ODA is still significant for the poorest developing countries. There is increasing
recognition that ODA can best be focused on mobilising and multiplying additional
financial resources, assist the improvement of policy frameworks and be based
on long-term commitments to capacity-development. However, the advantages of
public-sector finance may be offset by assistance in the form of tied aid, which
can be detrimental to the longer-term prospects for indigenous technology development
by preventing the establishment of the institutions to support technology choice,
financing, and operation and management. Tied aid is more useful at targeting
areas such as capacity building and project preparation.
There are several channels for international public finance. Bilateral development aid is the largest, with very mixed records relating to technology transfer and sustainable development that, furthermore, varies widely between countries. The MDBs are another major route, and in many cases these now have more developed environmental criteria and sources. Agencies such as UNDP may also strongly influence technology transfer through their programmes. On the other hand, trade support, such as export credits, rarely takes account of environmental factors and may in many respects be biased against environmentally sound technologies.
The choice between different international financing routes is determined by many factors. One major issue regarding the effective transfer of ESTs through public finance is the fact that foreign aid expenditure tends to be institutionally divorced from other powerful agencies that also have a huge influence on technology choice and investment patterns, such as trade ministries. It is not uncommon to find governments pursuing seemingly contradictory international financial policies, and one of the strongest recommendations in this area is for greater institutional coherence within donor governments.
An important trend is the shift away from the public sector to the private sector as the principal source of finance. Transfers of ESTs are influenced by this trend, partly because the private sector requires relatively high rates of return and does not monetise externalities. Although the private sector has begun to recognise the importance of climate change, governments can enhance private involvement through various types of initiatives and partnerships. Private support for climate-friendly technology transfer may also require financial innovations and emphasis on different forms of finance such as micro-credit, leasing and venture capital.
There is a wide variety of types of traditional private sector debt and equity finance available depending on the scale and type of the project. The most flexible way to finance debt is secured loan and leasing. The transfer of ESTs to developing countries will also involve increased use of innovation to structure existing financial products to new markets and to develop new ones as appropriate. Just as support for scientific and technical innovation is seen as an appropriate use of public funds, so is support for financial innovation. A number of worthwhile initiatives have been undertaken to date (such as micro-credit, project finance, green finance and also the use of strategic investors), and there is scope to replicate and extend these as well as develop new concepts.
Although the private-sector pathway is one of the key channels for the transfer of EST, it should not be assumed that the search for economic gains on the part of individuals and firms will guarantee adoption of best-practice techniques. A number of obstacles that are internal to firms can retard the diffusion of pollution-reducing innovations even when such innovations would be profitable. These obstacles are not instances of "market failure" in the traditional sense, because they originate within firms rather than arising from the strategic interactions between firms or from the existence of externalities or public goods. These barriers can also retard the transfer of environmentally beneficial technologies between firms. Policy measures, public-private partnerships, and internal organisational improvements can help overcome these barriers and promote the interests of all stakeholders.
Public-private partnerships are increasingly seen as an effective way in which the public sector can achieve public policy objectives by working with the private sector. For the public sector they have the potential of harnessing the efficiency of the private sector, as well as overcoming budget restrictions and leveraging limited public funds. For the private sector, they aim to help overcome some of the internal and external barriers which prevent appropriate technology transfer from taking place, and to create interesting business opportunities. There have been a number of examples in this area, many of them funded by the multilateral development banks, and the support of the GEF has been useful in many cases - its flexibility and adaptability has been a major strength.
In order to overcome information barriers, technology information centres have been widely advocated, but existing experience and literature does not provide enough certainty about exactly what is required for key stakeholders at critical stages. The value of other forms of technology intermediaries is better established, such as national-level technology transfer agencies, electric utilities, and energy service companies. ESCOs in particular have gained widespread acceptance to stimulate innovative financing schemes- they address the financial, capability, and other institutional market issues. An ESCO is a firm that offers energy services to customers with performance guarantees. Typical performance contracting arrangements provide customers with feasible means of improving their competitiveness by reducing energy consumption costs. Governments and other public-sector entities can develop technology intermediaries through direct support and other interventions.
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