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.     

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.     

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.     

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.     

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.     

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.     

Who uses the Clean Development Mechanism? An empirical analysis of projects in Chinese provinces

China is by far the largest host of projects implemented under the Kyoto Protocol's Clean Development Mechanism (CDM). However, earlier studies shed little light on the determinants of the distribution of CDM projects across Chinese provinces. Given China's large size and political-economic diversity, this dearth of research is troubling. We provide an empirical analysis of 2097 CDM projects in 30 Chinese provinces, 2004–2009. We find that high electricity consumption, low per capita income, and a lack of foreign direct investment are all associated with CDM project implementation. The findings are particularly strong for electricity and foreign direct investment. These findings are consistent with the economic theory of CDM project implementation. Project developers focus on minimizing the cost of carbon abatement. Moreover, they suggest that the CDM can, despite its limitations, contribute to reducing economic inequality and uneven development in China.     

Public policy and financial resource mobilization for wind energy in developing countries: A comparison of approaches and outcomes in China and India

We analyze and contrast how China and India mobilized financial resources to build domestic technological innovation systems in wind energy. To that end, we identify distinct stages of technology diffusion in the two countries in the period 1986–2012, and analyze the interplay between public policies and the development of the technological innovation system across the different stages. We show that the two countries’ distinct development strategies for wind energy – China developed wind energy largely through its state-owned enterprises, while India opened up wind energy investment to the private sector in the early 1990s – influenced system outcomes in terms of technology diffusion, domestic industry structure, competitiveness, and ownership. By unraveling the interplay between public policies, investment risks and returns, and actor characteristics, we explain the differences in system outcomes and identify important policy trade-offs between the two strategies. Our analysis provides novel insights about the process of financial resource mobilization in technological innovation systems, the dynamics of innovation-system growth, and the policy trade-offs that must be reconciled by countries that aim to promote the diffusion of a particular technology.     

Performance of renewable energy technologies under the CDM

While many different greenhouse gas (GHG) mitigation technologies can be implemented under the Clean Development Mechanism (CDM), renewable energy technologies (RETs), in particular, are often viewed as one of the key solutions for achieving the CDM's goals: host-country sustainable development and cost-efficient emissions reductions. However, the viability of emission reduction projects like RETs is technology- and country-specific. To improve the CDM with respect to the diffusion of RETs, it is crucial to understand the factors that ultimately drive or hinder investments in these technologies. This study develops a methodology based on project-level, regional and global variables that can systematically assess the financial and environmental performance of CDM projects in different country contexts. We quantitatively show how six RETs (PV, wind, hydro, biomass, sewage, landfill) are impacted differently by the CDM and how this impact depends on regional conditions. While sewage and landfill are strongly affected independently of their location; wind, hydro and biomass projects experience small to medium impacts through the carbon price, and strongly depend on regional conditions. PV depends more on regional conditions than on the carbon price but is always unprofitable. Furthermore, we determine the carbon prices necessary to push these six RETs to profitability under various regional conditions. Based on these results, we derive policy recommendations to advance the interplay between international and domestic climate policy to further incentivize GHG emission reductions from RETs.     

Technology transfer by CDM projects

Abstract

Technology development and transfer is an important feature of both the United Nations Framework Convention on Climate Change (UNFCCC) and its Kyoto Protocol. Although the Clean Development Mechanism (CDM) does not have an explicit technology transfer mandate, it may contribute to technology transfer by financing emission reduction projects using technologies currently not available in the host countries. This article analyses the claims about technology transfer made by CDM project participants in their project design documents. Roughly one-third of all CDM projects, accounting for almost two-thirds of the annual emission reductions, involve technology transfer. Technology transfer varies widely across project types and is more common for larger projects and projects with foreign participants. Equipment transfer is more common for larger projects, while smaller projects involve transfers of both equipment and knowledge or of knowledge alone. Technology transfer does not appear to be closely related to country size or per-capita GDP, but a host country can influence the extent of technology transfer involved in its CDM projects.     

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.     

Accounting methods for carbon credits: impacts on the minimum area of forestry projects under the Clean Development Mechanism

Abstract

The Ninth Conference of the Parties (COP-9) decided to adopt an accounting system based on expiring carbon credits to address the problem of non-permanent carbon storage in forests established under the Clean Development Mechanism (CDM). This article reviews and discusses carbon accounting methods that were under consideration before COP-9 and presents a model which calculates the minimum area that forest plantation projects should reach to be able to compensate CDM transaction costs with the revenues from carbon credits. The model compares different accounting methods under various sets of parameters on project management, transaction costs, and carbon prices. Model results show that under current carbon price and average transaction costs, projects with an area of less than 500 ha are excluded from the CDM, whatever accounting method is used. Temporary crediting appears to be the most favorable approach to account for non-permanent carbon removal in forests and also for the feasibility of smaller projects. However, lower prices for credits with finite lifetimes may prevent the establishment of CDM forestry projects. Also, plantation projects with low risk of unexpected carbon loss and sufficient capacity for insuring or buffering the risk of carbon re-emission would benefit from equivalence-adjusted average carbon storage accounting rather than from temporary crediting.     

Clean development mechanism: leverage for development?

The objective of this paper is to show that the investments through the clean development mechanism (CDM) can exert a leverage effect to (i) make attractive to developing countries non-binding commitments and the adoption of national policies and measures; this comes as a guarantee of non-conditionally of the mechanism to strictly environmental concerns and (ii) create a flow of additional investments and technological transfer from Annex B countries to non-Annex B countries.The Indian power sector has been chosen as an example of a sector where institutional barriers, market imperfections, and tariff distortions create a great space for Pareto improvements and leave an important potential for no-regret measures: technological transfer, air conditioned systems, transport infrastructures and removal of subsidies on consumption.This paper presents a micro-economic formalisation on (i) the evolution of profitability of current emitting technologies used in the power sector under the adoption of national policies and measures and (ii) the impact on renewable energy technologies competitiveness of emission credits in the context of CDM. This formalisation has been developed to enable quantitative simulation. A first exercise using the Markal model (used in 77 countries) on the electric sector in India enabled us to simulate the leverage effect of emission credits on additional incomes taken as a proxy for development.     

Experts talk the future Reflections on the Bonn Seminar of Governmental Experts, 16–17 May 2005: a view from Europe

Abstract

This article provides a first-cut estimate of the potential impacts of the clean development mechanism (CDM) on electricity generation and carbon emissions in the power sector of non-Annex 1 countries. We construct four illustrative CDM regimes that represent a range of approaches under consideration within the climate community. We examine the impact of these CDM regimes on investments in new generation, under illustrative carbon trading prices of US$ 10 and 100/t C. In the cases that are most conducive to CDM activity, roughly 94% of new generation investments remains identical to the without-CDM situation, with only 6% shifting from higher to lower carbon intensity technologies.We estimate that the CDM would bolster renewable energy generation by as little as 15% at US$ 10/t C, or as much as 300% at US$ 100/t C.

A striking finding comes from our examination of the potential magnitude of the “free-rider” problem, i.e. crediting of activities that will occur even in the absence of the CDM. The CDM is intended to be globally carbon-neutral—a project reduces emissions in the host country but generates credits that increase emissions in the investor country. However, to the extent that unwarranted credits are awarded to non-additional projects, the CDM would increase global carbon emissions above the without-CDM emissions level. Under two of the CDM regimes considered, cumulative free-riders credits total 250–600 MtC through the end of the first budget period in 2012. This represents 10–23% of the likely OECD emissions reduction requirement during the first budget period. Since such a magnitude of free-rider credits from non-additional CDM projects could threaten the environmental integrity of the Kyoto protocol, it is imperative that policy makers devise CDM rules that encourage legitimate projects, while effectively screening out non-additional activities.     

CDM and international technology transfer: empirical evidence on wind power

This article examines the effect of the Kyoto Protocol's Clean Development Mechanism (CDM) on the international transfer of wind power technologies. The analysis is conducted using patent data from over 100 countries during the period 1988–2008. It is found that transfers from Annex I countries to non-Annex I countries are significantly affected by the contemporaneous establishment of projects under the CDM. However, when taking into account the cumulative effect of CDM projects, the effect is negative. Finally, the effect of domestic absorptive capacity in the host country is positive and significant. Because involvement with the CDM may increase the latter, this is an important area for further research.     

Cleaner generation,free-riders,and environmental integrity: clean development mechanism and the power sector

This article provides a first-cut estimate of the potential impacts of the clean development mechanism (CDM) on electricity generation and carbon emissions in the power sector of non-Annex 1 countries. We construct four illustrative CDM regimes that represent a range of approaches under consideration within the climate community. We examine the impact of these CDM regimes on investments in new generation, under illustrative carbon trading prices of US$ 10 and 100/t C. In the cases that are most conducive to CDM activity, roughly 94% of new generation investments remains identical to the without-CDM situation, with only 6% shifting from higher to lower carbon intensity technologies. We estimate that the CDM would bolster renewable energy generation by as little as 15% at US$ 10/t C, or as much as 300% at US$ 100/t C.A striking finding comes from our examination of the potential magnitude of the “free-rider” problem, i.e. crediting of activities that will occur even in the absence of the CDM. The CDM is intended to be globally carbon-neutral — a project reduces emissions in the host country but generates credits that increase emissions in the investor country. However, to the extent that unwarranted credits are awarded to non-additional projects, the CDM would increase global carbon emissions above the without-CDM emissions level. Under two of the CDM regimes considered, cumulative free-riders credits total 250–600 Mt C through the end of the first budget period in 2012. This represents 10–23% of the likely OECD emissions reduction requirement during the first budget period. Since such a magnitude of free-rider credits from non-additional CDM projects could threaten the environmental integrity of the Kyoto protocol, it is imperative that policy makers devise CDM rules that encourage legitimate projects, while effectively screening out non-additional activities.     

Clean development mechanism: leverage for development?

Abstract

The objective of this paper is to show that the investments through the clean development mechanism (CDM) can exert a leverage effect to (i) make attractive to developing countries non-binding commitments and the adoption of national policies and measures; this comes as a guarantee of non-conditionally of the mechanism to strictly environmental concerns and (ii) create a flow of additional investments and technological transfer from Annex B countries to non-Annex B countries.

The Indian power sector has been chosen as an example of a sector where institutional barriers, market imperfections, and tariff distortions create a great space for Pareto improvements and leave an important potential for no-regret measures: technological transfer, air conditioned systems, transport infrastructures and removal of subsidies on consumption.

This paper presents a micro-economic formalisation on (i) the evolution of profitability of current emitting technologies used in the power sector under the adoption of national policies and measures and (ii) the impact on renewable energy technologies competitiveness of emission credits in the context of CDM. This formalisation has been developed to enable quantitative simulation. A first exercise using the Markal model (used in 77 countries) on the electric sector in India enabled us to simulate the leverage effect of emission credits on additional incomes taken as a proxy for development.     

Implementing CDM for the Indian dairy sector: prospects and issues

What is the potential for developing small-scale CDM projects in India to reduce enteric methane emissions from cattle and buffaloes? The issue of baseline setting for prospective CDM projects is a complex one in the Indian context. The baselines constructed on the basis of aggregate emission rates at the national level are unlikely to be precise as methane emission rates are influenced by the livestock and feed characteristics, which vary widely across regions in an agro-climatically diverse country like India. This calls for establishing a project specific baseline underpinned with regional methane emission rates. The various aspects of sustainable development that merit consideration in formulating a CDM project in the Indian dairy sector include; increasing the productivity of animals, increasing the net income of producers, decreasing the cost of milk production and the transfer of safe technologies. The projects in the sector would be able to meet the ‘additionality’ conditions of the CDM. However, there are a number of constraints in implementing the enteric methane mitigation strategies through a CDM project at the field level. The article discusses these technical, financial, socio-cultural and institutional barriers along with possible responses to these constraints.     

Community forest management in Mexico: carbon mitigation and biodiversity conservation through rural development

Forest management is an important carbon mitigation strategy for developing countries. As demonstrated by the case of Mexico, community forest management is especially effective because it offers tangible local benefits while conserving forests and sequestering carbon. Community forestry receives minimal government support now, but the clean development mechanism (CDM) of the Kyoto Protocol could leverage additional resources to promote the approach in Mexico and elsewhere. We argue that adequately designed and implemented, community forestry management projects can avoid deforestation and restore forest cover and forest density. They comprise promising options for providing both carbon mitigation and sustainable rural development. These kinds of projects should be included in the CDM.