WE tend to think about mitigation of climate change merely as a policy challenge to reduce emissions. If we, however, think about what drives policies, we arrive at more fundamental questions related to domestic constellations of the economy, political risk-taking, innovation and capabilities. Though the UNFCCC Technology Mechanism and the Paris Agreement address these questions, both could do more.

Botswana is a middle-income country of about two million people – sparsely populated, with good institutions, great solar energy resources, and lots and lots of coal in the ground. Its relative wealth has largely been generated by well managed diamond exports. Recently, it has had to develop its electricity system in order to meet growing demand, as imports from neighbouring South Africa have declined. The government is well aware of the vulnerability of hot and arid Botswana to climate change, and has progressive views on mitigation. However, it is facing difficult choices in deciding how to diversify its economy away from diamonds and fuel its further development: using easily available coal, or investment-heavy and technically more challenging solar.

The Netherlands is a highly industrialized country of close to 17 million inhabitants. Its economy relies heavily on energy intensive industry, the transportation sector and its sizable gas reservoirs. Within the EU, the Netherlands is among the highest per capita greenhouse gas emitters, despite having shown leadership on climate change as early as the late eighties. A reliance on fossil fuels for many of its economic activities means that the Netherlands is firmly locked into the fossil economy. The government has plans to reduce emissions, but in practice, over the past decades, the social and economic interests of those invested in fossil fuels have prevailed.

Indonesia, Qatar, India, the United States, South Africa, Argentina and every single country, big and small, has its own specific story and mitigation challenges, deeply intertwined with the economy, energy supply and agricultural system. None of the world’s countries are against mitigation. None are opposed to reducing greenhouse gas emissions. What many countries expect (and fear), however, is great economic damage if they reduce emissions and decarbonise. If a country (or, for that matter, a politician) does not stand to gain from the transition, it will be disinclined to implement costly and risky measures towards that transition. The gains do not need to be only financial: they can be jobs, economic development, government income, energy security, political clout, etc.

Countries need to perceive benefits from mitigating climate change. And the politically credible narrative for such benefits will be different for every country. Abandoning production and consumption of fossil fuels needs to be a part of it, but the more interesting question is: what economic activity will replace them? And how can this economic activity be as, and preferably even more, attractive to the country?

 

This is where innovation comes in. The most common argument why innovation is key is that mitigation technologies need development and cost reductions, and innovation can provide this. However, I would argue that those positives should be seen as side effects of innovation. The central aim of low-carbon innovation should be to serve the economic development of countries while helping them move onto a low-carbon trajectory. Finance for innovation can do this by funding R&D programmes, but mostly by developing the right kind of local capabilities. Only then can Botswana, India or Indonesia develop their own, nationally specific, low-carbon economies.

How do countries know that they are developing the right capabilities for sustainable economic development? If we look at highly developed economies, we see that their workforce features a myriad of skills. Three rough categories of technological capabilities are often distinguished. First, we need people who can operate and maintain equipment, and repair it if needed. These are basic skills that are present in practically all countries, although in many poorer countries they are in short supply for advanced or relatively novel technologies.

Second, the capability to adapt technologies to local circumstances, and to manufacture the core equipment as well as spare parts is needed. Especially if a technology is likely to be used extensively in a country, importing it from other countries will be relatively expensive and unlikely to benefit the local economy. Of course, not all countries will be producing all the technologies they use; also now not every country is manufacturing cars, solar panels, gas turbines or airplanes. Among other factors, the technological complexity and local market size of each piece of equipment will determine the intensity of international competition for global market share. However, those countries without any or with insufficient capabilities are certain to lose out and will be destined to import while the profits are made elsewhere.

Third and finally, it is important to possess the ability to innovate on technology, to improve manufacturing processes, to conduct fundamental research and to develop new technology. In practice, these capabilities are most present in industrialized countries, with China becoming an important player, as demonstrated by research into patent databases.

 

In addition to technological capabilities in companies, among entrepreneurs and within research institutions, capacity in the public sector to regulate new technology and to make effective policies for implementation and innovation is important. Often, the development of more advanced capabilities follows a parallel path to maturing institutions, but not always.

Scholars in innovation and development studies have examined how to evaluate whether the necessary capabilities are present and how they can best be built. They came up with the term ‘innovation system’, and identified functions that need to be fulfilled in such a system in order for it to realize a certain technology in a national context, or to reach a flourishing, innovative economy. Such functions include knowledge development, entrepreneurial experimentation, and legitimation by the wider public and by law.

It is not easy to build a flourishing innovation system around low-carbon technology, particularly if the ‘background’ innovation system is poorly developed, like in most developing countries. Also, different functions need to be promoted at the same time as they need to reinforce each other. If knowledge is developed around a certain mitigation technology, but no capital is available for its entry in the market, it will still not be implemented.

 

If an innovation system around low-carbon technologies remains underdeveloped in a country, that economy will not have a built-in incentive to continue investing in low-carbon transition. It is unlikely that such a country will modify its trajectory. Therefore, it is essential that capabilities are developed, or else pledges in the Paris Agreement will not be met.

This is not new, and the United Nations Framework Convention on Climate Change of 1992 already acknowledged the importance of capabilities, included under both technology transfer and capacity building arrangements. However, Article 4.5 on technology transfer has had limited impact on the ground. As a response, during COP16 in Cancun in 2010, the Technology Mechanism was initiated, consisting of a ‘policy arm’ called the Technology Executive Committee (TEC) and an implementation arm, called the Climate Technology Centre and Network (CTCN). The CTCN is supposed to fulfil some of the functions in an innovation system. Primarily, it responds to requests for support by developing countries around building institutional and innovation capabilities. However, it is limited by small budgets, as it has no structural funding.

Around both the TEC and the CTCN’s activities, it is interesting to observe the political economy in most countries which favour fossil fuels. Industrialized countries, leaders in the global technology market, which the UNFCCC and the Cancun Agreement anticipate to be donors to the Technology Mechanism, are reluctant to invest in capacity development abroad, partly for fear of creating their future challengers in the global technology leadership race. This attitude has inhibited funding for innovation capabilities in developing countries. The result is that the CTCN is severely underfunded, and the TEC suffers from highly politicized and largely ineffective discussions. Something needs to change for the Technology Mechanism to reach its aims.

 

Although some progress was made at COP21 in Paris, the discussions on technology did not move forward. Industrialized countries opposed strong commitments to North-South and South-South R&D collaboration as well as binding, significant support to developing countries. Developing countries argued for a strong link with the Green Climate Fund (GCF) so that technology related programmes could count on funding from the GCF, allowing for structural instead of the current incidental support. For a long time it looked like agreement on technology was going to be difficult, but finally a compromise text did emerge.

Article 10 on technology in the Paris Agreement emphasizes R&D cooperation, hints at a link with finance, and reinforces the existing Technology Mechanism. However, it is only a mild addition to the Technology Mechanism as agreed in 2010. Although the importance of collaboration on R&D between institutions in different countries is re-emphasized, as well as the need for developed countries to fund or finance such efforts in developing countries, no firm commitments were made. From a legal point of view, the commitments are sufficiently vague so that they can easily be ignored by countries without consequences.

Much of technology transfer happens outside of formal UN institutions. But we have seen that it does not happen sufficiently withour intervention. The UNFCCC ought to develop itself as a catalyst for meaningful and politically salient action that helps countries get onto self-reinforcing low-carbon trajectories by developing capabilities for low-carbon economies. The basic institutions are in place in the form of the UNFCCC Technology Mechanism, but it desperately needs strengthening in order to play its envisioned role. For this, developed countries should overcome their fear of creating competition in the global low-carbon technology marketplace, and developing countries and UN institutions need to be more convincing that the funding will be spent wisely. If this is not done, the implementation of the Paris pledges, and eventually the temperature goal, might easily get out of reach.

 

So in what research agenda does this result? Questions could include, for each country, what capabilities are most needed and under which circumstances international action can be helpful in building them. Research could contribute to developing a narrative for developed countries that makes financing low-carbon technology transfer attractive and in their self-interest. Another important question is what projects in the GCF could be ‘Technology Mechanism-proof’. But most importantly, the above suggests that the long-standing question of innovation, economic development and sustainability is still not sufficiently understood to build international institutions that work.