhesitatetobringtheirtechnologiestoChina,for

fearofunintentionalleaksoftheirtechnologiesandunstablebusinesspracticesthatmaynegativelyaffect

theirbusinessactivities.Inallthecasesstudiedinthispaper,theassemblingprocessesandmatured

technologieswereeventuallymovedtoChina,butwithsounderbusinessenvironments,thepaceof

transferwouldbeaccelerated.

AlthoughitisuptotheChinesegovernmentwhetheritreformsdomesticbusinessandregulatory

environments,developedcountriescanprovidecapacitybuildingsupportonceChinadeterminesto

reform.

6.1.3LocalizationPoliciesbytheChineseGovernment

EveniflocalizationpoliciesfunctioneffectivelyinChinaintermsofincreasinglocalproductionandthen

diffusingtechnologies,governmentsofdevelopedcountriesarelikelynottohavemotivationstosupport

thesepolicies,becausetheirindustrialcompetitivenesscouldbedrainedalongwiththeoutflowof

productioninthelongrun.Fromthestandpointofdevelopedcountries,meanstoenhancelocalproduction

shouldbethecreationofenablingenvironments,insteadoflocalizationpolicies,soastomakeitpossible

forfirmsindevelopedcountriestoretainachoicebetweendirectinvestmentandlicensing.Ontheother

hand,theChinesegovernmenthasastronginterestinindustrialdevelopmentthroughobtainingand

localizingforeigntechnologies.Theseconflictinginterestsleavelittleroomforcooperationinlocalization

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policiesbetweenChinaanddevelopedcountries.Furthermore,compatibilityofthesepolicieswiththerules

oftheWorldTradeOrganization(WTO)couldbechallengedbyotherWTOmembers,asLewis(2007a)

discussesforthecaseofwindpower.

6.1.4QualityIssue

ImportingcountriesofChineseproductscantakeactionstoinducethemanufacturerstoimprovethe

qualityoftheirproductsbyappealingtotheexportinterestsofChina.Strongnegativereactiontothelow

qualityofChineseproductsfrequentlyoccursintheirexportmarkets.AsChinaseestheseexportmarkets

asmoreandmoreimportant,itwillbesensitivetoreactionsbyforeignusersandconsumers.OnceChinese

manufacturersarerequestedtoimprovethequalityoftheirproductsbytheirconsumersortosatisfy

higherqualitystandardssetbyothergovernments,theywouldmakeeffortstomeetthedemandinorder

tomaintaintheirexportmarkets.Meetingmorestringentstandardsinexportmarketsmaypossibly

strengthenChinesestandards.Fromthestandpointofmanufacturers,itissometimesimpracticalto

maintaintwoproductionlinesforbothhigh andlowqualityproducts.Itisthenreasonableforthe

governmenttosetproductstandardsatthesamelevelasthoseofexportmarkets.Thistradedriven

upgradingof

standards

is

called

trading

up

(Vogel

1995).

Cooperationwithfirmsindevelopedcountriesmaybehelpfulforimprovingproductquality.Business

environmentswhereforeignfirmscandotheirbusinesswithsafetyarecrucialforinducingsuch

cooperation.

6. 2TREATMENTOF INTELLECTUALPROPERTYRIGHTSAN DPUBLICFUNDINGBY DEVELOPED

COUNTRIES

Thissubsectiontreatsthetwocentralissuesintheliteratureonclimatepolicy.

6.2.1Treatment

of

Intellectual

Property

Rights

Inthecasesthispaperreviewed,protectionofintellectualpropertyrights(IPRs)isnotabarrierfor

technologytransfer,intermsofbothtechnologydiffusionandlocalproduction.

Fromtheperspectiveoftechnologydiffusion,licensefeescouldcausepriceincreasesandtherebyprevent

diffusion.Inthecasesstudied,however,pricereductionbylocalproductionhasbeensosteepthatitseems

thepriceincrementbylicensingisalmostcanceledout.Withregardtoenergytechnologies,R&Dcostisjust

5percentofmanufacturerstotalcost.EveniforiginalmanufacturersputthefullR&Dcostintolicensefees,

pricereductionbylocalproductionstillwouldfarexceedthecostincrementbylicensing.Although

looseningprotectionofIPRscouldfurtherreducethepricebylesseninglicensefeesandleadtomore

diffusion,foreignfirmswouldcutdowntheirR&Dinvestment,feelinganxietyoverthefailuretorecover

R&Dcost;innovativetechnologiesnecessaryforlongtermreductionwouldbedeterredbecauseof

insufficientprivateR&Dfunding.

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Fromtheperspectiveoflocalproduction,firmsindevelopedcountriescouldblocktechnologytransferby

refusingtolicensetheirtechnologiesormakingmanyrestrictionsforlicensees.Ifso,Chinesecompanies

couldbeseverelyrestrictedintheuseofadvancedtechnologies.Inthecasesstudied,however,foreign

firmshaveprovidedtheirtechnologiesunderlicensingortechnologytransferagreements.

Thus,protection

of

IPRs

is

not

abarrier

for

technology

transfer,

at

least,

not

for

China.

Flexible

treatment

of

IPRssuchascompulsorylicensingislikelytobeirrelevantforfurtherenhancementoftechnologydiffusion

andlocalproduction.

6.2.2PublicFundingbyDevelopedCountries

Installationofadvancedtechnologiestypicallyrequiresadditionalcosts.Addressingthecostissueisakey

foracceleratingtechnologydiffusion.Therearetwostrategiestodealwithit:reducingtheadditionalcosts

andcompensatingthem.Asshowninthecasestudies,costreductionbylocalproductionisoneofthemain

factorsacceleratingdiffusioninChina,andinsomecases,installationcostiscutbymorethanhalf.

Evenafter

cutting

the

incremental

costs

by

local

production,

financing

the

remaining

cost

difference

betweenordinaryandadvancedtechnologiesiscrucialfordiffusion.Inthecasesstudiedinthispaper,they

sometimeshavebeencompensatedbysavedcostsfromenergyefficiencyandconservation.Inothercases,

subsidiesandtaxincentivesbythegovernmentassistdiffusion.

Fundingsourcesprovidedbydevelopedcountriesalsoplayarole.AmongthemistheCleanDevelopment

Mechanism(CDM),whichawardsemissionsreductioncreditscalledcertifiedemissionsreductions(CERs)to

mitigationprojectsimplementedindevelopingcountries.12

Inthecasestudies,projectsofUSC,NGCC,wind

power,andWHRforboththesteelandcementsectorsclaimCDMcredits.ThismayimplythatCDMboosts

technologydiffusioninChina.

Itis

difficult,

however,

to

prove

to

what

extent

CDM

contributes

to

diffusion.

Wara

and

Victor

(2008)

questionwhethertheseprojectsarereallyinducedbyCDMcredits.Theyfindthatalmostallprojectsof

hydro,wind,andnaturalgaspowerinChinaareapplyingtoclaimCDMcredits.Consideringthatthe

Chinesegovernmentmakeseffortstodeployanddiffusethesetechnologiesonitsown,itseemsthatat

leastsomeoftheseprojectswouldbeimplementedevenwithoutCDM,enabledbyChinesedomestic

policies.

Theformofmoneydeliveryisanotherissueinfinancingtechnologydiffusion.Thescaleofmoneyprovision

throughCDMcreditsdependsonthecarbonmarketprice.Ittendstobemuchlargerthanactual

incrementalcosts,asthepriceofcredits,whichiscorrelatedtosomeextentwiththepriceofEuropean

allowances,usuallyexceedsincrementalcosts.Ontheotherhand,directfundingforincrementalcostscan

limitthescaleoffinancialflowstodevelopingcountries,whilestillachievingthesameamountofemissions

reduction.Inotherwords,comparedwithcarboncredits,directfundingcanresultingreateremissions

reductionwiththesameamountoffinancialflows.Itremainsunclear,however,thatgovernmentsof

.12

OneofthecoreprinciplesofCDMisadditionality:onlyprojectsthatwouldnotbeimplementedwithoutcreditsmaybeapprovedasCDMprojects.

BecauseCDMcreditsoffsetemissionsindevelopedcountries, credibilityofemissionsreductionbyprojectsiscritical.Ifcreditsareawardedfornonadditional

projects,thiswilladdmoreemissionsfromdevelopedcountries.

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developedcountriesorinternationalinstitutionscanprovidedirectfundingforincrementalcostsinan

efficientandeffectivemanner,consideringthedifficultyofexactassessmentofincrementalcostsand

cumbersomebureaucraticproceduresaccompanyinginternationalpublicfunding.13

Insummary,whilefinancingtheincrementalcostsiscrucialfortechnologydiffusion,theappropriatemeans

remainsunclear.

Especially,

the

forms

of

money

deliverycredits,

direct

funding,

or

acombination

thereofneedtobefurtherconsidered.Inadditiontocompensationofcostadditions,reducingthemby

localproductionisalsoimportantforsavinginstallationcostsandthenlimitingthescaleofnecessarypublic

funding.

6. 3HO WTO ENGAGECHINAIN POST2012CLIMATEAGREEMENTSTHROUGHTECHNOLOGY

COOPERATION

EngagementofChinainpost2012climateagreementisoneofthecentralconcernsatnegotiations.

Recently,therehasbeenagrowingexpectationfortechnologycooperationtoderivesignificantmitigation

actionsandcommitmentsfrommajordevelopingcountriessuchasChinaandIndia.Furthermore,

technologycooperation

on

clean

energy

and

climate

between

the

United

States

and

China

has

been

attractingattention,asithasprovidedanincentiveforbuildingtrustandpartnershipbetweenthem

(LieberthalandSandalow2009;PewCenterandAsiaSociety2009).

Asthecasestudiesofthispapershow,technologiesatthestagesofdeploymentanddiffusiontendtobe

transferredtoChinaeventuallythroughthemechanismdescribedinFigure4.Thisisaspecialfeatureofthe

countryasthefactoryoftheworld.Ifweassumethatthistendencywillcontinueinthefuture,Chinacan

beaproviderofclimatemitigationtechnologiestotheworldin2020.AtleastforChina,accelerationof

currentdynamicsshouldbepursued,ratherthancreationofnewchannelsoftransfer,forexample,by

massivepublicfunding.AsdiscussedinSections6.1and6.2,furtheraccelerationoftechnologytransfer,in

termsofbothtechnologydiffusionandlocalproduction,canbeachievedbydevelopmentand

implementationofpoliciesforpushingtechnologydeploymentanddiffusion(suchasregulationsand

incentives)andcreatingsoundbusinessenvironmentsforforeignfirms.ItisuptotheChinesegovernment

whetheritpursuessuchdomesticpolicies,butonceitdeterminestomakeimprovementsandreinforce

thesepolicies,Chinaislikelytowelcomeassistanceforpolicydevelopmentandimplementation.Therefore,

technologycooperationatdownstreamstagesofdevelopmentshouldbebolsteredbyinstitutionalsupport.

Ontheotherhand,Chinaandotherdevelopingcountriesoftenrequestaccesstoprecommercial

technologiesthatarestillatthestageofR&Dordemonstration.SuchmeasurestypicallyincludejointR&D

activitiesandpublicfundingfortechnologydemonstration.Becausetechnologiesatupstreamstagesare

beyondthescopeofthecasestudiesofthispaper,itisdifficulttosayhowcooperationinprecommercial

technologiesworks,

but

such

cooperation

could

nourish

trust

between

developed

and

developing

countries,whichisaprerequisiteforglobalclimatecooperation.InEurope,cooperationinmegascale

facilitiesforbasicsciencesincetheearly1950sstrengthenedunityamongthenationsandproducedthe

.13

Forfurtherdiscussiononformsofdelivery,seeHalletal.(2008).

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initialmomentumforintegration.14

Learningfromthishistory,cooperationinprecommercialtechnologies

mayfunctionasasteppingstonetoglobalcooperation.

Technologycooperationalone,however,cannotbesufficientforderivingsignificantmitigationaction.As

Halletal.(2008)discuss,policiesfordevelopingcountryengagementincludevariousmeasures,anda

practicalstrategy

is

to

pursue

aportfolio

of

options

in

parallel

to

find

away

to

effectively

engage

China

and

othermajordevelopingcountries.Amongvariousmeasures,theroleoftechnologycooperationwillbe

supplemental,aidingintheaccelerationoftechnologytransferandtrustbuilding.

.14

SeeUeno(2006).

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Appendix:SummaryFiguresoftheSevenCaseStudies

Thefollowingsummaryfiguresforeachofthesevencasestudiesdetailcasebycasetheinformationgiven

inthediagraminFigure3.

1.SupercriticalandUltrasupercriticalCoalFiredPowerPlants(SC&USC)

2.NaturalGasCombinedCyclePowerpplants(NGCC)

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3.PhotovoltaicPowerGeneration(PV)

4.WindPower

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5.WasteHeatRecoveryforSteelandCementPlants(WHR)

6.EnergyEfficientRoomAirConditioners(EERAC)

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7.CompactFluorescentLamps(CFL)

Documents

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