Technology Transfer for Climate Change

To whom do we need to transfer climate technologies? Part 1 – Emerging economies as R&D and production centres – China and India
September 28, 2015, 03:00
Filed under: R&D | Tags: , ,

One of the major issues that is key to thinking about IP, technology and climate change is that there is a geographic structure to the technology need. The majority of developing countries are where the need for existing technologies for energy access and thus low emissions technologies is most evident, and in terms of adaptation where the most severe impacts of technology are held. This means that the flows and access to technology reflects the broader imbalance of technology access in the development framework. However, the emerging economies, especially India and China have an important and special role to play in the generation and dissemination of climate technologies.

The past two decades have seen increasing growth in the role that middle income countries, especially upper middle income countries such as Brazil, India, and China play in international technology flows. Data from 2001 shows that upper middle income countries presented the highest growth arena for high technology exports from the OECD.

Emerging economies are increasingly major players in renewable energy technology investments with Brazil, India and China comprising over 90% of the 72 billion invested in developing countries (just a shade more than that invested in the OECD. See UNEP, Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication, 2011).

The picture of the role of the emerging economies in the new climate technology structure is fundamental to assessing how intellectual property may be a barrier to technology transfer.  If these countries are to engage in large scale replication and distribution of the relevant technologies to other developing countries, then we have to be concerned about anything that places a restriction on their ability to:

  • Function as research and development and production centers for climate technologies
  • Function as export and distribution centers for climate technologies

In the next couple of posts I look at the role of China and India as research and development centers

  1. China

China is now one of the world’s largest consumers of energy, and may be the largest single emitter of GHG emissions by most measures that do not take population into account.  While China is one of the largest consumers of fossil fuel based energy, it is also increasingly becoming one of the largest producers and consumers of renewable energy especially for hydropower, wind and solar PV. Basic industry remains one of the largest contributors to China’s energy related emissions, (cement, iron and steel and chemicals make up 50% of emissions), for which the deployment of best available technologies is crucial, if energy efficiencies needed to peak emissions within the next decade are to be realized.  China has been able to take advantage of opportunities in some sectors such that it is now one of the largest exporters of wind turbine towers, solar batteries, and solar concentrators.  While the majority of technology access has occurred through acquisition of licenses, a significant portion has occurred through joint ventures (a form of FDI which was highly encouraged and sometimes mandated by Chinese regulations), as well as through direct acquisition of firms that held the technologies. Between 2005 and 2008, Chinese exports of clean technologies rose 337% while imports rose 56%.

China is increasingly becoming a regional and international hub for innovation for multinational corporations.  A survey report from Booz and Co. notes that 50% of companies in China develop products in China for export to global markets. A key finding of the report is that the majority of product development taking place in China for export is aimed at Asia and developing countries rather than primarily at developed countries. Another is that Chinese companies have increased their innovative capacity and aim to compete on innovation and not just input costs and price. China is also increasing its own investment in R&D which was up by 600% between 1998 and 2008.

China has one of the most active markets for coal technologies both for domestic use and export. The technology to enable such production in China was acquired through experience in joint ventures as well as licensing.  Most of these purchases were by large state owned or state affiliated enterprises, rather than SMEs. Chinese success in this sector may be the result of significant state intervention to purchase licenses, build capacity, disseminate information, data and know how to all actors in the sector. Such sector wide cooperation seems to have been a necessary condition for successful adoption, adaptation and replication of technologies, driven by deliberate government policy and intervention. While the preferred mode of absorption of clean coal technology for Chinese enterprises is FDI, that apparently conflicted with the strategy of foreign firms’ strategies who focused only on product and equipment sales. Chinese policy has worked to ensure greater domestic manufacturing of clean coal technologies, for domestic adoption and for export.

Nevertheless, China has become the world’s largest manufacturer of thermal power equipment including design of super-critical and ultra-supercritical coal technology (World Bank Coal Power Technology Country Studies: China and India (2009)). It remains a laggard in production of the advanced materials necessary for construction of SC/USC technology and has to import it from Japan. Once Chinese firms can access best available technologies in both sectors, they may be able to increase their export performance and lower costs of adoption of SC/USC technologies in export markets. The Chinese steel sector’s efficiency needs have also exhibited a similar pattern to that of the SC/USC sector (Tan, X et al. “Scaling Up Low-Carbon  Technology  Deployment: Lessons  from  China” World Resources Institute Report, 2010).

China is also home to what was the most successful solar PV company in the developing world, Suntech Power Co.  At its height, it had the largest share of the Chinese Solar PV market and also exported a significant amount of its production.  It was a major contributor to the price reduction of Solar PV worldwide during the 2001-2010 period, making adoption of solar PV cheaper throughout the world. The company was founded on existing available technology with some of its own patents, but also grew by acquiring other companies such as Japan’s MSK. (Barton, J “Intellectual Property and Access to Clean Energy Technologies in Developing Countries: An Analysis of Solar Photovoltaic, Biofuel and Wind Technologies” ICTSD December 2007.)

China’s national policies have created significant demand for wind, even as demand for any form of electricity generation also grows.  China used local content requirements paired with a power supply concession but there is little foreign licensing to local suppliers or partnerships with Chinese companies such as Goldwind, one of the more successful wind technology firms in the world.  The company serves primarily the Chinese market. Having initially licensed some of the key technology needed from REpower, a German company (Barton), anecdotal communications suggest that the license forbids it from exporting products made with the technology (Lewis). Chinese manufacturers generally do not have access to best available technologies and have difficulty with the standard of quality of their smaller turbines and may not have the know-how for producing larger turbines (Tan). Costs of licensing appear to be an increasing concern for the government, as well as reluctance to make best available technologies available for licensing.

In order to increase its export capacity, licensing may be a difficult route for China, and it may have to do so through acquisitions such as the Goldwind majority stake in Vensys (a German firm), giving it access to IP related to manufacturing of larger turbines (Tan)

One may conclude from this that, overall, the barriers for Chinese firms do not go beyond those of normal commercial entrants and that there appear to be few systematic barriers to participation in the market, although perhaps there may be issues in relation to access to developed country markets.  China continues to seek to participate in greater licensing and innovation in the renewable energy sector. However, the lack of access to best available technologies suggests that even where normal commercial activity has been moderately successful, China’s full potential cannot be harnessed without more intervention to create sector-wide adoption of best available technologies, requiring firms to cooperate rather than compete and to engage in significant unprecedented knowledge sharing. The importance of export markets in pushing firms to adopt best available technologies is also a key lesson from the Chinese experience. While foreign FDI into the sector does exist it has done so largely as wholly owned subsidiaries, limiting spill-overs. Such FDI has also been focused on meeting local demand rather than being export oriented.

China’s capacity for large scale manufacturing and its ability to rapidly scale up production makes it an indispensable partner for achieving global diffusion of technologies world-wide.  China’s role in lowering the costs of solar PV is a case in point, even in a situation where the Chinese companies were not holders of the best available technologies they have been able to increase production to the point of possible oversupply with current market demand.

Recommended Citation: Dalindyebo Shabalala, “To whom do we need to transfer climate technologies? Part 1 – Emerging economies as R&D and Production centres – China and India”, Technology Transfer for Climate Change (Sept 28, 2015, 03:00 AM)


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