Deploying Climate-friendly Technologies through Collaboration with Developing Countries
Desarrollo Regional - Medio Ambiente
Mitigating climate change will require deploying energy technologies which emit zero or very low greenhouse gas emissions on an unprecedented scale. A number of well established technological options, such as nuclear or hydro, have these characteristics yet they are unlikely to solve the climate problem alone. Other options need to be developed. The existing institutional framework, based on the UNFCCC and - for some countries - its Kyoto Protocol, does not provide the means to rationalise efforts to develop new climatefriendly technologies. While many, if not all, OECD countries are implementing long-term domestic programmes to develop future climate-friendly technologies, the price of carbon provided by current commitments is too low to act as a coordinating signal. In addition, institutional bridges, such as the Clean Development Mechanism (CDM), created to support climate mitigation in developing countries may have a limited effect on overall emission growth and the development of new technologies. OECD efforts include supporting technology deployment to expose promising technologies to competitive pressures, induce improvements through learning and reduce costs. In theory, this process lasts until the climate-friendly technology can compete with conventional alternatives, at which point no additional government support is needed. In most cases, such technology deployment efforts are only carried out at the national level. While this has fostered the creation of new industrial activities and networks in countries, there may be opportunities for more effective deployment outside the OECD, where better resources are available to deploy these technologies further. This paper investigates whether extending the geographic scope of OECD deployment investments to more promising locations in developing countries could increase the level of technology deployment, enhance learning, and ultimately accelerate technology cost reductions compared to an OECD-centred approach. This process would also increase developing country participation in climate-friendly technology development efforts and lower the risk of locking-in more CO2 intensive energy technologies. This policy approach is first assessed through a simple modelling exercise applied to China and India. For illustration purposes, we consider the case of solar technologies - namely solar-PV and solar-thermal - in power generation and assess the impact of investing 25%, 50% and 75% of projected OECD deployment investments over the 2005-2030 period in these countries. Results show that developing countries can indeed offer opportunities to deploy these technologies more cost-effectively than in OECD countries. In the most extreme case considered - a 75% shift of OECD investments to China and India, by 2030 global deployment of solar-PV and solar thermal is respectively 8% and 38% higher than in the base case. Further, assuming unchanged technology learning trends, this leads to an average reduction in the cost of electricity from these technologies in OECD regions of respectively 1% and 5% by 2030, compared to a case where investments remain within OECD regions. This quantitative analysis is, however, only based on a simple plant-level assessment. Two aspects in particular that would affect results are not considered: system integration costs and institutional reliability. Accounting for the first would most likely further support the case of deployment taking place in developing countries. Infrastructures in developing countries are typically less developed. These countries could therefore benefit from addressing integration questions from the onset avoiding potentially high system adaptation costs. Although less clear cut, institutional reliabilitywould tend to play in favour of deployment taking place in OECD countries. In any event, both are highly policy dependent: much therefore depends on how the scheme is introduced in practice. In addition to this, a sound competitive environment is needed to foster technology improvements, without which there is no guarantee that foreseen technological improvements will take place, as assumed in the modelling exercise. Much depends on the market environment created to foster these improvements. Again, this depends to a large extent on the way the scheme is implemented. The policy framework defined to effectively implement the approach proposed in this paper should therefore not only aim to spur OECD investments to developing countries, but also ensure that a sound market environment is created for technology learning to occur. The framework can take a number of forms, to be agreed by countries participating in the scheme, whether it is bilateral or multilateral. It should include an international vehicle to support technology deployment in all the countries participating in the scheme, as well as domestic measures to harmonise market conditions. As the scheme focuses on the value of deployment, a separation between this "deployment value" and the "energy value" of the technology introduced seems appropriate. A demand for technology deployment then needs to be created in OECD countries, as the necessary source of funding in the scheme. The analysis undertaken shows that developing countries can offer opportunities to deploy climate-friendly technologies more cheaply than in OECD countries. OECD technology deployment investments could therefore be enhanced if undertaken in these countries. Investing countries, and the global community, would benefit from faster cost reductions for technologies that will be called for on a large scale to lead to a low-carbon energy path. The long term objective of developing viable climate-friendly alternatives to fossil fuel based technologies is, however, not the only policy driver of technology deployment efforts. Issues related to energy security, industrial development, employment, as well as other environmental objectives may also be affected. These need to be fully recognised by both OECD and developing countries wishing to implement this scheme.