Ryan Rafaty has co-authored a chapter in a new book from the World Bank, Technology Transfer and Innovation for Low-Carbon Development. The publication highlights how mass deployment of existing technology in just four sectors – energy, industry, transport, and buildings – can account for two-thirds of the emissions reductions needed by 2030 to combat climate change. Yet the book also draws attention to the degree to which the world’s most vulnerable economies have been excluded from the promise of these technological solutions.
The demands of climate change mitigation require that a profound structural and technological transformation on par with the Industrial Revolution takes place globally, but within just a few decades. From the wind turbines of West Texas and the North Sea, to the solar module factories of South India and East China, low-carbon technologies are in the early stages of their global ascendancy. Exports of low-carbon technology (LCT) have grown nearly 20-fold since 1990 and are worth more than US$800 billion. Over the past decade, the cost per gigawatt of installed capacity declined 80% for solar energy, 54% for energy storage and 22% for onshore wind power. Innovations across the LCT sector now dwarf those of the fossil fuel industry and the tools needed to rapidly curb emissions are becoming cheaper and more accessible with each passing year.
Economic Disparity in LCT Innovation
The world’s poorest countries continue to play a minuscule role in low-carbon technology markets as buyers, sellers or innovators. High-income countries produced 80 percent of all low-carbon innovations between 2005 and 2015. In 2016, the poorest countries accounted for just 0.01 percent of LCT exports.
Technological capabilities in developing countries more broadly are improving —although slowly, and from a small base. In 1992, just 5.2 percent of global LCT exports went from developing to advanced economies; by 2016, this share had increased to 18.1 percent. However, the LCT market remains highly concentrated among developing countries, with China taking the lion’s share as the world’s largest importer and exporter of LCT. In 2016, China accounted for 15.9 percent of total LCT imports, ranking ahead of the United States (13.2 percent) and Germany (6.9 percent). China also accounted for 16.8 percent of LCT exports in 2016. However, at the same time, China’s state-owned banks continue to finance new coal development projects in Eurasia, South America, and Africa, especially in financially-distressed countries that have for years had difficulties in attracting foreign direct investment.
Most future emissions are expected to come from developing countries, making it vital that mass deployment of LCT is prioritized in these burgeoning economies. Even if every advanced high-income country were to immediately (and irreversibly) reduce its CO2 emissions to zero tomorrow, it would still only allow for an extra 10-15 years before developing countries would need to rapidly decarbonize.
Advantages to Investments in LCT
But even setting aside the climate-focused arguments, there are compelling economic and humanitarian reasons to prioritize mass deployment in developing markets. Ample developmental gains can accrue from strategic investment in innovation capacities (firm and productivity growth, economic diversification, and so on). Yet developing countries have chronically failed to access these benefits owing to underinvestment in core technologies, research and development, equipment, skills training, and intellectual property acquisition.
Over the past two centuries, cross-national differences in the adoption rate of new technologies may have accounted for as much as 75 percent of the divergence in per capita incomes between developed and developing economies. To this day, the ability of developing countries to acquire, configure, and further improve core technologies, and to foster relevant technical skills and learning among their workforces, remains a key determinant of highly uneven levels of economic development. The policies needed to deploy LCT can raise output and employment while yielding welfare benefits. Moreover, adopting LCT offers an opportunity for countries with sufficient capabilities to benefit from participation in global value chains and eventually to become LCT producers and exporters.
Why aren’t more low-income countries adopting readily available LCT solutions? The answer involves the most fundamental challenges of development. Transferring technology is a process of collaboration and learning that requires human, physical, financial, and organizational capital—inputs that are scarce in developing countries, particularly in low-income economies. Meanwhile, the up-front capital costs of LCT are high, and using them effectively requires complementary investment in infrastructure, such as power grids and transmission lines. Furthermore, at the heart of the challenge is the necessity of displacing incumbent fossil fuel firms and entrenched carbon-intensive technology, which remains an immense source of political inertia.
The book proposes a variety of domestic policies and international measures that could accelerate LCT technology transfer to the countries where it is most needed.
- Create demand for LCT products and encourage innovation through domestic policies such as subsidies, public procurement and financing;
- Commit to complementary investments in human capital, infrastructure and financial markets to increase a country’s ability to absorb and use technology;
- Reduce trade and FDI restrictions on LCTs through international trade and investment agreements;
- Formalize a process through which international institutions can acquire and make available LCT patents to the poorest countries.
Accelerating the transfer of low-carbon technologies has been foundational to climate policy since the origins of the UNFCCC in the early 1990s. Three decades later, the economic and climate mitigation case has never been stronger. Measures to increase LCT transfers to developing countries can reduce economic inequality and advance emissions reductions. They should be at the forefront of new stimulus spending and trade negotiations as governments align COVID-19 responses with their commitments to climate change mitigation.
 Comin and Mestieri, 2018.
Ryan Rafaty, Postdoctoral Research Fellow in Policy, Nuffield College