4.7 Sustainable Markets for Environmentally Sound Technologies
Experience with development assistance for renewable energy projects in developing
countries over the past three decades illustrates the importance of sustainable
market approaches to technology transfer. In the 1970s and 1980s, development
assistance agencies attempted to transfer many small-scale renewable-energy
technologies like biogas, cooking stoves, wind turbines, and solar heaters.
Many projects were considered failures because of poor technical performance,
lack of attention to user needs and local conditions, and lack of replication
of the original projects. Projects emphasised one-time technology demonstrations
that failed to understand or provide incentive structures, failed to demonstrate
institutional and commercial viability, failed to account for continuing maintenance
requirements, failed to create a maintenance and service infrastructure, and
in general failed to generate sustainable markets for the technologies demonstrated
(Kozloff and Shobowale, 1994; Barnett, 1990; Hurst, 1990; Foley, 1993; Goldemberg
and Johansson, 1995; GTZ, 1995).
These failures identify the need for anapproach thatSuch an approach has been
labelled a market transformation promotes technology transfer by catalysing
expanded sustainable markets for specific technologies, and thus harnessing
the power of market-based incentives to accomplish environmental goals.approach.
A market transformation approach promotes replicable, ongoing technology transfers
rather than one-time transfers. In such an approach, public policy can consider
what are the set of institutions which underlie markets and what are appropriate
public interventions to shape those institutions. Many view the development
process in a market-oriented context, in which technology transfer is intertwined
with development assistance aimed at promoting functioning domestic commercial
markets, including domestic production capability, access to financing, stakeholder
partnerships, information channels, institutional capacities, and the removal
of other market barriers. The need to support markets, market institutions,
and entrepreneurs as the primary vehicles of technology transfer can be seen
in alternative views of the development process that have come from schools
of institutional and evolutionary economics (Hodgson et al., 1994; Saviotti
and Metcalfe, 1991).
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 (Feldman, 1994).
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.
The scope of a "market" must be carefully defined. For example, we
could speak of a market for grid-connected wind turbines, a market for wind
farms, a market for independently generated electricity, and a market for electricity
services like motive power and lighting. Each of these markets may face different
sets of buyers, sellers and institutional constraints. A market approach draws
attention past the producer to the consumer -- what decisions consumers make
and why. But a market approach also highlights that consumers do not act alone,
but as part of larger social groups. Thus, a market approach can bring into
focus, for example, the way communities operate and how markets interweave with
community structures and interrelationships.
Governments define the property rights, contract enforcement mechanisms, and
many of the rules for transactions that are necessary for markets to work well.
Policies that build or facilitate markets can have a strong influence on the
characteristics of those markets -- for example, the relative sales share of
domestic vs. foreign products, the segments of consumers participating in the
market, the ability of domestic producers to participate in the market, the
technologies available, and how regulations govern market behaviour. Markets
that do not take account of externalities or technological path dependence can
result in undesirable outcomes from a development and environmental point of
view. For example, many promising technologies (e.g., biomass gasification,
efficient electric- wheel vehicles, and the next generation of basic materials
manufacturing) may get "left out", because the market demand is in
developing countries but the technology developers and financiers are still
primarily in developed countries. Thus one important question from a market
perspective is: will existing technology markets and incentives result in a
transfer of the technologies that are most relevant to developing countries?
Policies that promote technology transfer from a market perspective must clearly
address the factors that drive technology choice in the marketplace, on both
supplier and recipient sides.
The initial choice of the technology is not the only or the most critical factor
in its diffusion, which is a dynamic process. Technology is often introduced
in niche markets, later expanding into other markets, if supply is reliable,
as its costs decline with increasing learning-by-doing and with economies of
scale in manufacturing. In Kenya, the charcoal stove design originally adapted
from a Thai design was introduced first for the urban market and then expanded
to the rural market as well (Kammen, 1998a; also see Chapter
16, Case Study 1 ). Photovoltaic systems were first
introduced for the rural affluent market and then smaller systems were introduced
for the less affluent in the rural market (Kammen, 1998a; and see Chapter
16, Case study 5). In Inner Mongolia, we see a reverse
phenomenon. Windmills were initially adapted from a Swedish design to utilise
the steady but low-speed wind resource prevalent in Inner Mongolia (see Chapter
16, Case study 3). However, as incomes grew, adaptation
was to larger systems (from 100 W to 300 W) and from intermittent wind generators
to more reliable hybrid wind-PV systems that also provide electricity during
low wind-speed but high insulation summer months.
There are many lessons to be learned from this experience for promoting technology
transfer. Some of these lessons stem from the failures mentioned above. Others
reflect the importance of technology adaptation, the need for enterprise and
technological capability, the selection of compatible technology, and the need
for a supportive and appropriate policy environment (Norberg-Bohm and Hart,
1995; Mugabe, 1996). Monitoring and verification protocols can also be useful
(see Box 4.3).
BOX 4.3 MONITORING AND VERIFICATION PROTOCOLS |
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), and because financing
for efficiency investments has been limited and inflexible. The existence
of monitoring and verification protocols can help to reduce these inconsistencies
and uncertainties. As a recent example, several dozen national organisations
in 16 countries have developed industry best practices, including voluntary
standard on implementation, measurement and verification of energy efficiency
and called the International Performance Measurement and Verification Protocol
(IPMVP) (U.S. Department of Energy, 1997). The IPMVP is being translated
into 11 languages and is being widely adopted in countries ranging from
Russia and Ukraine to South Korea, Brazil, Mexico and China. 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 efficiency project financing, with improved
project performance, and increased availability of lower cost financing
for energy efficiency projects. |
The case of the failure of biomass gasifiers for the fueling of irrigation pumps
in the Philippines is an example of the need to address the entire market (Bernardo
and Kilayko, 1990). Some years after installation, only one per cent of the gasifiers
remained in use. The gasifiers themselves were not to blame so much as the market
institutions that would have supported them: inadequate user training and poorly
funded service and spare parts infrastructure led to poor maintenance and equipment
failure. The agency overseeing the programme lacked resources and installed gasifiers
without sufficient testing. Users were not sufficiently convinced of the benefits
of the gasifiers to invest further resources. Supplies of needed inputs (i.e.,
charcoal) were difficult and expensive to obtain.
Conversely, the case of improved cookstoves in East Africa shows a long and important
history of how sustainable commercial markets evolved from what were initially
one-time aid-based projects. The most popular improved stove, the Kenyan Ceramic
Jiko, has become the mainstay of the Kenyan urban market, and is produced, sold,
and serviced by a large and diffuse network of formal- and largely informal-sector
artisans. The efficient use of the KCJ addresses economic, environmental, and
public health challenges. The KCJ and the commercial network that supplies the
technology has also become a model for direct emulation, or for adaptation to
promote improved stoves in numerous nations. Comparisons with the successes and
problems with these spin-off programmes highlight a number of critical issues
in the feedback between design and use, and the limitations of economic analyses
of some emerging technologies and informal markets.
Since the late 1970s, the Inner Mongolia Autonomous Region (IMAR) of China has
achieved widespread dissemination of small, stand-alone wind electric systems
among its rural herding population. This success has been attributed partly to
actions taken by the IMAR government to create a local market for wind systems
among individual household customers (including a modest subsidy provided directly
to manufacturers), and the development of an extensive local manufacturing, sales,
maintenance, and training infrastructure.
There is a growing literature on market transformation for energy efficiency (Geller
and Nadel, 1994; Golove and Eto, 1996; Levine et al., 1994). The National
Association of Regulatory Utility Commissioners defines market transformation
as "changing the types of products or services that are offered in the market,
the basis on which purchase and behavioural decisions are made, the type or number
of participants in the market, or in some other way altering this set of interactions
in a self-sustaining way" (Hastie, 1995). The literature on market transformation
has its roots in utility demand-side-management (DSM) approaches. Instead of targeting
"participants" with rebates and other DSM programmes, a market transformation
approach considers that utilities should act to transform the broader market in
a sustainable manner, reduce market-barriers, and expand the role of energy-efficient
products and services. The literature offers many specific strategies for market
transformation and regulatory approaches to encourage utilities to pursue these
strategies (Geller and Nadel, 1994).
Successful market transformation programmes for energy efficiency have included
the Poland Efficient Lighting Project (see Chapter 16, Case
Study 2), where a combination of subsidies, consumer education, and marketing
greatly expanded the market for compact fluorescent lights. The Thailand Demand-Side
Management Project (see Chapter 16, Case
Study 23) also contained market transformation elements for fluorescent lights
that resulted in 100% of the market shifting to more efficient lighting designs.
A market transformation approach promotes replicable, ongoing technology transfers
rather than one-time transfers. In such an approach, public policy can consider
what are the set of institutions which underlie markets and what are appropriate
public interventions to shape those institutions. It is useful to consider a broad
brush of measures within a market transformation approach such as: technology
adaptation, the need for enterprise technological capability, subsidies, consumer
education, and marketing.
|