Methodological and Technological issues in Technology Transfer

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10.5.2 Programmes and Policies for Technology Transfer between Countries

In most developing countries, government used to be the major actor in the energy supply sector. With the emerging privatisation wave public utilities are losing their monopolistic advantage and opening opportunities for private entrepreneurs. The government is losing importance as an energy supplier, but still has an important role in the sector as controller, and as the responsible body for the definition of policies which can shape the energy market (e.g. regulation, market-based incentives). Government interest is the major single item able to define the country attitude regarding GHG emission control. For example, under the auspices of the US EPA Coal Bed Methane Program, technology transfer to other major coal mining states is being promoted. For example, Coal Bed Methane Centres or Clearinghouses have been set up to help overcome economic and institutional barriers to technology transfer in China and Russia. These centres promote information exchange, demonstration projects, and commercial development. Also, the Asian Pacific Economic Council (APEC) is starting a coal mine gas project to recover and utilise methane from deep coal mines in Southeast Asian countries.

The choice of generating technologies for capacity expansion is deeply influenced by the planning tools available. Energy plans rely strongly on the knowledge and manpower from utilities, which greatly prefer the old technologies they are familiar with, and often distrust new technologies. Quite often their actions optimise only the energy supply side and do not take demand into account. The integrated resource planning (IRP)8 approach is a valuable tool to examine the potential and barriers for new technology transfer, and thus to stimulate the analysis of the interventions governments could prescribe to overcome these barriers. In many industrialised countries, IRP is introduced by law. In Denmark, for example, the electric utilities are required to present such plans and to update them on a regular basis. In developing countries IRP is being done when required, but it also can provide substantive information on the technology priorities for development of the energy system. In China, for example, an extensive study on the energy sector development using the IRP approach was conducted recently. The study explored options, effects and costs of GHG mitigation in the energy demand versus energy supply. Hydro, nuclear and wind options were considered (IEA, 1997). The role of IRP is changing under the conditions of a liberalised market. It provides a basis for a dialog between companies and the government with respect to the objectives of the future technology development and deployment, and the policy framework necessary to support these objectives. The presence of the government, which is likely have a better and broader view of the country's requirements, is imperative when energy plans are under development (Greene and Hallberg,1995):

Multilateral Development Banks (MDBs) are financing many activities necessary to ensure the transfer of technology. For example, they finance building institutional capacity, establishing research centres and funding demonstration projects. The World Bank funding of ESTs is estimated to be approximately US$ 2 to 3 billion per year. Acting as a lead investor, however, these banks have influenced a significantly larger proportion of the total investment in ESTs. Environmental loans totalled US$ 1.63 billion and MDBs leveraged another US$ 1.64 billion in fiscal year 1996 (United Nations, 1997). ODA has addressed about 3% (US$ 1.3 billion) of total reported bilateral energy assistance to renewable projects (except large hydro) between 1979 and 1991 (Kozloff and Shobowale, 1994)9 .

Regional organisations have an important function at this stage of technology transfer, since they have a number of generic strategies that can promote and/or facilitate the implementation of some of the emission reduction options described in this Report. These strategies (Von Hippel, 1996) could include, but are certainly not limited to, the following:

Provide Information and General Training to Government Officials - Getting initiatives such as industrial energy efficiency, and utility boiler emissions control programmes, and fuel switching/renewable energy initiatives off the ground in most developing countries (particularly China and India) will be impossible without top officials embracing the concept. Consequently, the advantages and local/international opportunities provided by the measures and technologies must be presented to top officials in a manner that is both forceful and forthright10 .

Provide Specific Information and Training to Local Actors - Training of a very specific and practical nature must be provided to personnel at the local level. Examples include workshops and courses for factory energy plant managers, and power plant and heating system operators; and new job classifications such as energy-efficiency and pollution control equipment installers, energy auditors, and environmental officials.

Encourage the Implementation and Enforcement of Energy and Environmental Standards - Although some countries of Northeast Asia and Latin America have general policies supporting energy efficiency and environmental sustainability, not all have a well-defined, quantitative set of standards in place to codify these general policies. Where standards exist, furthermore, they may not be stringent enough to satisfy GHG emissions reduction targets. Once standards are set, it will be necessary to create the capability to enforce them by recruiting and training enforcement personnel and supplying them with the tools necessary to do their job, as well as the high-level administrative support needed for credible implementation of sanctions. Setting up these regulations and support structures is an area where international assistance may be valuable for some countries.

Establish Programmes of Grants and Concessional Loans - Experience in China has shown that such a programme in itself can have a significant positive impact in overall sectorial energy efficiency (Liu et al., 1994). The benefits of institutionalising support for pollution control and energy efficiency, however, would go beyond those obtained through the various individual projects themselves. Creating government agencies or corporations with their own budgets would signal a strong commitment to acid gas and GHG emissions reduction on the part of the government, and would create a constituency within official circles for promoting EST (see Case Study 3, Chapter 16). Moreover, by establishing a pool of funds for which government ministries, sectors, and/or individual enterprises could compete, it would stimulate at all levels awareness of the potential, methods, and technologies for reducing local, regional and global gas emissions (see Case Study 24, Chapter 16).

Promote Joint Ventures and Licensing Agreements - The growth in the need for pollution control and energy efficient equipment could be met by domestic production through joint ventures and licensing agreements between governmental or private organisations in developing countries and foreign companies with the necessary expertise to produce the needed equipment. For example, a wide variety of efficient industrial equipment and controls - including adjustable speed drives, higher-efficiency electric motors, and improved industrial boilers - have already been introduced to China through commercial channels and are being or will be manufactured there.

The effort of such organisations in promoting EST cannot be neglected. The United Nations Development Programme (UNDP) over the last two decades committed over US$ 400 million to energy sector activities, and funded more than 900 projects in energy planning, energy efficiency and conservation, conventional energy, electric power, nuclear energy, and new and renewable energy. Such UNDP funding helped energy-endowed developing countries develop their resources and train national staff in cost-effective and environmentally cleaner methods of producing and using energy resources. Despite its success, UNDP energy assistance was fragmented, reflecting the constantly shifting international consensus about what is needed (renewables in the 1970s; conservation in the 1980s and concern about the environment in the 1990s) (Gururaja,1995). Also, the amount of financial support (on average US$ 20 million/yr in the last two decades) is quite small to induce significant results in the energy sector11 . Most of the contribution has been in providing information on feasible projects (ESMAP activities), provision of small-scale lending for renewable energy (FINESSE initiatives) and acting as an intermediary to obtain loans from multilateral lenders. One of the areas most benefited by UNDP actions has been the use of renewable sources of energy, promoted as early as 1981 in the UN Conference on New and Renewable Sources of Energy in Nairobi. Another very useful contribution of many regional organisations has been the promotion of non-commercial energy technology transfer through many international conferences, employment of personnel through technical assistance programmes, education and training of host country's labour force and information databases.

Agreement and Implementation
Availability of capital is the major obstacle for the implementation of a selected technology. The gap between the foreign exchange needs of developing countries in the power sector and total aid flows from abroad implies that total investments will have to be reduced, foreign aid increased, domestic finance increased, or private foreign investment increased even more12 . All these options play a role in the oil sector and in the power sector expansion, but the last is the most likely to dominate (Barnett, 1992).

Oil and natural gas are being produced in many developing countries through one or several of the following arrangements: concession, production-sharing contracts, risk service contracts, service contracts, joint ventures and nationalisation. Excluding nationalisation, all other arrangements are made between an International Oil Company (IOC) and the Government, usually through the National Oil Company (NOC). This means that agreement and implementation procedures for technology transfer are well established. With the emerging privatisation wave, opportunities for FDI are growing (see Figure 9.4, Chapter 9).

Laws allowing increased presence of the private sector in the oil and gas markets, as well as laws allowing private electric power sales, are no guarantee that power generation markets will develop or that EST will be used. Nevertheless, improvements in the efficiency of energy supply should be achieved through improving efficiency in oil exploration and exploitation, in power generation, transmission and distribution, and increased investments in system-interconnections. Through competition it is expected that improved efficiency will occur. Global conversion losses in these areas are responsible for 85 EJ or 22 per cent of global commercial energy used in 1990 (SAR II-B1, 1996).

For energy production from conventional energy sources, usually based in large centralised plants, FDI can be the preferred option. The investment required may be unavailable in the host country, so FDI can very quickly create new job opportunities, raise technological and educational levels of the labour force, transfer technical and management skills, and help the local R&D institutions. Nevertheless, it is important to remember that through FDI various elements of the technology are supplied in "bundled" or "packaged" form (Able-Thomas, 1996). FDI enables the technology supplier to retain ownership and to exercise control over the new production plant which is inconvenient to the host country from a technology transfer viewpoint, but provides a flow of productive capital from one country to another (Able-Thomas, 1996). Thus, FDI is suitable for the energy sector where technological progress and spin-off opportunities are less common, as is the case of mature technologies like hydroelectricity, or for the manufacturing of solar cells and PV modules where technological improvements are occurring so fast that developing countries have little chance of recovering commercial investments from the technology before it becomes obsolete (Able-Thomas, 1996).

Government has a significant role as a promoter of ESTs, since a large part of the R&D money used is coming from public sources. Policies for the diffusion and accelerated transfer of publicly funded ESTs are available (Korea, 1998), and include financial incentives for their transfer to developing countries and promotion of the transfer of uncommercialised publicly funded R&D results to enhance capacity building in developing countries and CEITs. For other energy supply technologies with small commercial markets, which are still in the development stage, or are publicly owned, joint ventures and licensing may be a more appropriate way for technology transfer. Joint ventures are dependent on a reasonable national partner with similar technological capabilities and complementary skills and resources, and necessary where relations with host-country governments and institutions would be difficult for foreign companies (partners) alone (Chowdhury, 1992). At the other extreme comes licensing, which is of value if the transfer is limited to product and processes that the nation is capable of producing or using at internationally competitive costs, or products serving purely domestic markets, for which neither imports or exports are an option (Able-Thomas, 1996).

Even considering the strong and emerging presence of the private sector in energy supply there are other important actors involved in technology transfer.

MDBs influence private financial markets to support technology transfer. At the macro level, this is done by encouraging financial reforms in banking, privatisation, and stock market development. At the micro level, influence comes through developing, demonstrating and transferring the innovative financial instruments needed to accelerate access to technology (United Nations, 1997). In the short term the most effective contribution of MDBs regarding GHG abatement is through the money used to fund and leverage other loans in the energy sector (see Case Study 14, Chapter 16). MDBs have significant leadership in this sector, and in the period 1991 to 1995, 44% of all the external financing of infrastructure in developing countries has been addressed to this sector (United Nations, 1997). Funding has impacted GHG emission through the large share which financed hydroelectric plants and the share invested in promoting sectorial reforms in favour of competition in the developing countries' power sector (World Bank, 1994). These actions abated GHG through the options of switching to renewable sources of energy and more efficient conversion of fossil fuels to power and heat. Loans to thermoelectric plants and oil refineries also impacted GHG emission, since it is assumed that under the MDB management, projects are more technically appropriate to the country economy with implications on efficiency optimisation of plants (United Nations,1997).

Since the establishment of the pilot phase of the Global Environmental Facility (GEF)13 a total US$ 5.2 billion have been allocated to climate change activities. Of this sum, US$ 775 million was provided in grants from the GEF Trust Fund. An additional US$ 4.4 billion was contributed through co-financing (GEF, 1998). About one third of these projects are to enhance penetration of advanced renewable and cogeneration technologies in the developing countries' energy markets, such as PV, solar-thermal hybrid technology, micro-hydro and biomass. Another objective of these projects is to improve energy facilities operation, production management and marketing capabilities (GEF, 1997). A very interesting example is the US$ 6 million joint USAID/India and GEF project to prevent GHG emissions, which addresses the major market, financial and institutional barriers that hinder penetration of the modern energy supply technologies. The first, near-term component of the project aims at introducing cost-effective conversion measures and state-of-the-art coal technologies at the existing power plants. The second, long-term component promotes more efficient bagasse (sugarcane processing residue) cogeneration technologies based on high pressure multi-fuel boilers and high-efficiency turbines. This component will provide incremental cost support for six demonstration projects in addition to the technical assistance, training and cost-shared research grants for developing cane trash and other biomass fuels. (Climate Action Report, 1997).

In the same way as the World Bank has exhibited leadership in requiring developing countries' hydroelectric projects to take into account social and local environmental issues, MDBs have the capability to enforce international regulations on GHG emissions and promote the use of International Standards (ISO-series), in addition to their traditional role of addressing funding and verifying the feasibility of EST projects. One difficulty associated with these actions is the necessity to invest in projects based on new technologies that conflict with the traditional posture of most of these institutions, which are technologically risk adverse (ECOSOC, 1994).

Another multilateral source of support for transfer of climate friendly energy supply technologies to CEITs is the European Bank for Reconstruction and Development (EBRD). In fact, EBRD is the first international financial institution with a proactive environmental mandate, having sustainable development goals among its highest priorities. Its objective is to foster the transition of the CEITs to a market driven economy and to promote entrepreneurial initiative.

Bilateral organisations have special programmes with technology transfer as an objective. For example the Japanese government provides technical assistance in the electric power field through studies of project development, training of overseas technicians, sending industry experts overseas, etc. Development studies consists of initial master-plan development and preliminary best-plan scenario development, and feasibility studies requested from partner-countries. Total loans from the Japanese government equal nearly ¥ 1,000 (approx. US$ 9.5) billion in 1991. Of this total, ¥ 100 (approx. US$ 0.95) billion is in the electric power field. Of this aid, ¥ 40 (approx. US$ 0.38) billion is for hydroelectric power development assistance. In the period 1959 to 1991, the total amount of loans the Japanese government offered in the hydropower field was ¥ 700 (approx. US$ 6.6) billion (Fujino, 1994). Another example is the Swedish government programme for biomass boiler conversion in the Baltic states (see Case Study 18, Chapter 16).

As is well known, an important objective of many bilateral aid programmes is to promote donor country exports of goods and services (Kozloff and Shobowale, 1994). Although the distinction between development assistance and export promotion is frequently blurred, it is no accident that bilateral donors often direct assistance to technologies and products in which they have a comparative advantage in domestic world markets (e.g. The Energy Policy Act, 1998). Under this approach, more sophisticated alternative technologies are being promoted in the energy supply sector. Most of the resources have been addressed to increasing the use of renewables through geothermal energy, wind resources and photovoltaic cells. Also, technology transfer is mostly provided through provision of equipment. There is little support for developing human capabilities for environmentally sustainable energy technology, which is strongly needed by developing countries (der Werff et al., 1994).

Considering the emerging presence of the private capital in the energy sector of the developing countries and the relatively small amount of incentives provided by the GEF, World Bank, Regional Development Organisations and Bilateral Organisations compared to the amount of investment needed in the energy sector, as extensively discussed in this section, it is necessary to recognise that incentives are almost non existent for the governments of these countries to stop using their cheap natural resource of coal and oil in favour of more expensive, imported ecologically-friendly fuels such as LNG or pipeline gas.

Evaluation & Adjustment
Adjustment is almost always needed due the difference in infrastructure, social, and economic system of the technology provider and recipient countries (see Case Studies 3 and 5, Chapter 16). Creation of labour opportunities is a high priority in most developing countries. Due to the large investments in the energy supply sector, the potential number of job opportunities are often underestimated. Adjustment in favour of manpower versus automation is important. Heavy automation implies more importation of goods and more hard currency expenditures, which is seriously constrained in developing countries and CEITs.

Evaluation of all potential gains in the technology recipient country must be performed with care, including short, medium, and long-term views, checking all aspects considered important for the country's development by extrapolating the energy boundary. As an example, in the oil sector, there is already a well-established system for technology transfer from International Oil Companies (IOCs) and the Government, usually through the National Oil Companies (NOCs)14 (Barrows, 1993). Technology transfer occurs through provision of state of the art technology and capacity building, such as training. Most legislation or contracts today contain provisions obliging the IOCs to provide training of nationals of the host country (personnel from NOCs, the Government, and relevant government agencies (Barrows, 1993). Transfer of more detailed technology is required in some countries (such as Norway), and this necessitates a special agreement to assure patent protection and secrecy regarding technical processes (Barrows, 1993). On the other side, the combination of business and social objectives is a feature of the public-private partnership requiring disbursement of IOC money in the economic and social development of host countries (See Box 10.2 and Case Study 13, Chapter 16). Indirect technology transfer is induced through agreements on Preference for Use of Domestic Goods and Services. Generally the legislation obliges the oil companies to purchase domestically produced goods and services, if they are available at competitive terms; in particular the World Bank financed projects allow a cost differential of up to 15% in favour of local suppliers. Because of potential demand by the IOCs, the national suppliers of goods are stimulated to search and make arrangements for acquisition of new technologies which can make their products and services more competitive.

From the above example it is clear that technology transfer has been used by the recipient country as a way to get fuel, job opportunities, commercial and industrial activities, hard-currency savings or gains, human and institutional capacity building, and social and economic development. All of these gains must be properly evaluated by the country's society. Lessons must be derived from past experiences and results used for better agreements able to promote even more country development.

Box 10.2 - Liquefied Natural Gas (Case Study 13 in Chapter 16)
The development of the remote Arun natural gas field in North Sumatra by Mobil Oil and Pertamina, the state oil company of Indonesia, is a good example of capacity building and technology transfer. The Arun field is located in a rural area lacking industrial infrastructure and a trained workforce.

Capacity building included building bridges, roads, water supply, schools, mosques, training, etc. Training in operation, health, safety, and environmental issues was provided for the local workforce. Now 98% of the nearly 3000 workers are Indonesians.

Liquefied natural gas is supplied to Japan and Korea for use in power generation, displacing the alternative of heavy oil or coal. The technology transfer was state of the art and has been constantly updated as new developments emerge. Lessons learned in Indonesia are now being applied to other LNG projects in developing countries.

Opportunities for replication of the new technology are favourable in developing countries due the large and rapidly growing energy supply markets. Developing Countries now have the opportunity to promote innovative energy technologies that would be helpful in meeting their sustainable development objectives (Reddy et al., 1997). Adoption of advanced technologies not only provides increases in the energy supply, but can also provide opportunities to fulfil one of the characteristics of technology transfer. This is putting it into operation in its new environment, and through incremental innovation (small improvements in existing products and process, or relatively small extensions of the scope of existing applications of the product design or technology (Greene and Halberg,1995)) producing major changes on behalf of the country's economy. Incremental innovations generate new business opportunities that do not require the same level of advanced knowledge necessary for radical innovations. Developing countries with a minimum level of basic education in their work force and minimum industrial experience may be able to capitalise on these opportunities quite successfully, often at lower cost than industrialised countries.

Trade, which is an important system for technology transfer15 , has a direct impact on the energy supply system of developing countries and CEITs. In general, trade liberalisation can have a positive effect on the environment, by helping to allocate resources more efficiently, provided effective environmental policies are implemented (OECD, 1994; OECD, 1995a). Since energy is an ingredient always present in products and services, international competition poses price constraints on it, stimulating more efficient use of primary fuels in the energy sector. However, search for lower energy prices can stimulate the use of cheap fuels (e.g. coal), which are intrinsically environmentally aggressive, or can be as such, due to the shortage of investments in end-of-pipe cleaning equipment. Thus the enforcement of effective environmental policies is a necessary condition to increase the positive and decrease the negative environmental effects of trade liberalisation. A quite serious problem that needs to be addressed is conflict between existing trade rules and environmental issues (see Box10.3).

Box 10.3 - Conflicts between Trade Rules and Environmental Issues
Trade issues became more complex when the various stages of the product's life cycle are at issue (i.e. processes and production methods - PPMs). For example, recent packaging and recycling requirements which address environmental issues, but which are associated with the disposal stage of the product life cycle, have caused some trade concerns. This is because waste reduction policies tend to have a national focus, and can thereby impose relatively higher costs on importers, amounting to de facto protection for domestic products (OECD, 1997). To date, trade rules have been interpreted as precluding policy differentiation on the basis of non-product related PPM requirements (the ones that do not affect product characteristics, but generate an environmental impact at the production stage, such as emissions). Similarly, adjusting the price of imported products at the border, to account for the additional cost incurred by domestic industry in complying with non-product related PPM requirements has generally been considered to be incompatible with existing trade rules (OECD, 1997).

An interesting case is import taxes set to a certain level for products, without any consideration of the implicit environmental benefits.

Shortage of money is a serious obstacle for any project development. This chronic issue in developing countries is even aggravated by the difficulty that innovative projects are usually undertaken by small enterprises. Larger enterprises traditionally finance their projects through corporate financing, where the assets of the corporation are used as a guarantee. Small enterprises must rely mostly on project finance where the guarantee for a loan is provided by the cash-flow of the project.

Innovative third party financing can be obtained through multilateral organisations (i.e. GEF), but with limited availability of funds. Joint Implementation (JI) and the Clean Development Mechanism (CDM) can be a way of directing investment to CEITs and developing countries. Money from the private sector may be more available than from government organisations depending on the incentives.

The participation of non-governmental organisations (NGOs) has become important to the growth of simple distributed energy supply facilities which have low energy output and relatively low capital cost. For example, an important intervention programme to alleviate the rural energy crisis in India has been the dissemination of biogas technology among rural households through which 2.5 million individual biogas plants were constructed up until March 1997. The diffusion of such biomass technology has relied on the cooperation among government agencies, private firms, and NGOs. Technological exchange with China led to the adaptation from the floating dome biogas technology to the less experienced fixed dome biogas technology, mainly because capital subsidy remained with the organisations - mainly the NGOs - which were constructing the plants. Most technological improvements were incremental and resulted from local innovations (Ramana and Shukla, 1998).

Commercialisation of new technologies is an important part of the innovation process, and policies to facilitate these actions are urgently needed in developing countries and CEITs. Although developing countries' enterprises may be developing renewable energy technologies and have advanced scientific and technical capabilities and skilled workforces, the translation of these capabilities into commercial products is still a major problem. The associated market-oriented skills and institutions to take full advantage of these technological capabilities are still poor.

In Russia these market-related deficiencies are the persistent legacy of the former Soviet paradigm of central economic planning and development. Central planning avoided the need for many market-oriented skills and created a variety of disincentives and structural economic conditions that stifled innovation, creativity, efficiency, and quality (Cooper, 1991; Nove, 1986; Martinson and Valdemars, 1992). Key underdeveloped capabilities are business management, finance systems, marketing, creative product development and innovation, quality assurance and economic analysis (like cost-benefit and life cycle analyses); and legal, contracting, and accounting skills. Quality assurance, statistical quality control, management for quality, and other methods common in the West are uncommon in Russian industries (but not in the military sector), because incentives in the Soviet economic system emphasised quantity over quality. Another problem is the excessive presence of monopolies in Russia. In Poland, the Czech Republic, and Hungary markets are being developed while these countries have also been out of the market economy for 50 years. Thus, business planning and training will be helpful, but only if there is a market environment to use them (Martinot, 1999).

Other important aspects of commercialisation are continuous product improvement and cost reduction. As an example, product improvement was often intentionally avoided in the former Soviet economic system because enterprise incentives encouraged quantity over quality, and because design changes could mean changes in needed inputs that might not be available. For example, in the West, extensive experience with operating and maintaining wind turbines through commercial markets over the past 15 years has led to a refinement of designs and cost reductions. This experience has been critical to the current success of modern wind turbines.

A promising process for speeding up the commercialisation of new and renewable sources of energy is through the acquisition of small companies with good products in the energy supply sector by large ones with well established positions in the energy market. Small companies find it difficult to commercialise their products worldwide, while this can be an easier process for large companies. Several energy multinationals are taking up the commercialisation challenge of renewables by drastically expanding their investments and acquisitions in the area of solar, biomass and wind technologies. With the exception of the two Japanese companies, Kyocera and Sharp, all companies with a global PV market share above 10% are owned by large energy companies such as Siemens, BP, Amoco and Enron. Shell has recently established a fifth business group under the name of Shell International Renewables. Although still dwarfed by the other groups in every respect, it signifies a strong commitment to renewables. Half a billion (US) dollars of investment will be spent in the first five years of operation. Concentrating on PV, forestry and biomass power, Shell intends to obtain a strong position in rural energy development by coupling biomass plantations with local power production. Similar trends are evident in the wind power industry. Although independent producers are still strong, mergers and acquisitions are increasing.

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