Technology Transfer for Climate Change

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

Like China, India is heavily dependent on fossil fuels for electricity production, as well as heating and transport. Its fuel mix is dominated by oil and coal with significant shares from natural gas and nuclear power. India has also seen a rapid increase in its energy demand, although not on the scale or speed of China. India’s emissions need to peak by 2030, (under a 2 degree scenario), largely through rapid deployment of renewables, nuclear and biofuels. Also crucial will be deployment of best available technologies to enable greater energy use efficiency in industry. As with China, the IEA Energy technology Perspectives note that peaking in 2030 may not be achievable without widespread adoption of CCS in power generation and industry.

India has also taken advantage of opportunities to become a significant player in clean technologies. Indian companies have acquired technology through licensing, through joint ventures, as well as some direct acquisitions. Between 2005 and 2008, Indian exports of renewable technology increased 464% while imports increased by 172%.

India is also the home base of one of the most successful global wind technology manufacturers, Suzlon Energy Ltd. Lewis notes that Suzlon has focused on acquisition of technology by strategically acquiring whole companies, rather than licensing. In part this circumvents the established firms, but relies on significant in-house absorptive capacity.  Suzlon’s export oriented approach also made acquisition of advanced technology and access to markets crucial. This meant that Suzlon could not follow an imitation model, as its products would have been blocked from access to developed country markets where the technologies were protected.  Neither could it rely solely on a licensing model since the terms of licenses from any of the established firms would contain limitations such as geographic restrictions.  This also necessitated creating significant in-house R&D capacity to further develop the technology acquired from smaller second tier firms (Lewis).

India is a major hub for pharmaceutical and agrochemicals production and has in recent years begun to move from generic industries into major originator R&D.  Building on its high export performance, especially to developing countries, Indian firms have been using that capital to cooperate in R&D, acquire firms, and create joint ventures, in order to participate in the lucrative developed country markets for new chemical entities and biological medicines. This role for India as a crucial supplier of affordable medicines has been a large part of the structural debate about how TRIPS might limit access to medicines by forcing Indian firms to provide domestic protection for pharmaceuticals thus limiting their capacity to produce generics for export to meet the need for products in developing countries.

What does this imply?

As part and parcel of their overall growth strategies and economic policies, countries like India and China are taking advantage of the attractiveness of their large markets to foreign companies. However, they have, for the most part, also put in place strong regulatory measures to encourage the diffusion and growth of renewable technologies, especially for export markets, including:

  • Ambitious renewable energy production and consumption targets;
  • Renewable energy and efficiency standards and labels;
  • Clean energy tax incentives;
  • Feed in tariffs
  • Joint venture requirements for specific economic sectors;

In China, for example, the vast majority of FDI into China was required to be in the form of joint ventures that included specific performance and technology transfer requirements or at the very least, no restrictions on the freedom of movement of employees of the JV. (Stern, al. The Economics of Climate Change: The Stern Review). This had a significant impact on China’s ability to move quickly up the value chain and move into competing in the international market on higher value goods. China and India have significant domestic research capacity in both the public and private sector.

In addition, both provide intellectual property protection that, for the moment, is sufficiently compliant with the TRIPS Agreement (no cases in the WTO on substantive law and protection, nor on enforcement) and, in comparison to the pre-TRIPS era, provide a stable and relatively predictable environment for economic transactions to take place in the context of a broader enabling environment for investment.  There remain concerns about sovereign risks (policy and macro-economic) related to sudden shifts in government policy or the extent to which government mandates require non-voluntary sharing of technologies, especially in China, but that risk appears to be largely mitigated by the broader attractiveness of doing business in those countries.  Nevertheless, such risk perceptions may limit the quality and volume of technologies licensed or made available to enterprises in these countries. There is some evidence that what is made available under many licensing or joint venture agreements in these countries is not best available technology.

India and China are already significant players in the global R&D chain, with many companies placing significant portions of their global R&D facilities in these countries. Already by 2006, General Motors had an R&D presence in China, as did Microsoft and BP in India (Stern Review). China, India, Brazil and Russia remain the largest recipients of licensing activity from developed countries.  However, they all remain relatively small players in the technology market when measured by royalty receipts (World Bank Development Indicators).

India and China may also play a role as developers and adapters of technologies that may be better suited to demands in other developing countries.  For example, in the area of modern heat access (e.g. switching from low efficiency biomass, to efficient gas and solar cookers) rural and peri-urban populations in India and China provide ideal testing grounds for development and dissemination of such technologies and Indian and Chinese companies can themselves sell and transfer these technologies to other developing countries.  Private sector actors in OECD countries may not be interested in developing such products as there may be no significant domestic demand in their own countries, and technological solutions they propose may not be suited to deployment in the difficult economic and institutional environments of many developing countries. In the electricity sector, another example is the growth in overall exports (13% – 45% from 2003 – 2009) from China’s Shanghai Power Corporation of super critical technologies for coal powered electricity generation primarily due to exports to developing countries (Elzinga, D et al. “Advantage Energy: Emerging Economies, Developing Countries and the Private-Public Sector Interface” IEA Information Paper, September 2011.)

These emerging economies are also the countries in which there may be clearest evidence of significant patenting of clean technologies (Copenhagen Economics and the IPR Company ‘Are IPR and Barrier to the transfer of Climate Change Technology?’ European Commission DG Trade, January 2009).  However, they are also the most likely developing countries to be able to afford to pay reasonable market rates for licensing of technologies, which has been the case for a significant number of successful ventures such as Goldwind and Suzlon.  The problems that they face are ones of accessing licenses for existing technologies from potential competitors in developed countries. They have to deal with such issues as refusals to license, above market rates for technology or restrictive licensing practices, especially for best available technologies which present the cutting edge and may be a competitive advantage in developed country markets.  They also urgently want to participate in new and innovative research on clean technology and generate leading companies that are IP holders themselves.

The means to addressing the issues they face largely lie in using existing tools in the international IP system. Compulsory licensing, or the threat of it, may be available to address anti-competitive practices such as refusals to license, unreasonable pricing or restrictive licenses.  They may be assisted by easier and more transparent licensing platforms and markets. In terms of participating in new technologies, these countries would be happy to see more joint research and development projects, both co-funded and multilaterally funded. Their concerns are reflected by suggestions for: subsidies; joint R&D; insurance and loan guarantees for development, diffusion and transfer of climate technology; infrastructure for information sharing and licensing platforms, global patent pools, access to publicly funded research; as well as full use of TRIPS flexibilities.  In a sense, it is the creation of a transparent and equal playing field for licensing of technologies that is their most urgent need as they generally have sufficient domestic production capacity. However, emerging economies are also the most likely to have to take on quantified emissions reductions obligations in some form in the new post-Kyoto framework and have a fundamental need for access to existing technologies to help them make the transition out of technologies in which they have significant sunk costs.

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


2 Comments so far
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Your Article is very interesting.I would like to invite your attention to the fact that India has also been making efforts towards development of solar technology and as a part of this development a requirement of local content in solar equipment was added. This has been challenged by the U.S. at the WTO and in August 2015 it managed to get the ruling in its favor. If these facts are taken into consideration it implies that while India and China can license and make profit out of foreign technology any resort to encourage solely the local industries will be met by fierce resistance by developed countries. What are your views?

Comment by udita_kanwar

The case on Solar is interesting because local content requirements are a really blunt instrument for achieving technology transfer and cooperation, but have historically been part of the suite of policy tools used by countries such as China, Taiwan, Singapore, Japan, South Korea. I think the problem for India was that the local content requirement was so blatant rather than a requirement for joint venture investment and then not allowing restrictions on movement of personnel, on sharing of knowledge, on licensing, or on further R&D. The development of a local industry is necessary but will require more nuanced possibility.

Comment by dalindyebo

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