Factors driving international technology transfer: empirical insights from a CDM project survey

This study empirically explores factors driving international technology transfer via Clean Development Mechanism (CDM) projects by explicitly considering factors that have been identified in the literature on international technology transfer as being relevant for transfer success. These factors include technological characteristics, such as the novelty and complexity of a technology, as well as the use of different transfer channels. Employing data from an original survey of CDM project participants, the econometric analysis also distinguishes between knowledge and equipment transfer. The findings suggest that more complex technologies and the use of export as a transfer channel are both associated with a higher degree of technology transfer. Projects involving two- to five-year-old technologies seem more likely to involve technology transfer than both younger and older technologies. Energy supply and efficiency projects are correlated with a higher degree of technology transfer than non-energy projects. Unlike previous studies, technology transfer was not related to project size, to the length of time a country has hosted CDM projects, or to the host country's absorptive capacity. The findings for knowledge and equipment transfer are similar, but not identical.

Policy relevance

CDM projects are often seen as a vehicle for the transfer of climate technologies from industrialized to developing countries. Technology transfer is an important element of the new and emerging market mechanisms and frameworks under the United Nations Framework Convention on Climate Change, such as the Technology Mechanism, Nationally Appropriate Mitigation Actions, or Intended Nationally Determined Contributions. Thus, a clearer understanding of the factors driving technology transfer may help policy makers in their design of such mechanisms. For the CDM, this may be achieved by including more stringent technology transfer requirements in countries’ CDM project approval processes. Based on our findings, such policies should focus particularly on energy supply and efficiency technologies. Likewise, it may be beneficial for host countries to condition project approval on the novelty and complexity of technologies and adjust these provisions over time. Since such technological characteristics are not captured systematically by project design documents, using a survey-based evaluation opens up new opportunities for a more holistic and targeted evaluation of technology transfer in CDM projects.     

Technology transfer in the CDM: an updated analysis

The prevalence of technology transfer (TT) for Clean Development Mechanism (CDM) projects is analysed, based on information in the project design documents (PDDs) of 3949 projects registered as of 31 March 2012. Responses to a follow-up survey indicate that the PDD statements that concern TT are reasonably accurate and at least 39% of the related projects are expected to involve it. Technology transfer is very heterogeneous across project types and is more common for larger projects. It also usually involves both knowledge and equipment and differs significantly by host country. Technology transfer has declined over time in China, India, and Brazil, the countries that host most of the CDM projects, but it has remained high for other host countries. A host country's existing capacity specific to the technology, the scope for economic deployment of the technology, and complementary policies to build capacity and promote TT, increase the frequency of TT by CDM projects. The technology used by CDM projects originates mostly from Germany, the US, Japan, Denmark, and China, with multiple suppliers of the technology for all project types.     

Technology transfer in the CDM: the role of host-country characteristics

Technology transfer is not an explicit objective of the Clean Development Mechanism (CDM). However, it constitutes a potential co-benefit by helping to improve living conditions in developing countries. Understanding the drivers and barriers of technology transfer in CDM projects is therefore essential to direct investment flows in host countries and enhance the current CDM framework. In this respect, the contribution of this article is twofold. First, it identifies stepping stones and stumbling blocks to technology transfer in the CDM. Higher applied tariff rates on environmental goods and services as well as burdensome administrative procedures to start a new business are found to be negatively associated with the likelihood of a technology transfer. The results are robust to the exclusion of large host countries such as China and India from the sample. Second, as an extension, the article analyses the correspondence of these supporting factors and barriers with the likelihood of a transfer of the different types of technology (equipment, knowledge, or both). The article concludes with policy recommendations for non-Annex I governments, and suggestions for improvements to the CDM to better assess technology transfer in offsetting projects.     

Determinants of technology transfer through the CDM: a within-country analysis for China

Technology transfer (TT) is not mandatory for Clean Development Mechanism (CDM) projects, yet proponents of CDM argue that TT in CDM can bring new technologies to developing countries and thus not only reduce emissions but also foster development. We review the quantitative literature on determinants of TT in CDM and estimate determinants for CDM projects in China. China is by far the largest host country of CDM projects and it is therefore crucial to understand the factors that drive TT there. To gain better interpretation, we focus on heterogeneity within a single country and results can thus be linked to specific policies of the country. Our probit estimations confirm previous international cross-country studies, indicating that larger projects and more advanced technologies are more likely to involve TT. In addition, we find evidence that agglomeration effects are more pronounced at the province level rather than larger regions. We also find a positive effect of foreign direct investment (FDI) on TT, and academic research and development (R&D) is complementary to TT.

Policy relevance

Technology transfer (TT) is a goal of Chinese CDM legislation, but it is not a prerequisite for project approval. Our estimations show the project specific, technological and region-specific features that encourage more TT among CDM projects. Some variables analysed such as R&D spending and FDI (both are found to have positive effects on TT) can be, to some extent, influenced by the policy-makers. Moreover, we find some evidence for the presence of negative agglomeration effects on the provincial level: the likelihood of TT is decreasing in the number of previous projects operating in the same technology and province. This finding needs to be interpreted with great caution. It may suggest the existence of a learning externality, which could serve as a justification for policy intervention. Any policy intervention requires however careful analysis of potential positive or negative externalities resulting from the agglomeration of CDM projects and a comparison of possible benefits with the costs of TT.     

Certified emissions reductions and CDM limits: revenue and distributional aspects

The EU allows those installations that are subject to emissions trading to use a limited volume of certified emissions reductions (CERs), generated through the Clean Development Mechanism (CDM), to cover their own GHG emissions. These CERs can be used in addition to the EU allowances (EUAs), which were primarily allocated free to installations in Phase II of the EU Emissions Trading Scheme (EU ETS) from 2008 to 2012. For the year 2008, the CER limits, which are differentiated by EU Member State, created substantial arbitrage rents (due to the CER-EUA spread) of approximately EU€250 million. Different options for the allocation of this rent are discussed and it is found that, according to economic theory, making the right to use CERs tradable or the regulator pre-committing to buying CERs at the level of the relevant limit reduces the inefficiencies connected to the current regulation. Furthermore, auctioning these CER usage rights shifts the rents created through the CER-EUA spread to the Member State itself. The improved design and implementation of CDM limits justifies EU policy makers intervening to correct previously competition-distorting choices.     

Time to market in the CDM: variation over project characteristics and time

Not only is the carbon market inundated with Certified Emissions Reductions (CERs) issued by successful projects, it is also littered with failed projects, that is, projects that either fail to be registered under the Clean Development Mechanism (CDM) or projects that have been successfully registered but fail to issue CERs. By relying on a novel application of survival analysis in the context of the CDM, this article shows that half of all projects that start the Global Stakeholder Process fail to issue CERs, while the other half have a median time to market of four years. Furthermore, it is shown that some of the best projects, in terms of being additional, are those that are least likely to make it to market, whereas some of the worst projects, in terms of not being additional, are the ones that are most likely to make it to market. This presents a fundamental challenge for the CDM and future offset schemes that rely on the same design as the CDM. In contrast with previous studies, it is shown that, when project characteristics are controlled for, not all durations measured along the CDM project cycle have increased over time.

Policy relevance

This article develops a novel method for analysing durations measured along the CDM project cycle that avoids the biases of previous studies, and corrects for some misconceptions of what the delays faced by CDM projects are and how these delays have changed over time. Developing an understanding of the delays is important in order not to draw the wrong lessons from the CDM experience. As the leading example of an offset scheme, both in terms of geographical scope and sectoral coverage, and some would say institutional complexity, the CDM serves as a benchmark and reference for all future offset schemes, among others, for the New Market Mechanisms (NMMs) and the Chinese domestic offset programme. While the NMMs are still very much in development, China has announced that it will rely on the methodologies and procedures developed under the CDM for generating offsets for their regional carbon trading schemes.     

Technology transfer in the Clean Development Mechanism

Technology transfer is often mentioned as an ancillary benefit of the Kyoto Protocol's Clean Development Mechanism (CDM), but this claim has hardly been researched or substantiated. The question of technology transfer is important, both for developing countries in need for new technology and knowledge and for industrialized countries, as it provides export potential for climate-friendly technologies. To determine what technology transfer means, whether it is occurring through the CDM, and what the value of the associated capital flows is, this article examines technology transfer in the 63 CDM projects that were registered up until 1 January 2006. Technology hardware originates from outside the host country in almost 50% of the evaluated projects, particularly in non-CO₂ greenhouse gas projects, wind energy projects, and a substantial share of the hydropower projects. Bioenergy and projects in the agricultural sector mainly use local technology. The investment value associated with the CDM projects that transferred technology is estimated to be around €470 million, with about €390 million coming from the EU. As the non-CO₂ greenhouse gas projects had very low capital costs, the investment value was highest in the more capital-intensive wind energy and hydropower projects. We also found substantial soft technology transfer, but uncertainties for this finding are greater.     

Intellectual property rights and the transfer of climate change technologies: issues,challenges, and way forward

The role of intellectual property rights (IPRs) in the development and transfer of climate change technologies has been a contentious issue in negotiations under the United Nations Framework Convention on Climate Change (UNFCCC). Irreconcilable differences seem to oppose those who believe IPRs are an inherent barrier to the transfer of climate change technologies and those who argue they are an essential incentive to innovation. After providing an overview of the polarized debate on this issue, this article reviews the existing literature and empirical evidence and looks into some practical initiatives and recent developments. Finally, it seeks to identify a way forward that could help overcome the current stalemate in international deliberations by suggesting a number of parameters to structure the discussion on this complex issue.     

A two-track CDM: improved incentives for sustainable development and offset production

The Clean Development Mechanism (CDM) has been criticized in the literature for encouraging a focus on offset production (OP) at the expense of achieving or encouraging sustainable development (SD). It is argued that one explanation for this is that there is no commonly agreed definition of SD and, moreover, the priority of CDM project developers is often to produce cost-effective OP. Many of the proposals to address these drawbacks are not politically feasible. It is argued that the CDM should be split into a two-track mechanism, with one track for offset production and the other for offset production with an emphasis on sustainable development benefits. This would enable the political deadlock to be broken, allow the inclusion of SD benefits in the price mechanism itself, and allow both SD and OP objectives to be simultaneously achieved.

Policy relevance

The CDM has been criticized for failing to achieve its sustainable development objective, for verification problems regarding the mitigation effects of projects’ emissions, for being complex and bureaucratic, and for the very limited participation by the least developed countries. Given the adoption of a second period of the Kyoto Protocol and the discussion of new market mechanisms in the context of negotiating a new global climate agreement to be adopted in 2015, it is time to explore the ways in which the CDM might be reformed. A two-track version of the CDM is proposed, with one track focused on credit (offset) production and the other track focused on sustainable development. This system could improve the incentive for achieving sustainable development, reduce the uncertainty regarding whether real emissions reductions have been achieved, and be attractive to both developing and industrialized countries.     

Governance and technology transfer in the Clean Development Mechanism in India

Despite significant technological advances in emerging economies, the further development of clean energy technologies in developing countries remains crucial to reducing the greenhouse gas emissions associated with economic development. In this paper we address two significant gaps in the growing body of literature that has assessed the role of the Clean Development Mechanism in promoting the transfer of clean technologies to developing countries. First, we present a qualitative analysis of the governance of the Clean Development Mechanism in India. This provides a basis for understanding the extent to which and the ways in which governance may impact upon the likelihood that projects promote technology transfer. Second, we provide a novel quantification of the level and nature of technology transfer that has occurred in Indian Clean Development Mechanism projects, based on insights from literature on technological capability building. We find that the Clean Development Mechanism in India has produced a negligible number of projects that promote technology transfer if technology transfer is understood as a process of learning about technology. Together these qualitative and quantitative analyses show how politics and governance have contributed to the current form of the Clean Development Mechanism market in India, in which processes of building indigenous technological capabilities have been neglected.     

The role of international business in clean technology transfer and development

While research has generated very useful insights, usually at the macro level, regarding the multifaceted nature of environmental innovation and regulation, the characteristics and drivers peculiar to international companies have remained underexposed in the policy-related literature on clean technology transfer and development. This article aims to help open the ‘black box’ of business, also as input for future policy making, by discussing aspects that influence corporate responses: sector-specific and company-specific peculiarities as well as those related to country contexts (both origin countries and host countries for companies). Most of the climate-related investments in ‘developing’ countries turn out to have been geared to a few emerging economies, generally involving established technologies with limited transfer, and a major role for developed-country utilities, particularly from Europe. Despite these limitations, there is a base with experience being built up, and a potential for extension to lesser-developed areas, but that requires market co-creation by joint business and governmental efforts. As viable business models are largely lacking, the article suggests three main modalities, ranging from fully commercial to primarily publicly funded, involving different types of actors and countries. Gearing policies more towards corporate realities and reaping the international momentum of sustainable energy might also further climate goals.     

What role for climate negotiations on technology transfer?

Little progress has been made in climate negotiations on technology since 1992. Yet the diffusion of climate change mitigation technologies to developing countries (non-Annex I) has increased dramatically over the last twenty years. The shift has mostly concerned emerging economies, which are now reasonably well connected to international technology flows. This is good news, as the bulk of emissions increases are expected to take place in these countries in the near future. In contrast, the least developed countries still appear to be excluded from international technology flows, mostly because of their negligible participation in the recent economic globalization. This article focuses on the policy implications of the contribution of climate negotiations to international technology diffusion.

Policy relevance

The discrepancy between the small amount of progress made in climate negotiations on technology since 1992 and the steady increase in the international diffusion of climate mitigation technologies leads to the perhaps controversial view that the diffusion of climate mitigation technologies does not need strong international coordination over technology issues under the UNFCCC. However, climate negotiations can play a key role in stimulating the demand for low-carbon technologies by setting ambitious emission reductions targets and policies.     

Climate change technology transfer: a new paradigm and policy agenda

This article proposes a shift to a paradigm that is more extensive than the current narrow focus on North—South climate change technology transfers, towards a more inclusive ‘global’ paradigm. An implication of the paradigm shift is that there should be a concomitant expansion of the policy agendas of the international climate and trade regimes. The traditional North—South paradigm of technology transfer ignores the increasing importance of developing countries as sources of advanced climate-friendly technologies, and therefore ignores South—North and South—South transfers. Further, whereas the North—South paradigm has emphasized developing countries' intellectual property rights policies as barriers to technology transfers, the ‘global’ paradigm focuses attention on trade and investment policy barriers, including developed countries' policies that inhibit technology transfer from developing countries. The analysis is relevant to international negotiations in the post-2012 climate regime, and is also relevant to the future development of the trade regime—not only at the multilateral level in the WTO, but also at the regional and bilateral levels.     

Waste energy recovery CDM projects in China: status,challenges and suggestions

The recovery potential for waste energy from major Chinese industries is significant. For example, the estimated waste energy recovery potential is 40 million tons of coal equivalent in the iron and steel industry, accounting for ～10% of the total energy use in the industry. A detailed overview is presented of existing waste energy recovery Clean Development Mechanism (CDM) projects in China. These projects have been developed predominantly in large enterprises and rarely in small or medium-sized companies. The chance of waste energy projects being reviewed or rejected by the Executive Board is slightly higher and delivery rates of certified emission reductions are generally lower than other types of CDM projects. Several major barriers that inhibit project development are identified, such as the lack of CDM awareness or development capacity among many small or medium enterprises, low internal rates of return of the projects, increasing review risk and long delays in the registration process, the varying quality of intermediary buyers, a lack of local Chinese Designated Operational Entities, and policy implementation inconsistency at different levels. Suggestions are put forward to address these problems and such critical issues as additionality are also discussed.     

CDM and national policy: Synergy or conflict? Evidence from the wind power sector in China

This study assesses the effectiveness of a mix of policy instruments including the Clean Development Mechanism (CDM) and the Feed-in Tariff (FIT) to induce wind technology diffusion in China. Relying on a panel dataset consisting of information from 1207 CDM wind projects in thirty provinces over the period 2004–2011, the empirical analysis indicates that: first, wind energy deployment responds primarily to those counterfactual emissions which would have occurred in the absence of the wind projects; second, the dynamic efficiency of the FIT subsidy shows a potential incompatibility with the CDM incentive; third, the leverage of the CDM on wind investment is supported by the industry and technology policy package, which explains in large part the decrease in the FIT subsidy. Given these findings, suggestions are made regarding the design of a future carbon offset scheme and its link with mitigation action in developing countries.     

Assessing the additionality of CDM projects: practical experiences and lessons learned

The Clean Development Mechanism (CDM) under the Kyoto Protocol allows industrialized countries to use credits from greenhouse gas (GHG) abatement projects in developing countries. A key requirement of the CDM is that the emission reductions be real, measurable and additional. This article evaluates how the additionality of CDM projects has been assessed in practice. The analysis is mainly based on a systematic evaluation of 93 registered CDM projects and comes to the conclusion that the current tools for demonstrating additionality are in need of substantial improvement. In particular, the application of the barrier analysis is highly subjective and difficult to validate in an objective and transparent manner. Key assumptions regarding additionality are often not substantiated with credible, documented evidence. In a considerable number of cases it is questionable whether the emission reductions are actually additional. Based on these findings, practical recommendations for improving the assessment of additionality are provided.     

Improving technology transfer through national systems of innovation: climate relevant innovation-system builders (CRIBs)

The Technology Executive Committee (TEC) of the United Nations Framework Convention on Climate Change (UNFCCC) recently convened a workshop seeking to understand how strengthening national systems of innovation (NSIs) might help to foster the transfer of climate technologies to developing countries. This article reviews insights from the literatures on Innovation Studies and Socio-Technical Transitions to demonstrate why this focus on fostering innovation systems has potential to be more transformative as an international policy mechanism for climate technology transfer than anything the UNFCCC has considered to date. Based on insights from empirical research, the article also articulates how the existing architecture of the UNFCCC Technology Mechanism could be usefully extended by supporting the establishment of CRIBs (climate relevant innovation-system builders) in developing countries – key institutions focused on nurturing the climate-relevant innovation systems and building technological capabilities that form the bedrock of transformative, climate-compatible technological change and development.

Policy relevance

This article makes a direct contribution to current work by the TEC of the UNFCCC on enhancing enabling environments for and addressing barriers to technology development and transfer (specifically, it will contribute to Activity 4.3 of the TEC's 2014–15 rolling workplan ‘Further work on enablers and barriers, taking into account the outcomes of the workshop on NSIs’). The article articulates both the conceptual basis that justifies a focus on NSIs in relation to climate technology transfer and makes concrete recommendations as to how this can be implemented under the Convention as a Party-driven extension to the existing architecture of the Technology Mechanism.     

Adaptation in the context of technology development and transfer

Starting from a summary of key developments under the United Nations Framework Convention on Climate Change (UNFCCC) related to adaptation and technologies, the commentary provides an initial review of the available literature relevant to adaptation in the context of technology development and transfer. It summarizes what technologies for adaptation are, how they relate to development, and what their role is in adaptation. It subsequently highlights a number of policy and research issues that could be important to inform future policy. The commentary has two key messages. First, it argues that informed policy decisions on technology development and transfer to enhance adaptation require systematic assessments of the findings in the theoretical and empirical literature. Second, in light of the potential for overlap between processes for adaptation and processes for technologies for adaptation, there is a need for coordination and exchange of information between the work under the Cancún Adaptation Framework and under the Technology Mechanism of the UNFCCC.     

Technological capability and transfer for achieving South Africa's development goals

Technological capability and technology transfer both play important roles in achieving low-carbon development targets and the concepts of both have appeared in national development and climate policy debates. Yet, they differ. Improving capabilities and transfer mechanisms are two differing approaches to technological development. Technology transfer is associated with a key political dynamic within international climate policy, in that developing countries request support from industrialised countries. Whereas technological capability focuses on building internal capabilities and is often framed in the context of national industrial policy plans rather than relying on external support. We argue that technology development, a combination of these approaches, can contribute to South Africa's low-carbon development through innovation and technology-based mitigation actions that increase domestic technological capabilities. Technological capability needs to become a determinant of mitigation action to effectively contribute to achieving South Africa's low-carbon development goals. International technology transfer and cooperation should contribute to boosting domestic capabilities to advance technological development. Technology transfer based on pure sales will not contribute to achieving long-term low-carbon development goals.     

How to increase technology transfers to developing countries: a synthesis of the evidence

The existing United Nations Framework Convention on Climate Change (UNFCCC) has failed to deliver the rate of low-carbon technology transfer (TT) required to curb GHG emissions in developing countries. This failure has exposed the limitations of universalism and renewed interest in bilateral approaches to TT. Gaps are identified in the UNFCCC approach to climate change TT: missing links between international institutions and the national enabling environments that encourage private investment; a non-differentiated approach for (developing) country and technology characteristics; and a lack of clear measurements of the volume and effectiveness of TTs. Evidence from econometric literature and business experience on climate change TT is reviewed, so as to address the identified pitfalls of the UNFCCC process. Strengths and weaknesses of different methodological approaches are highlighted. International policy recommendations are offered aimed at improving the level of emission reductions achieved through TT.