International Cooperation for Reducing
Greenhouse Gas Emissions
From Theory to Practice Through
Technology Transfer
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Summary of a China/Japan/U.S.
Joint Project
December 1997
Dr. Ma Zhong
Beijing Environment and
Development Institute
email mazhong@public.bta.net.cn
Dr. Yoshitaka Nitta
Central Research Institute for the
Electric Power Industry
email ykoba@criepi.denken.or.jp
Dr. Michael Toman
Resources for the Future
email toman@rff.org
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Summary
No matter how one evaluates the risks of climate change, there is widespread agreement that international cooperation is an important element of any plan to curb the rise in greenhouse gas emissions.
Among the broad approaches advanced for international cooperation are various efforts that would
improve the international transfer and diffusion of “climate-friendlier” technology for reducing baseline
emissions in developed and developing countries alike. In addition to reducing the growth of greenhouse gas emissions and expanding international technology trade, the transfer and diffusion of climatefriendlier technologies often yield immediate and tangible economic and environmental benefits. Thus,
there would seem to be substantial potential for international cooperation in this sphere based on mutual
self-interests. However, while there is broad recognition in principle of the potential benefits, there is
substantial controversy in practice about how this could and should be done.
This project sought to identify and disseminate information on opportunities and obstacles to
enhanced international cooperation in reducing greenhouse gas emissions through the pursuit of mutually beneficial technology transfer involving three countries: the United States, Japan, and China. The
goal was to provide scientifically defensible, nonideological information and analysis that would assist
decisionmakers in these three countries as well as others concerned with climate change. The emphasis
was on understanding the means for technology transfer and diffusion generally, and the market mechanisms and government policies that stimulate or impede the transfer and diffusion of climate-friendlier
technologies. The analysis emphasized the identification of practical options that address incentives,
policies, and institutional requirements in the context of CO2 limitations and the energy sector.
The project combined teams of experts led by three institutions: China’s Beijing Environment
and Development Institute (BEDI); Japan’s Central Research Institute of Electric Power Industry
(CRIEPI); and the U.S.’s Resources for the Future (RFF). Collaboration and interchange among
experts from different national as well as institutional and disciplinary perspectives provided an opportunity to bring together different worldviews, analytical capacities, and interests. A particular strength of
the project was the participation as full partners of a Chinese team that provided valuable insights about
Chinese economic and institutional circumstances, as well as Chinese perspectives toward options for
limiting greenhouse gas emissions. The contributions from the other two teams provided insights on a
variety of issues, including what can be learned from previous experience in promoting environmentally
sustainable development, and perspectives on options for greenhouse gas limitations in Japan and the U.S.
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The project culminated in an exchange of ideas through the presentation and discussion of
scholarly papers by the three country teams at a plenary workshop in Beijing in held November 14-17,
1997. The workshop, titled Technology Transfer, GHG Mitigation and Sustainable Development, also
provided the basis for a seminar at which the project findings were presented to a larger audience of
senior Chinese officials and other experts.
In addition to the three leading institutions, experts from the following organizations participated
in the workshop : China’s Peking University, Renmin University of China; Tsinghua University, and
Renewable Energy Development Center; Japan’s Mitsubishi Research Institute, Global Industrial and
Social Progress Research Institute, University of Tokyo, Nagoya University, and Keio University; the
U.S.’s Joint Institute for Energy and Environment, and the Electric Power Research Institute.
Invited guests to the seminar included representatives from the following organizations: the Environmental Resources Protection Committee of China’s National People’s Congress; China’s National
Environmental Protection Agency, Ministry of Electrical Power Industry, State Science and Technology
Commission, and State Economic and Trade Commission; the Chinese Academy of Engineering; The
World Bank; the Rockefeller Foundation; Ford Motor Company (China) Ltd.; and the U.S. Embassy.
Each research team benefitted from and wishes to acknowledge generous financial support for its
efforts. Work by the U.S. team at RFF was supported under a contract with the Electric Power Research
Institute. Work by the Japanese team organized by CRIEPI was supported by the Mitsubishi Research
Institute and by CRIEPI itself. Work by the Chinese team organized by BEDI was supported by funding
provided to BEDI by Ford Motor (China) Ltd.
Both the workshop and seminar discussions were characterized by a remarkable level of openness, energy, and candor as well as goodwill. Each team prepared a summary of its own findings, and
the three teams collaborated on a summary of common understandings. This material is being posted
with this overview. As final versions of the individual research papers are completed, these also will be
posted along with other information from the proceedings.
Summary of Findings from
the Chinese Team
1. One of the most important measures for mitigating greenhouse gas (GHG) emission and promoting
sustainable development is the transfer of advanced and applicable technologies from developed
countries to developing countries. This can be pursued through various means being used or considered by the international community, including: The Global Environment Facility (GEF); voluntary
actions to limit GHG emission (e.g., the actions taken by some northern European countries); actions
implemented jointly; and normal commercial technology transfer.
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2. “Technology” refers to not only such visible “hardware” as devices and process, but also invisible
“software,” e.g., management. There are important relationships between the degree of development
of a technology and its commercial competitiveness, shown in the table below, that affect the prospects for technology transfer:
Commercially competitive
Commercially noncompetitive
Mature development
++
--
Close to mature development
-
+
Far from mature development, but
promising in a long-term viewpoint
--
+
3. Commercially competitive technologies for GHG mitigation may be transferred through normal
international trade. The market plays an important role in this process.
4. Analysis of China’s technology status in energy production and end-use indicates that a great gap
has existed between the technology levels of developed countries and China.
5. A huge potential demand for commercially competitive technology related to GHG mitigation exists
in many fields, such as the power, metallurgical, machinery, chemical, and alternative energy sectors. Analysis of the status of technologies related to energy efficiency and alternative energy in
developed countries shows that there are many mature and commercially competitive technologies in
these areas.
6. The domestic technology market, this market has developed and evolved rapidly in the past few
years, and the total volume of transactions increases continuously. The prospects for growth of
China’s technology market are promising at the macro-level. Technology transfer is being realized
more and more through the technology market.
7. Normal market trade may be expected to play an important role in the transfer of commercially
competitive technologies for GHG mitigation. In this way, normal trade may contribute a lot to both
GHG mitigation and economic development simultaneously.
8. After the 15th National Conference of Chinese Communist Party, economic reform in enterprise
ownership and the relationship between government and enterprises is expected to speed up. In
general terms, those economic reforms and the establishment of overall socialist market system will
be helpful in having market mechanisms play a more important role in the transfer of technologies
for GHG mitigation mentioned above. Although the exact impacts of economic reform on technology transfer for GHG mitigation are not very clear now and need to be explored further, there is no
doubt that the progress of China’s economic reform provides a rare historical opportunity for marketbased technology transfer through normal trade. Market-oriented economic reform may bring about
an inestimable impact on the overall technology transfer for GHG mitigation.
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9. As a developing country, China is in the stage of rapid development. In this stage, some “follower’s
advantages,” e.g., lower replacement cost and possibilities to share the fruits of contemporary scientific and technological revolution and to surpass traditional development stages, exist for technology
adoption in major industrial sectors. The influences of technology adoption may last for a long time
and are difficult to change in a long period, but the follower’s advantage eventually will disappear.
10. Given the great historical opportunity provided by China’s economic reforms and the long-term
impacts of technology adoption on developing countries, the importance of technology transfer to
both GHG mitigation and economic development should be emphasized.
11. An examination by the Chinese research team of China’s policies on foreign direct investments in
power sector, tariff level, and foreign exchange management, as well as energy related fiscal policies, shows that the corresponding policies have been improved to various extents in the sense of
promoting technology transfer for GHG mitigation. Some institutional and policy obstacles, however, still exist and need to be removed.
12. The Chinese experts notice that some obstacles of technology transfer result from the limitation of
high technology export in some developed countries.
13. The Chinese experts believe that there are a lot of problems to be studied further. One of these
problems is which measures should be taken for removing institutional and policy obstacles to
technology transfer. The Chinese experts appeal to both the Chinese government and international
community to support and benefit from such studies.
Summary of Findings from
the Japanese Team
1. Climate change is an important example of the “human trilemma” of economic growth, environmental protection, and management of natural resources (particularly energy and food). Sustainable
development involves the intersection of effective decisionmaking in all three spheres.
2. More specifically, an increase in energy efficiency can simultaneously promote economic progress
through reduced energy costs, and environmental protection through reduced emissions of CO2 and
conventional pollutants; it also promotes stability in world energy markets. Improved energy efficiency thus contributes to sustainable development.
3. “Multi-purpose environmental policies” are crucial for China to pursue. These policies are economically viable, and protect both the local environment and the global environment.
4. China has experienced an amazing energy efficiency increase recently – one estimate indicates that
energy use has grown only 40% as fast as GDP. Nevertheless, Chinese efficiency is as low as 10%
that of Japan. A continued quick increase in energy efficiency will be an effective multi-purpose
policy.
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5. To pursue such a multi-purpose policy, China can use its “follower’s advantage” in exploiting the
difference between its own energy technology and the technology available from advanced industrial
countries. This opportunity is demonstrated by the history of improved thermal efficiency of power
plants (from less than 35% before 1960) to as much as 50% or more today and in the near future).
Pursuing the follower’s advantage allows a well-targeted approach and reduces the need for a huge
outlay of scarce capital.
6. Many technologies are available to reduce CO2 emissions, including: highly efficient energy utilization/energy savings; alternative energy utilization; nuclear power. Even so, nuclear and alternative
technologies do not at this time have the capacity to replace coal use by 2050 (for example, nuclear
might replace less than 300 million kW of coal capacity).
7. Recent technology transfer from Japan to China has mostly been private-sector, not ODA. China’s
approach to COP3 and subsequent negotiations will influence the prospects for enhanced technology
transfer and the development of Chinese capacity in pollution control. The private sector in both
countries will play a major role in these developments.
8. One important avenue for international cooperation concerns the timing of Chinese commitments to
energy saving, while developed countries provide improved circumstances for technology transfer.
9. Analyses of international tradable permits approaches to implementing emissions caps could have
net benefits for China. For example, one study of allocating national emissions allowances in proportion to population indicates that China would reap significant net income gains during the first
half of the next century. This example suggests that there may be a variety of ways to bargain over
mutual commitments to GHG limits (for example, China agrees to limit its rate of growth initially
while Annex 1 countries limit their emissions levels).
10. Joint implementation is an important and effective way to motivate mutually beneficial efforts to
reduce GHG emissions by diffusing developed, available, appropriate technologies. Current pilot
efforts of “activities implemented jointly” suffer from inadequate incentives and implementation
issues, specifically the assessment of baseline emissions and “additionality,” and monitoring.
Summary of Findings from
the American Team
Overview of Topics
and Conclusions
1. In transition to a market system, economic incentives will strongly affect the technology choices
made by buyers and sellers.
2. Economic incentives are affected by “indirect costs.” Examples are unpredictable regulations and
other uncertainties. Lowering these costs will enhance technology transfer.
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3. Legal, financial, regulatory, and other institutions affect direct and indirect costs of technology
choices. Improved functioning of these institutions will enhance the efficiency of technology transfer.
4. Environmental policies also affect technology choices. Policies that use economic incentives (like
pollution levies or tradable permits) rather than mandates achieve environmental goals more cheaply
and promote technical innovation.
Lessons from the U.S. Experience
with Energy Policies
1. Economic efficiency has been increased by relying on market forces and market prices. Efficiency
also has been increased by changing tax policies that encouraged inefficient investment.
2. Efficiency has been further promoted by changes in regulation that limit monopoly influence and
allow prices of gas and electricity to be determined more by market forces.
3. Economic incentives have improved the efficiency of energy demand as well as energy supply.
Government mandates have been much less effective than economic incentives in promoting conservation, energy efficiency, and new technology.
4. Economic incentives to reduce pollution also have motivated fuel switching and development of new
technologies. More could be done with a further movement away from command and control. More
also needs to be done in addressing the problems of energy use in cities (pollution and congestion).
Lessons from Technology Policies
in OECD Countries
1. “Market barriers” are obstacles to the development or use of a potential new technology.
2. A new technology could face a market barrier simply because it is uncompetitive. There may be
“hidden costs” of a new technology that limit its diffusion. There is an unavoidable gap between the
engineering ideal and real practice.
3. There may be a number of market failures that limit the diffusion of new technologies. These include: scarce information; monopoly power; weaknesses in financial institutions; energy prices that
do not reflect real costs; lack of adequate skilled workforce; restraints on international trade; inability
to cope with risks.
4. Only the first two warrant government intervention in technology markets. The others are problems
in the broader economy and need to be addressed there. In practice, many OECD programs to
stimulate technology diffusion have had high costs for limited results.
5. There is a role for government support of R&D to stimulate the development of new technologies.
However, it is difficult to achieve specific goals with these policies – they can be wasteful.
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Lessons from International Technology Trade:
Case Study of U.S. Foreign Direct Investment
in the Chinese Power Sector
1. Excess electricity demand has constrained development. This has motivated an ambitious plan for
new power capacity development in China. This new capacity will have to be financed in part by
foreign direct investment (FDI).
2. Existing Chinese plants generally are very small and old by international standards. This makes the
overall capacity less energy efficient, more costly, and more polluting.
3. New FDI could potentially increase energy efficiency and electricity availability through the transfer
of higher-performance and more reliable generation capacity as well as improved management
practices. This would lower energy costs and reduce local pollutants as well as CO2.
4. Many deals have been made and approved, but completed FDI so far has been limited relative to
Chinese goals.
5. U.S. investors so far have perceived several important institutional barriers in electricity FDI. These
include: uncertainty governing laws and regulations that create financial risks; risk that power
purchase contracts will not be honored; delays in approval that also lower returns on investment.
6. These factors have slowed the pace of FDI and directed it toward continued investment in relatively
less efficient small-scale plant. These smaller plants are less regulated and generally less risky than
large investments.
7. Reforms in the approval process and other policy reforms (electricity pricing, foreign exchange,
ownership restrictions and restrictions on rate of return) have lowered barriers to FDI.
Issues Related to International Market Mechanisms
for GHG Reduction
1. Mechanisms like «activities implemented jointly» (AIJ) involve foreign investments in activities that
reduce host-country GHG emissions and provide local economic and environmental benefits.
2. Such transactions can provide a powerful incentive for technology transfer, beyond the results of
regular market transactions.
3. A key principle for success of international market mechanisms for GHG control is mutual benefits
for sovereign actors. Success also is promoted by clear incentives and institutions that work well.
4. The value of these international transactions for foreign investors depends on both the economic
benefits and the potential regulatory benefits from helping to reduce GHG emissions. Right now the
latter benefit is limited, and the former benefit depends policy changes to remove existing market
barriers to international technology trade.
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5. An important technical challenge is determining what emission reductions are «additional» to what
would have occurred in the market otherwise. There are a variety of promising options for doing this
that need further testing, such as discounting for uncertainty about the volume of net emissions
reductions generated by a particular project.
Common Findings and Understandings of the
Chinese, Japanese and U.S. Teams
1. Climate change risks and responses are an important issue for all three countries.
2. China is progressing significantly toward a market system (in energy pricing, enterprise reform,
trade and investment). There is more economic influence and less direct government influence on
energy and technology decisions.
3. China’s progress toward a market system will be good for the economy, for the local environment,
and for greenhouse gas limitation.
4. China’s concern for the environment has increased. This is shown concretely in the strengthening of
environmental laws, and their enforcement.
5. There are a number of technical options that can reduce GHGs and can provide other environmental
and economic benefits (alternative energy sources, improved efficiency of energy conversion and
use, carbon sequestration and collection). These options are at different levels of technical development and readiness for the market.
6. There are many opportunities for short-term and long-term cooperation on mutually beneficial
“multiple purpose actions” to limit greenhouse gas emission while also promoting economic
progress and environmental protection. Workshop participants discussed practical actions including
continued policy reforms and encouragement of trade in cleaner technologies by all sides.
7. Experience in all three countries with energy and technology markets shows that economic incentives play a key role in achieving these benefits and promoting economic cooperation. Implementing
economic incentives can be a challenge for all three countries.
8. Developed countries can benefit from a clear and up-to-date understanding of Chinese circumstances
and interests.
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About RFF
Resources for the Future (RFF) is an independent, nonprofit research organization that aims to help people
make better decisions about the conservation and use of their natural resources and the environment. For the
past 45 years, researchers at RFF have conducted environmental economics research and policy analysis involving such issues as forests, water, energy, minerals, transportation, sustainable development, and air pollution.
They also have examined, from a variety of perspectives, such topics as government regulation, risk, ecosystems
and biodiversity, climate, hazardous waste management, technology, and outer space.
While many RFF staff members are economists by training, other researchers hold advanced degrees in ecology,
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The latest RFF news and information is available on the internet at http://www.rff.org.
RFF’s Climate Economics and
Policy Program
Resources for the Future (RFF) launched its Climate Economics and Policy Program in October 1996 to
increase understanding and knowledge of the complex issues that must be addressed to design appropriate
domestic and international policies that are effective, reliable, and cost-efficient. The program responds to both
the long-term debate about climate change, and the specific debates surrounding the negotiations being carried
out under the United Nations Framework Convention on Climate Change.
RFF brings a well recognized and respected reputation for objectivity to this debate. The Climate Economics and
Policy Program integrates the many different aspects of climate change with ongoing basic and applied research
at RFF involving energy markets, water and forest resource management, air pollution, environmental regulation, and sustainable development.
Drawing on RFF’s strengths in environmental and natural resource assessment, economic analysis, and policy
design, the climate program focuses on five main areas: economic and environmental consequences of climate
change and policies to deal with climate change; domestic and international policy design issues; interactions
between climate change and other policies; equity, efficiency, and other criteria used in decisionmaking; development of analytical tools.
For more information, go to http://www.rff.org/RESEARCH/PROGRAMS/climprog.htm.
RFF’s Weathervane
Resources for the Future’s (RFF) launched Weathervane in July 1997 to provide non-partisan analysis, commentary and background on U.S. and international policy initiatives designed to reduce emissions of greenhouse
gases. With the stakes potentially enormous on all sides of the complicated issue of climate change,
Weathervane strives to provide a neutral forum for careful analysis to complement the political calculations that
so often drive decisions. Published online at http:// www.weathervane.rff.org, Weathervane contains a number
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Join the climate change debate today at Weathervane at http://www.weathervane.rff.org.
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