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Author(s): THOMAS L. BREWER and Muthukumara Mani
Source: Brookings Trade Forum, Climate Change, Trade, and Competitiveness: Is a Collision
Inevitable? (2008/2009), pp. 93-119
Published by: Brookings Institution Press
Stable URL: http://www.jstor.org/stable/20799650
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THOMAS L. BREWER
The author is indebted to the following for their comments on the paper at the conference:
Brian Flannery, Kelly Sims Gallagher, Muthukumara Mani, and Jacob Werksman. Gerry T. West
also made useful comments on the conference paper before itwas revised. Several changes were
made to reflect these comments in revising the paper for publication here.
1. Barton(2007) has also noted a shift in paradigms of technology transfermore generally?
from a paradigm focused on licensing and intellectual property rights to a paradigm focused on
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94 Brookings Trade Forum 2008/2009
nition of developing countries as sources of such flows. The fourth section ana
lyzes evidence about the barriers to international technology flows. The fifth
section describes the international institutional frameworks affecting theflows.
The sixth section discusses the implications of these paradigms and flows for
international negotiations.
There are numerous lists of industries and products (both goods and services)
related to climate change.5 A well-known list was developed by Pacala and
3. Cantwell (2009,420).
4. Stern (2007, 567); also see Brewer (2008b) and Fischer, Egenhofer, and Alessi (2008).
5.When identifying technologies in terms of standardized product or industry classification
schemes?such as theHarmonized System of theWorld Customs Union or the International Stan
dard Industrial Classification system or the UN Product Code?there are a variety of technical
issues, which can be important in negotiations. These and related issues have been raised recently,
especially with regard to international technology transfer and thus trade issues; see Howse and
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Thomas L. Brewer 95
Hydrogen
Hydrogen production from nuclear fission and fusion
Energy crops
Photoconversion
Advanced hydropower
Geothermal energy
Nuclear
Energy infrastructure
High-temperature superconductivity
Transmission and distribution technologies
Distributed generation and combined heat and power
Energy storage
Sensors, controls and communications
Power electronics
Transportation
Light vehicles?hybrids, electric, and fuel cell vehicles
Alternative-fueled vehicles
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96 Brookings Trade Forum 2008/2009
Buildings
Building equipment, appliances, and lighting
Industry
Energy conversion and utilization
Resource recovery and utilization
Industrial process efficiency
Source:UNFCCC (2002,63).
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Thomas L. Brewer 97
technological specificity, and they also differ inwhether they include or exclude
nuclear power in particular. At an aggregate level, however, these lists share
many of the same technologies, especially those concerning energy efficiency
and renewable energy sources, which are the focus of this chapter. Of course,
the technologies vary in their cost-effectiveness in reducing greenhouse gas
(GHG) emissions and in the scale of deployments required for them to have
notable effects.8Among them, carbon capture and sequestration is oftenmen
tioned as themost important,particularly with regard to coal-fired power plants;
however, because its commercialization is still perhaps a decade or even more
in the future, it is not included in this chapter's analysis of flows and barriers
to them.Otherwise, however, energy efficiency technologies, renewables such
as wind and solar, and biofuels, which are all widely mentioned as key tech
nologies, are included in the present analysis. These key technologies are
evident in themany lists thathave been developed by numerous organizations
and authors. As noted furtherbelow, however, there are significant variations
in the appropriateness of some technologies, depending on the level of eco
nomic and technological development of the recipient countries.
Stern provides a list of nine types of technologies that could reduce carbon
emissions in the energy sector: efficiency, carbon capture and storage, nuclear,
biofuel, combined heat and power, solar, wind, and hydropower.9 An Environ
mental Technologies Action Plan developed by an advisory group of the
European Commission includes fifty-one categories organized in amatrix based
on two dimensions.10 One dimension is industry sector?for instance, energy
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98 Brookings Trade Forum 2008/2009
are listed in "current portfolios" and "future research directions."11 They are
reports for over twenty countries found that the following were among the "key
as biomass
technologies": "renewable energy for small-scale applications, such
stoves; combined heat and power; and energy-efficient appliances and build
ing technologies such as compact fluorescent light bulbs. For transport, traffic
management and cleaner vehicles for public transportwere most important."15
Additional technologies and variations among countries are evident in indi
vidual country reports. The top priorities for Ghana, for instance, included
industrial energy improvements (including boiler efficiency enhancement),
methane gas capture from landfill sites, biofuels (from jatropha, an oilseed
extremely detailed; Indonesia's, for instance, was 299 pages long. Individually
and collectively, they offer developing country perspectives that are in some
same
respects quite different from those of the developed countries. Yet, at the
11. U.S.Climate Change Technology Program (2006).
12. U.S.Office of the Trade Representative (2006).
13. Lehman Brothers (2007).
14.World Bank (2006a, 10).
15. Stern (2007, 564-65).
16.Stern(2007, 565).
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Thomas L. Brewer 99
time, there are many similarities. See for instance, a summary table of "the
promise of technology" in a UNFCCC report.17
Although such lists tend to identify "new" or otherwise "alternative" tech
nologies, it should not go unnoticed that "old" technologies are also relevant.
For instance, turboprop aircraft engines are much more fuel efficient than jet
17.UNFCCC (2004,63).
18.UNFCCC (2006c).
19.UNFCCC (2002,2006a, 2006c, 2007a).
20. For example, see South Africa (2006).
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100 Brooking s Trade Forum 2008/2009
Flows: units of analysis Countries' financial flows Firms' trade and investment
in goods and services
propertyrightspolicies in
developing countries
Source:Developed by theauthor.
the technology flows occur, in substantial part, as a result of trade and foreign
direct investment (FDI) flows.
Comparing theParadigms
digms. Of course, the conceptualizations are useful only insofar as they reflect
empirically valid representations of reality and/or offer relevant policy pre
scriptions. Thus, the remaining sections of the chapter turn to evidence
concerning the flows, barriers to them, institutional frameworks, and then the
policy implications.
The data given in table 4-3 provide aggregate perspectives on key features
of international investment flows. First, the relative magnitudes of ODA flows
remain quite small. (This fact, of course, is a basis of the Paradigm I policy
prescription formore ODA.) Bilateral ODA and multilateral ODA in 2000 were
respectively only 0.7 and 0.4 percent of total gross fixed capital formation in
non-Annex I countries.21 Second, international direct investment and interna
21. Annex I is an annex in theUNFCCC. "Annex I" countries are those that committed them
selves as a group to reducing their emissions of the six greenhouses gases by at least 5 percent
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Thomas L. Brewer 101
Table 4-3. Sources of Global Investment in Gross Fixed Capital Formation (GFCF)
forestry, fisheries
Mining 17.8 0.0 0.4 0.1 98.9 69
tional debt are both on the order of hundreds of billions of dollars per year,
below 1990 levels from 2008 to 2012. "Non-Annex I countries" are developing countries that are
not listed inAnnex I and thus have no emissions reduction
targets.
22. There are numerous
conceptual and empirical issues about the precision of data about FDI
and other investment flows?issues that are beyond the scope of this chapter. For present purposes,
these data are useful as indicators of approximate relative magnitudes. Readers who are interested
in detailed discussions of these data-quality issues should consult the annual reviews of interna
tional direct investment by UNCTAD and world debt by theWorld Bank.
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102 Brookings Trade Forum 2008/2009
Finally, international flows are about one-third of totalworld gross fixed cap
ital formation, compared with two-thirds from domestic sources.23
The sectoral distributions are also evident in table 4-3. For non-Annex I
countries, in particular, the relative importance of FDI flows?in mining; man
ufacturing; electricity,gas, andwater; and transport,storage, and communications?
is evident. Whereas FDI flows are between 9 and 18 percent in each of those
sectors, ODA is only 4 percent at most, and less than 2 percent in four of the
five sectoral categories.
As for sustainable energy sectors, data from the United Nations Environ
ment Program indicate that in 2006, three industries received most of the
investment?wind (27 percent), biofuels (18 percent), and solar (11 percent)?
with other renewables and energy efficiency receiving less than 5 percent each.24
Table 4-4 reveals that several developing countries are world leaders in a
variety of key climate friendly technologies. They include not only China in
numerous technologies (coal gasification, compact fluorescent lightbulbs, solar
voltaic cells, and wind power) but also South Africa in coal-to-synthetic fuels
technologies, and Mexico in solar hot water heaters. As for biofuels, although
recent studies have undermined claims about the net GHG-reducing effects of
some ethanol sources, especially when made with U.S.-produced corn, there
is continuing interest inBrazil's world leadership in the production of ethanol
using sugarcane, particularly if and when itdoes not involve the destruction of
the rain forest to create the sugar plantations.
India is well known already for itswind power industry, as noted inmore
detail below. Its leadership in the use of jatropha tree berries as a second
generation feedstock for biodiesel production is less well known and still in its
infancy; India has already been involved in numerous projects for transferring
23. Because some foreign direct investments are partially financed from local host country
sources, the distinction between international and domestic sources, as revealed in balance of pay
ments statistics, is not entirely accurate.
24.UNEP (2007,figure5).
25. These projectionscan be foundin reportsof theIEA (2008),UNFCCC (2007b),World
Bank (2006b, 2007), and Cambridge Energy Research Associates (2008).
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Thomas L. Brewer 103
Table 4-4. Developing Country Leaders in Climate Friendly Industries and Products
nologies abound. For example, China has assisted in the construction of over
seventy small-scale biogas digesters formanure decomposition-methane pro
duction in twenty-two countries and provided training in theiruse. And ceramic
cookstoves that provide 20 to 50 percent efficiency gains over conventional
charcoal stoves were developed based on a collaboration between firms in
Kenya and Thailand and have been used bymore than 700,000 homes inKenya,
as well as in otherAfrican countries.27
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104 rookings Trade Forum 2008/2009
nologies in thewind power industries and more generally in the energy sector,
and they are mostly headquartered inAnnex I countries. General Electric and
Siemens are two well-known examples. What is especially noteworthy about
them in the present context is that they both have extensive climate change
related energy R&D activities inChina and India.
More generally, all these firms?Suzlon, Tata, General Electric, and
Siemens?illustrate a basic fact about international technology transfer: It takes
proprietary technology, the internalization of explicit and tacit technologies within themanagerial
processes of firms is a more significant barrier.
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Thomas L. Brewer 105
The nature, availability, and quality of the evidence about government pol
identify and measure, though they are subject to annual reviews by theUnited
Nations Conference on Trade and Development in itsWorld InvestmentReport?2
Of thesemany forms of barriers to international technology transferfor cli
mate change mitigation or adaptation, this chapter considers tariffs?and, to a
lesser extent,NTBs?as theypertain to trade in goods. Table 4-5 contains evi
dence about the tariff levels affecting the energy efficiency of buildings. It is
clear that the tarifflevels of the threenon-Annex I countries (Brazil, India, and
Mexico) are generally higher than those of theAnnex I countries (Canada, Euro
pean Union members, Japan, and theUnited States). Except forCanadian tariffs
of 15.1 percent on walled insulating units of glass, in every instance the
non-Annex I countries' tariffsare higher. Of course, these are not only obsta
cles toNorth-South technology transfers, theyare also obstacles to South-South
transfers.
32. The 2007 report, themost recent available at the time of writing, is available at the web
site of the United Nations Conference on Trade and Development (www.unctad.org/Templates/
Download.asp?docid=9001&lang=l&intItemID=4361 [March 2009]).
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106 Brooking s Trade Forum 2008/2009
Multiple-Walled Fluorescent
Annex I countries
15.1
Canada 1.2 9.7 5.7
goods or services) interact with the types of barriers (whether specially tar
geted, for defined products, or generic across products).
In theWTO, governments' commitments on trade and investment liberal
ization, as specified in theGeneral Agreement on Tariffs and Trade (GATT)
and theGeneral Agreement on Trade in Services (GATS), respectively, are indi
cated in terms of products. This approach has been challenged by India in its
response to the EU-United States proposal for eliminating tariffson climate
friendly goods; instead of product-specific liberalization, India has proposed
33. The tariffswere in effect for seven years, from mid-2001 until late 2008.
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108 Brookings Trade Forum 2008/2009
Table 4-7. Interactions ofWind Energy Products and Barriers to International Trade,
Investment, and Technology Transfer
Specific good or service: Tariffs on imported Tariffs on blades FDI local joint venture
windmill generators windmill generators of various types requirements for
manufacturing facilities
engineering services
project-specific reductions because many of the products are dual use and thus
can be used forpurposes other than climate change mitigation.34 However, there
has been an impasse over this suggestion, because theEU and theUnited States
continued to favor a product-specific approach. A compromise consisting of a
combination was also being considered.
Although the emphasis in the present analysis is on government interna
tional trade and investment policy barriers to international technology transfers,
it should also be noted that "domestic" government regulations, subsidies, and
other policies are also important determinants of technology flows. The sig
nificance of such policies?or their absence, in some instances?as incentives
or disincentives is emphasized inGallagher's study of the automotive industry
inChina.35
34. See the International Centre for Trade and Sustainable Development publication (ICTSD
by Sell (2006) and Sugathan(2006).
2006) and especiallythecontributions
35.Gallagher (2006).
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Thomas L. Brewer 109
Understanding
Japan, others
Plurilateral/sectoral
Aviation Pending International Civil Aviation
Organization
Source:Compiledby theauthorfromvariousdocumentsof theUNFCCC,WTO, otherorganizations
andgovernments.
Note:These arenotexhaustivelists.
tilateral level (see table 4-8). The analysis here focuses on themultilateral
institutions.
To date, themultilateral institutional arrangements for the climate regime
manifest the emphases of Paradigm I on technology flows and financial flows
fromNorth to South. This is evident in particular in thework of theUNFCCC
of, or access to, environmentally sound technologies and know-how to other Parties,
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110 Brookings Trade Forum 2008/2009
country Parties. Other Parties and organizations in a position to do so may also assist
in facilitating the transfer of such technologies.36
Similar emphases are evident in theBali Action Plan, which calls for
... action on technology and transfer to support action on
(d) Enhanced development
mitigation and adaptation, including, inter alia, consideration of: (i) Effective mecha
nisms and enhanced means for the removal
of obstacles to, and provision of financial
and other incentives for, scaling up of the development and transfer of technology to
Implementation projects,38 and the effects of host country investment and reg
ulatory policies on the features of such projects.39
The Global Environment Facility, the various carbon programs at theWorld
Bank, and the new Clean Energy Fund to be administered by theWorld Bank
are also all important elements of the currentmultilateral system for funding
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Thomas L Brewer 111
employees persons"
people
theGATS for services (see table 4-9). Further, because of the limited coverage
of FDI in theWTO, the FDI provisions of regional and bilateral agreements
are particularly important, and there are many hundreds of them.41
The negotiating agendas in both the international climate change and trade
investment arenas also need to take into account the broad array of barriers to
international technology transfers for climate change mitigation or adapta
tion.42Multilateral and bilateral official development assistance levels need to
be increased significantly. But that is not enough, because most technology
transfers occur through private international trade and FDI transactions, and
they encounter diverse barriers. Further, the barriers are inAnnex I countries
as well as non-Annex I countries.
41.WTO (2008).
42. On international institutional architecture issues more generally, see especially Aldy and
Stavins (2007).
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112 Brookings Trade Forum 2008/2009
This suggests at least one obvious basis for a division of labor in the emerg
ing international institutional architecture for the joint climate-trade agenda:
The UNFCCC, World Bank, and other international development institutions
should continue to focus theireffortson North-South financial flows and capac
tially increase their efforts to reduce barriers to trade and FDI in climate-related
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Thomas L. Brewer 113
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Comment
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Comment on Chapter 4 115
ceptions on what "environmental goods" are (that is, the issue of definition),
which would determine what goods to include or not for liberalization under
themandate and how to liberalize (that is, the issue of approaches to liberal
ization) in a manner that addresses the interests of both developed and
developing countries.
The key issues surrounding what to liberalize include (1) dealing with sin
gle versus dual-use goods; (2) the relative environmental friendliness of goods;
(3) dealing with constantly evolving technology; (4) assessing implications for
domestic industries, especially countries; (5) dealing with non
in developing
tariffbarriers; (6) enhancing opportunities for developing country exports; and
(7) dealing with agricultural environmental issues.
Even if trade is or is not liberalized, foreign direct investment can be another
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116 Brookings Trade Forum 2008/2009
rights, investment rules, and other domestic policies could furtheraid inwide
spread assimilation of clean technologies in developing countries
There is, therefore, a need in the absence of a cohesive global regime on
nologies for climate change mitigation through thebroader trade and investment
channels in both developed and developing countries.
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References 117
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118 Brookings Trade Forum 2008/2009
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