Low-carbon technology could make a big difference in COVID-19 recovery

Three months ago, the world plunged into one of the worst health and economic crises it has ever experienced. With many economies under lockdowns, cleaner air and drastic drops in emissions gave us a sense of what a world without pollution could be like.  

But these improvements are temporary and will have small effects on global warming as economies begin to reopen. Oil prices plunged in April but have somewhat recovered as many lockdowns are easing up. Still, oil is cheap, and it is very hard to move away from it:  there is a distinct possibility that the recovery will translate into increased emissions. 

Oil prices may be low today, but they will continue to have large variations, depending on the economic recovery and on how the industry restructures. In the near future, policy leaders will have to choose whether to continue on the old path or to put their bets on sustainable investment, placing clean growth at the center of their recovery strategy.  

A new book, Technology Transfer and Innovation for Low-carbon Development, shows that this is possible. Most of the emissions reductions necessary to contain global warming to 1.5 degrees can be achieved by adopting and by deploying existing, commercially proven low-carbon technologies to developing countries on a massive scale.  These countries are where most of future emissions are expected to occur.

This is possible thanks to good news on three fronts: 

First, innovation in low-carbon technology (LCT) has not been deterred by fluctuations in oil prices: between 1990 and 2015, the annual growth rate of patents involving climate-mitigation technology has averaged about 8 percent per year, double the growth rate for all technologies. LCT innovations are concentrated in high-income countries—with Japan, the United States, and Germany together accounting for 55 percent of all LCT invented between 2010 and 2015. Japan produced the largest share, followed by the United States, Germany, and the Republic of Korea. During this period, China produced almost 8 percent of the world’s LCT innovations, far more than any other developing country. 

Second, the costs of renewable energy have already gone down: prices for solar voltaic modules have fallen 80 percent over the last decade, while wind turbine prices have fallen by 30 to 40 percent, and battery storage by 50 percent. Declining technology costs mean that more renewable energy can be deployed for less investment.  However, investment in renewable energy has actually increased in real terms: adjusted for 2018 cost levels, it has risen by 55 percent since 2010.

Third, the success of China and a few other emerging economies has challenged the traditional North-South paradigm of technology exchange and has introduced new models such as the South-South technology transfer. South-South trade now accounts for more than half of import and export flows for all goods among most developing countries. 

Given the necessity and opportunity for LCT deployment, what policies can be implemented to accelerate its diffusion or production? 

For all countries, irrespective of their specific priorities, it’s important to get the underlying systemic policy environment aligned with the overall policy objectives. For example, by reducing or eliminating fossil-fuel subsidies and implementing carbon pricing, governments can systematically shift the incentives for firms and households. But pricing policies often face significant political opposition, and other measures may be better placed to accelerate the deployment and production of LCTs. Investing in human capital, and in low-carbon infrastructure—including public transportation and energy infrastructure—could be especially important for increasing the capability of firms and households to produce and deploy LCTs. 

Poorer countries tend to face more and deeper market failures involving technology, and they often have less domestic capacity to address them effectively. Imported technology—possibly aided by financing from international donors—could be the best option. 

For the longer term, however, developing countries are seeking not just to import but also to produce and export LCT. This requires good national capabilities, long-term strategic planning, and an especially aggressive mix of demand-pull policies—feed-in tariffs, fiscal incentives, public outreach campaigns and LCT investment and financing and supply-side policies that encourage technology innovation, production, and exports. Countries that reach this stage are likely to experience accelerated productivity growth, as LCTs tend to be more complex than other technologies, with dense backward and forward linkages across multiple value chains.