If the proven, certified technology is cheap, makes companies more profitable, and at the same time, more green, then why doesn’t every company use it?
This is the mystery that our team now faces in Guangdong Province, China, where we are leveraging a multi-million dollar grant from the Global Environment Facility to support the retrofitting of freight trucks with Smartway (and similarly) verified Green Freight technologies*. These technologies improve the fuel efficiency of trucks, and their costs are recovered through fuel savings – in some cases, in as little as six months. So, the pervasive question – if they are so cost-effective and improve the competitiveness of businesses, why aren’t these technologies used…everywhere?
It is an interesting question, because its answer points us to the broader issue of market barriers in developing countries. How do we identify these barriers, and what is that "spark" that sets market forces in motion?
Is it not enough to invent a technology, patent it, certify it under an internationally recognized certification standard, and prove its utility and cost-effectiveness for industry? In some countries, in fact, this is enough, and in these countries, we see the market getting down to work, spreading the technology, driving down its costs, and sparking innovation for the technology’s next iteration. But in other countries, this process doesn’t seem to happen on its own. And this I find fascinating, because it is here, in this tiny speck of economic inactivity, that we find development opportunity. You see, our GEF grant program in Guangdong isn’t really about making a few trucks more green – it is about understanding what prevents natural, market-driven development from happening, and then identifying the levers needed to get the ball rolling.
We spent a few months conducting surveys and market research, meeting with local stakeholders, and creating a richer, deeper picture of the barriers to that market “spark”. Once we had that picture in hand, we then set about designing a program around systematically overcoming these barriers. So what did we find? Nothing exotic – as it turns out market barriers are not difficult to uncover. Access to finance is an issue -- nearly 99% of trucking companies registered in Guangdong Province are small and medium-sized enterprises (SMEs), a sector that tends to have more difficulty securing loans for technologies such as retrofits. We found a general lack of awareness and/or trust in the technology, that there is limited availability, and that the regulatory environment is uncertain, particularly with regards to safety standards for the equipment. Really, all of these obstacles are surmountable – at least, for the purposes of a demonstration program.
Now, no true development practitioner would design a program from their desktop – program design is the result of deep collaboration with our partners. And this is where, during the course of our work, things got…tricky.
You see, in a country with a planned economy legacy, proposing market-driven activities is not necessarily intuitive. The best illustration I have of this is a meeting I had with our partners in the Guangdong Provincial government, where we were debating whether to use the GEF grant funding to: (a) outright purchase the equipment, install it on trucks in State-owned companies, and monitor the results (Guangdong proposal); or (b) use the grant to support incentive schemes (funded through the GEF grant) that would enable any interested trucking company to purchase the equipment, putting up a portion of the cost themselves. In short, we proposed to the government, rather than handpick some companies, we let the companies come to us – we’ll let the market choose the participants and set precedent for a future when these incentives are no longer needed. Our partners did not like this proposal. At one point, after hours of debate and discussion and tea, the room fell silent, and one of the government officials finally let it out – his deepest fear. He whispered, “But if we don’t choose…what if no one comes?”
That is the thing about having a planned economy legacy. A government can get so used to creating the final result of a market process, that accepting that some things will be taken care of outside of their direct support can be a little scary.
Another anecdote. One day, we are discussing with our partners how to monitor the annual distance driven of participating vehicles. We presented different sampling methods and techniques, and the government patiently listened to our prattle. And when we were finished, one of the government representatives, dare I say with a flourish, pulled up a beautiful web-based interface onto the projector screen, and showed us how every heavy duty truck registered in the province is required to be fitted with a GPS device that is fully trackable by the government. By entering a vehicle license number, we could see the location of the vehicle on a Google map, a scan of the driver’s license, photos of the truck, information about distance traveled and traveling speed. The government asked, “Would this work?” And as I am sheepishly shuffling my statistics notes aside, I’m like, “Um, yeah, that could work, too…”
In a place like Guangdong, if the government wants something to happen (like, they want to be able to track all freight movement in the province), they just make a law, and it happens. If they want green freight retrofits, they will order select government companies to use the equipment, and if it works, make laws about achieving fuel efficiency targets that can only be met through procurement of retrofits. It is not a wrong approach, and it is in no way illogical. It’s just, in my own very personal view, laws like that are not sustainable. At one point, the fuel efficiency target may need to be adjusted for all of the different types of goods movement (short haul, long haul, heavy cargo, municipal service. etc.) vehicles. Or goods movement practices and technologies will evolve, rendering the law irrelevant. Imagine, freight vehicle fuel efficiency is only one, infinitesimal thread in the province’s economic tapestry. Multiply a set of laws that apply only to this thread times thousands, and you are on the path to creating something very Byzantine and difficult to untangle.
So, here we are. In the end, our partners have decided to take the plunge, and we have designed our program such that, if successful, it will create precedent for the sector to create and procure these technologies on their own – without the need for further government intervention.
And it is our hope, that the lessons learned from this process could be further applied in other countries, where the luxury of prescribing economic directions is not present, and the need for that market spark is genuine.
My colleague and fellow blogger Georges Darido is working on this very thread in Brazil, and you can follow these adventures on his blog feed: http://blogs.worldbank.org/transport/blogs/georges-darido
*Green Freight technologies include improvements to aerodynamics, tires that reduce road friction, and driver diagnostic systems. For more information, see http://www.epa.gov/smartwaylogistics/
Photo: Aerodynamic side skirt installed in pilot truck for the AusAid-funded Guangzhou Green Freight Demonstration Project.