2.7.2.2 Development and commercialization: drivers, barriers and opportunities
Development and diffusion or commercialization of new technology is largely a private-sector endeavour driven by market incentives. The public sector can play an important role in coordination and co-funding of these activities and (through policies) in structuring market incentives. Firms choose to develop and deploy new technologies to gain market advantages that lead to greater profits. Technological change comprises a whole host of activities that include R&D, innovations, demonstration projects, commercial deployment and widespread use, and involves a wide range of actors ranging from academic scientists and engineers, to industrial research labs, consultants, firms, regulators, suppliers and customers. When creating and disseminating revolutionary (currently non-existent) technologies, the path to development may proceed sequentially through the various phases, but for existing technology, interactions can occur between all phases, for example, studies of limitations in currently deployed technologies may spark innovation in fundamental academic research. The ability to identify and exploit advances in unrelated fields (advanced diagnostics and probes, computer monitoring and modelling, control systems, materials and fabrication) is one of the prime drivers of innovation and improvement. Such advances draw from an enabling environment that supports education, research and industrial capacity.
The behaviour of competing firms plays a key role in the innovation process. Especially in their efforts to develop and introduce new non-commercial technology into a sustainable commercial operations, firms require not only the ability to innovate and to finance costly hardware, but also the managerial and technical skills to operate them and successfully market the products, particularly in the early stages of deployment and diffusion. The development of proprietary intellectual property and managerial know-how are key ingredients in establishing competitive advantage with new technology, but they can be costly and difficult to sustain.
Several factors must therefore be considered prominently with respect to the process of technology development and commercialization. A detailed review of these factors is included in the IPCC Special Report on Technology Transfer (SRTT) and the discussion below provides a summary and update, which draws on Flannery and Khesghi (2005) and OECD (2006). Factors to consider in development and commercialization of new technologies include:
- First, the lengthy timescale for deployment of advanced energy technologies.
- Second, the range of barriers that innovative technologies must successfully overcome if they are to enter into widespread commercial use.
- Third, the role of governments in creating an enabling framework to enhance the dissemination of innovative commercial technology created by private companies.
- Fourth, absorptive capacity and technological capabilities are also important determinants of innovation and diffusion.
New technologies must overcome a range of technical and market hurdles to enter into widespread commercial use. Important factors include:
- Performance.
- Cost.
- Consumer acceptance.
- Safety.
- Financial risks, available financing instruments.
- Enabling infrastructure.
- Incentive structures for firms (e.g. licensing fees, royalties, policy environment, etc.).
- Regulatory compliance.
- Environmental impacts.
The diffusion potential for a new technology depends on all above factors. If a technology fails even in one of these dimensions it will not achieve significant global penetration. While reducing greenhouse gas emissions should be an important objective in technological research, it is not the only factor.
Another factor is that the lengthy timescale for deployment of advanced energy technologies has a substantive impact on private-sector behaviour. Even with successful innovation in energy technology, the time necessary for new technology to make a widespread global impact on emissions will be lengthy. Timescales are long, both due to the long lifespan of existing productive capital stock, and the major investment in hardware and infrastructure that is required for significant market penetration. During the time that advanced technology is being deployed, both incremental and revolutionary changes may occur in the technologies under consideration, and in those that compete with them.
One consequence of the long time scales involved with energy technology is that, at any point in time, there will inevitably be a significant spread in the efficiency and performance of the existing equipment deployed. While this presents an opportunity for advanced technology to reduce emissions, the overall investment required to prematurely replace a significant fraction of sunk capital can be prohibitive. Another consequence of the long time scale and high cost of equipment is that it is difficult to discern long-term technological winners and losers in evolving markets.
A third factor is enabling infrastructure. Infrastructure can be interpreted broadly. Key features have been described in numerous studies and assessments (e.g. IPIECA, 1995), and include: rule of law, safety, secure living environment for workers and communities, open markets, realization of mutual benefits, protection of intellectual property, movement of goods, capital and people, and respect for the needs of host governments and communities. These conditions are not unique for private companies. Many of them also are essential for successful public investment in technology and infrastructure.