This report examines how low-carbon technologies have been introduced, adapted, deployed, and diffused in three greenhouse gas-intensive sectors in China: supercritical/ultrasupercritical (SC/USC) coal-fired power generation technology; onshore wind energy technology; and blast furnace top gas recovery turbine (TRT) technology in the steel sector.
The low-carbon energy imperative
Among the issues domestic and international policymakers must address in combating climate change is how to deploy and diffuse current low-carbon technologies in developing countries.
Developing countries, while bearing little responsibility for historical releases of greenhouse gases (GHG), now account for an increasingly large percentage of global atmospheric emissions. Today, they make up around 50 percent of emissions (CAIT 2005) and by 2030 this figure will rise to 65 percent (EIA 2009). Thus, without widespread deployment of low-carbon technologies in China, India, and beyond, global efforts to stabilize emissions and prevent dangerous levels of warming will be severely undermined.
Globally, while the pace of technology deployment has dramatically accelerated over recent decades, technology deployment within low- and middle-income countries remains slow. Only 30 percent of developing countries have reached the 25 percent penetration threshold and only 9 percent have reached the 50 percent threshold for technologies invented between 1975 and 2000 (Comin & Hobijn 2004). Low-carbon technology deployment generally aligns with this rule, with a few exceptions, notably China.
China’s leadership and approaches The speed and scale of technology deployment is highly correlated with income level. Despite being a lower-middleincome country, China has bucked this trend, boasting technological achievements greater than those of many high-income countries. In particular, China’s government has poured money, R&D resources, and a combination of incentives and regulatory levers, into developing and deploying technologies in the cleaner energy (such as supercritical/ultrasupercritical coal-fired power generation), renewable energy, and energy efficiency sectors. It has also invested in a range of partnership models with overseas governments and companies, including joint ventures, licensing agreements, and joint design. As a result, China has transformed itself over the past two decades from a low-carbon technology importer to a major manufacturer of a number of low-carbon technologies.
Scaling Up Low-Carbon Technology Deployment: Lessons from China examines how low-carbon technologies have been introduced, adapted, deployed, and diffused in three greenhouse gas-intensive sectors in China. By focusing on key policy and program drivers, the report identifies the building blocks for China’s successful low-carbon technology deployment infrastructure. Its purpose is twofold: to draw lessons of use in informing broader international cooperation on technology transfer and deployment; and to help governments and industries in middle- and low-income countries to pursue an effective transition to a low-carbon economy.
This report focuses on three energy technologies:
- supercritical/ultrasupercritical (SC/USC) coal-fired power generation technology;
- onshore wind energy technology; and
- blast furnace top gas recovery turbine (TRT)technology in the steel sector.
Why these particular technologies? First, all three if widely deployed could make a significant dent in emissions of carbon dioxide, the main greenhouse gas. As the power and steel sectors are major global energy consumers, efficiency improvement in these sectors entails large carbon dioxide reduction. Wind, the fastest growing renewable energy source, is the most likely renewable technology to capture a big share of the global electricity mix. Coal will likely remain a key global energy provider for decades to come. Second, these three technologies present diverse opportunities for future deployment both in China and internationally. Such diversity enables the lessons contained in this report to address issues across a broad spectrum of low-carbon technology deployment— thus maximizing its potential impact.
China has accelerated its low-carbon technology deployment in recent decades, making the transition from technology importer to major manufacturer of a number of low-carbon technologies. China has made comprehensive efforts to put in place the infrastructure to achieve accelerated deployment and diffusion of the three technologies examined in this report. This indicates its commitment to becoming a global player in the low-carbon economy, securing a domestic energy supply, and reducing carbon dioxide emissions.
China’s experience highlights the important role of effective domestic policy in stimulating low-carbon technology. While the government took different approaches for each of the three technologies examined in this report, its building blocks for technology deployment infrastructure include:
- Making a deliberate, holistic plan and long-term commitment to the localization of a low-carbon technology. This approach is taken in all three cases.
- Establishing direct R&D funding programs to support the launch and scale-up of low-carbon technology innovation. This approach is especially prominent in the case of SC/USC coal-fired power generation technology.
- Improving businesses’ technological absorptive capacity through directly funding their technology learning. The success enjoyed by two leading Chinese clean energy companies—Goldwind’s surge in the global wind market and Shanxi Glower Group’s dominance of the domestic TRT market— are both indebted to this measure.
- Capitalizing on public-private and industryacademia synergies to bring together multi-sector expertise. The success of the localization of SC/ USC in particular is built on such multi-sector synergies.
- Designing national-level and sector-wide laws, policies, and regulations to scale-up commercialization of low-carbon technology, create domestic markets, and drive down the costs. The rapid development of domestic wind energy greatly benefited from such a legal and regulatory infrastructure.
- Relying on international cooperation to pursue new-to-market technology and knowledge. TRT technology’s transfer and deployment resulted from China-Japan cooperation in the steel sector.
- China’s ambitious localization process for low-carbon technology has raised concerns about intellectual property rights (IPR) within some foreign governments and among Organisation for Economic Co-operation and Development (OECD) companies. The case studies found the situation regarding technology transfer to be more complex, including issues related to ambiguous ownership and contractual arrangements as well as IPR. While our case studies show that some foreign firms have benefited significantly from China’s low-carbon technology sector, both the SC/USC and TRT case studies reveal that while the Chinese government viewed these models as successful, international companies involved were less convinced. Our survey of multinationals involved in China’s low-carbon technology sector also revealed that such firms typically do not transfer all parts of a technology to China, holding back some of their IPR. This approach addresses the international companies’ concerns about IPR protection, but compared to an atmosphere of higher trust is suboptimal both for Chinese and overseas companies.
Conclusions and lessons learned
For Chinese policymakers:
- China’s comprehensive efforts to put in place the infrastructure to achieve accelerated deployment and diffusion of low-carbon technology has been very successful in the three technologies examined in this report. Within 20 years, China emerged from a technology importer to a major manufacturer of low-carbon technology. If the same level of effort continues, China could soon be a player at the forefront of low-carbon energy technology innovation. However, underlying China’s success are some concerns that need to be addressed.
- China’s preoccupation with localizing key energy technologies may be viewed by foreign companies and governments as going against standard international business practices, such as relying on trade to acquire technologies. The global wind industry, for example, is a globally integrated industry. China’s ambition to localize key wind energy technologies, such as bearing and electric controls, leaves China outside the global integration process—a process that can be harnessed to reduce the cost of wind technologies by increasing economies of scale, fostering competition, and encouraging innovation (Kirkegaard et al. 2009).
- In spite of the national government’s effective technology deployment policy, China has not yet addressed the pressing issue of deployment of low-quality technologies. The low entry barrier for domestic wind energy developers highlighted by the wind case study, in particular, underscores the importance of setting high technology standards at the beginning of technology deployment.
- China’s business sector still has lessons to learn in conducting international business negotiations. On the one hand we see government-managed processes in the coal and steel sectors that—while effective—may have left some legacy of distrust; on the other hand we see the hyper-competitiveness of the wind industry with its minimal barriers to entry. Nurturing a more sophisticated domestic business sector through market means is a key task for Chinese policymakers seeking to minimize costs and barriers and maximize trust and cooperation so as to scale-up low-carbon energy industries.
For U.S. policymakers:
- China’s ambition is to emerge as a global science and technology power and Beijing is keenly aware that the next phase of the science and technology revolution will likely center on low-carbon technology. While the term “indigenous innovation” has been interpreted in international policy circles as encompassing a very narrow group of government procurement policies, in fact, the policies are much more ambitious and involve the kinds of long-term support for RD&D that are detailed in these three case studies.
- There are major business opportunities for U.S. companies in China’s low-carbon technology deployment efforts. The success of Japanese and German companies in the wind and power sectors indicates that through joint venture, licensing, or joint design, foreign technology providers can benefit from China’s financial resources, manufacturing capacity, and enormous market. While China’s ambitious localization process for low-carbon technology has raised concerns about intellectual property rights in some foreign governments and among OECD companies, major multinationals surveyed as part of the study did not view IPR as a major issue. In the three case studies, the issue was somewhat more ambiguous. There did not appear to be any outright IPR violation, but instead different perceptions of ownership and contracts have colored some of the arrangements.
- China’s experience highlights the importance of effective domestic policy and long-term government commitment. Without clear and lasting signals from the government and a central role for government-funded R&D, the market will not automatically embrace low-carbon technology.
For technology providers:
China’s preference for domestically manufactured technologies can present a competitive risk for foreign companies seeking a foothold in China. However, in practice, depending on the technology investors’ own conditions and needs, foreign technology providers can make a profit through various approaches, including:
- Joint venture: Benefits include easy access to the Chinese market and freedom for foreign companies to use their own business model to sell products. One disadvantage is the possibility of leaking intellectual property rights to local partners. Because of this drawback, many joint-venture companies in China act as manufacturers or post-sale maintenance facilities instead of technology developers.
- Licensing: Its benefit is guaranteed patent fees and royalties free of concerns about the technology users’ business model. The disadvantage is that China’s exports might swamp the marketplace and the patent owners receive only a small portion of the profit, usually from 3–6 percent of profits.
- Joint design: If technology providers lack manufacturing capacity and financial resources, joint design offers good access to China’s financial capital and enormous market. The drawback is that in most cases all patent rights are lost to the Chinese partner companies.
- Wholly foreign-owned investment: Benefits include freedom for foreign investors to use their own business models and easy access to China’s large skilled and relatively inexpensive labor force. For China this is a mechanism for training up a workforce in new technologies and related services. The disadvantage for the foreign company is that the Chinese government and scholars do not view wholly foreign-owned investment as a technology transfer mechanism. Therefore the foreign investors are less likely to receive administrative or financial support from the Chinese government.
For other countries who are adapting technology:
Other countries might lack the tremendous scale of resources for domestic investment in R&D that China can bring to bear, but China’s experience demonstrates some clear successes from which other countries can benefit. These include: the active role of the government in pursuing bilateral engagement internationally (in the case of steel); the importance of providing clear and lasting policy signals for clean energy markets (in the case of wind); and the central role that government-funded R&D can play (as illustrated by the localization of all three technologies).
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