2.2.1 Actions for all governments

Macroeconomic conditions
Macroeconomic conditions can favour the flourishing of private sector development include such factors as low inflation, stable and realistic exchange rates, deregulation, free movement of capital, promotion of competitive markets, open trade policies and transparent foreign investment policies.

An especially important barrier for the transfer of ESTs, is the existence of externalities in the economy. The lack of internalising environmental and social costs and the resultant underpriced energy deter investments in clean alternatives, for instance in the buildings, industrial, and energy sectors. Different measures to "internalise" the environmental costs of fossil fuel use and reduce the unfair commercial risk for ESTs are now being tried to improve the competitiveness of the cleaner energy sources. Such measures could include regulations, taxes, codes, standards and removal of subsidies to internalise the full environmental and social costs.

EST market transformation
A market transformation approach promotes technology transfer by catalysing sustainable markets for specific technologies, and thus harnessing the power of market-based incentives to accomplish environmental goals. The three central characteristics of a market are: (i) the number, nature, and capabilities of participants, (ii) the characteristics of the products and services, and (iii) the rules governing transactions. Properly functioning markets generally require the availability of information, acceptable levels of risk, appropriate skills, a system of property definitions, quality and contractual norms or standards, oversight and intermediation bodies, decision-making autonomy for buyers and sellers, and stable political and legal regimes. Government actions to encourage market transformation of ESTs include:

• Foster competitive international markets by opening their domestic markets in industry, energy and agriculture;
• Simplification and transparency of programme and project approval procedures and public procurement requirements;
• Establishment of requirements for environmental impact assessment and environmental reporting;
• Establishment of incentives for corporations to pioneer new ways of working with the community;
• Promote so-called "green-labelling" programmes to employ trademark or related principles (e.g. a not-for-profit organisation allows a vendor to use an environmental seal of approval if certain requirements are satisfied).
• Encouragement of social and technological learning between private firms and public agencies at regional (sub-national) levels;
• Conducting of programmes that focus on the demand-side of technology transfer;
• Development of capacity for technology adaptation by small- and medium-scale enterprises (SMEs);
• Conducting of consumer education and outreach campaigns;
• Influencing of WTO standards to facilitate the trade products and goods produced from the use of ESTs (PPM - products and process methods);
• Targeted purchasing and demonstrations by public sector.

Availability of and access to financing
Further efforts are needed to engage banks and other lending institutions into financing environmentally sound technologies and projects. Such efforts may consist of stimulating innovative financial mechanisms, public-private partnerships and the involvement of intermediaries.

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 finance debt is secured loan and leasing. The transfer of environmentally sound technologies 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 supporting scientific and technical innovation is seen as an appropriate use of public funds, so can 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. Different financing arrangements are often required at both the production and acquisition stages.

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.

Technology intermediaries, such as national-level technology transfer agencies, electric utilities, and energy service companies (ESCOs) have gained widespread acceptance to stimulate innovative financing schemes. They can effectively address financial, capability as well as other institutional market barriers. 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. Additionally, companies' cash flows are enhanced, which adds value to their financial value. Governments and other public-sector entities can develop technology intermediaries through direct support and other interventions.

Legal systems
Uncertain, slow and expensive enforcement of contracts by national courts or international arbitration and insecure property rights can discourage investment. Three broad types of legal risk are likely to influence decisions to invest in advanced environmental technologies by foreign and domestic actors: Contract risk, Property risk and regulatory risk.

Contract risk refers to the likelihood and costs of enforcing legal obligations with suppliers, partners, distributors, managers, labour forces, construction organisations or licensors. Property risk refers both to more familiar risks associated with interference in asset ownership and to less visible, but also to essential questions of corporate governance including shareholder rights and competition laws that determine how decision making within the firm is divided and whether firms will be able to operate in competitive markets. Regulatory risk arises from the behaviour of public administrations, which influence economic returns through licensing, tariff setting, taxation, and foreign exchange and trade controls.

To reduce contract, property and regulatory risk, governments can strengthen national legal institutions for intellectual property protection; strengthen administrative and law processes to assure transparency, participation in regulatory policy-making, and independent review; and strengthen legal institutions to reduce risks and corruptionand to ensure that public regulation is accessible to stakeholders and subject to review by independent authorities.

Intellectual property rights
For harnessing the bulk of international investment, intellectual property rights (IPR) regimes are an important consideration. Overall the literature is diverse concerning the relationship between IPRs and technology transfer. Strong IPR regimes, generally lead to increased innovation and "vertical" technology transfer and increased foreign investment, although it should be kept in mind that it is not the only factor affecting investment decisions. Strong IPR regimes could, however, depending on the holder of the patents, slow down the dissemination of certain technologies, the so called horizontal technology transfer Where this is the case, countries may address this concern by taking appropriate measures. For example, the risk of unlicensed patents may be reduced by charging increasing annual maintenance fees. If the fee becomes high enough by 5 to 10 years after patent issuance, the owner might let an uncommercialised patent lapse. Another option is so called compulsory licensing as specified under the international Trade Related Aspects of Intellectual Property (TRIP) agreement and in decisions contained in Agenda 21, provided that correct procedures are followed (generally, they require the user first to seek a license through regular venues, to pay reasonable compensation for the license and to practice the invention on a limited non-exclusive basis). IPR regimes could be extended more widely to support innovation and dissemination of ESTs. Industry standards, including management standards developed through the International Standards Organisation (ISO) and sector standards for some industries, could also play an important role in fostering global dissemination of ESTs.

Multinational companies' leadership in using the same standards for environmental performance wherever they operate.
Two key ways by which private sector firms can stimulate the more rapid adoption of ESTs are leadership and participation. Leadership involves the senior executives of the company making a clear commitment to addressing environmental issues, with the consequence that all in the business are aware of these issues and sees them as an important aspect of their work (e.g. relevant towards promotion or bonuses). An example of leadership has been the recent clear announcement of multinational companies to initiate ambitious GHG reduction programmes including innovative mechanisms such as internal trading systems. Voluntary agreements can be a useful ways of obtaining high level commitment. Participation involves engaging employees (and others) in the environmental challenge, and encouraging responses and initiatives from them. It should be seen as complementary (not an alternative) to leadership. A number of companies have successfully used participatory approaches to address environmental problems.

Consumer awareness, and product standards, industry codes and certification
Governments can work with the private sector and NGOs to establish codes, standards and labels. This provides a framework which can work to the benefit of industry and consumers. This route can help build markets for dispersed, small-scale technologies where technologies are diverse, vendors are many, and consumers face high risks in evaluating and selecting technologies and suppliers. Codes and standards also provide a means for representing the interests of end-users who are absent from purchase or construction decisions. Standards also reduce risk for consumers with regard to the equipment they are purchasing.

With regard to energy use, information programmes have proven successful in assisting energy consumers to understand and employ technologies and practices to use energy more efficiently. These programmes aim to increase consumers' awareness, acceptance, and use of particular technologies or utility energy conservation programmes. Examples of information programmes include educational brochures, hotlines, videos, design?assistance programmes, audits, energy use feedback programmes and labelling programmes.

For industry, energy audit programmes are a more targeted type of information transaction than simple advertising. Industrial customers that have undergone audits have reduced their electricity use by an average of 2 to 8%, with the higher savings rates achieved when utilities followed up their initial recommendations with strong marketing, repeated follow-up visits, and financial incentives to implement the recommended measures.

An example of the effective role codes and standards can play is the International Performance Measurement and Verification Protocol (IPMVP) used for energy efficiency. Energy efficiency investments in the buildings, industrial, energy sectors have been constrained due to inconsistencies and uncertainties in their performance (i.e., actual energy savings achieved), financing for efficiency investments has been limited and inflexible. The existence of monitoring and verification protocols can help to reduce these inconsistencies and uncertainties.

Nowadays, Multilateral Development Banks such as the World Bank are using the IPMVP as the technical basis for large scale energy efficiency financing. Use of the IPMVP results in higher and more persistent levels of energy efficiency savings and in a standardised approach to contract development, implementation and monitoring. This uniform approach cuts transactions costs, allows project pooling and facilitates project financing. As a result of the rapidly increasing application of the IPMVP, there is increased energy efficiency project financing, with improved project performance, and increased availability of lower cost financing for energy efficiency projects.

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