/ UNITED
NATIONS
/ Distr.
GENERAL
FCCC/SB/2008/2
Version of 05.05.2009 @ 14:45
SUBSIDIARY BODY FOR SCIENTIFIC AND TECHNOLOGICAL ADVICE
Thirtieth session
Bonn, 1–10 June 2009
Item 4 of the provisional agenda
Development and transfer of technologies
SUBSIDIARY BODY FOR IMPLEMENTATION
Thirtieth session
Bonn, 1–10 June 2009
Item 7 of the provisional agenda
Development and transfer of technologies

Final report on recommendations on future financing options
for enhancing the development, deployment, diffusion and

transfer of technologies under the Convention

Note by the Chair of the Expert Group on Technology Transfer

GE.09-

FCCC/SB/2009/2

Page 1

Contents

Paragraphs Page

  1. Introduction...... 1–6

A. Mandate...... 1–3

B. Scope of the paper...... 4–5

C. Possible action by the subsidiary bodies...... 6

  1. Financing support for development and
    transfer of technologies...... 7–804

A. The current situation...... 7–114

B. The challenge...... 12–18

C. Potential activities for enhancing financing of technology
R&D, demonstration, deployment, diffusion and transfer...19–35

D. Recommendations on future financing options for
scaling up technology R&D, demonstration deployment,
diffusion and transfer...... 36–80

Annexes

  1. Mitigation technologies covered by various programmes and mechanisms..25
  1. Technologies for adaptation covered by various programmes and mechanisms31

I. Introduction

A. Mandate

  1. The COP, by its decision 3/CP.13, annex II, requested the EGTT to identify and analyse existing and potential new financing resources and relevant vehicles in supporting the development, deployment, diffusion and transfer of ESTs in developing countries. The COP also requested the EGTT to assess, based on this work, gaps and barriers to the use of and access to these financing resources in order to provide information to Parties to enable them to consider the adequacy and predictability of the resources. The results of this work (identification, analysis and assessment) were requested to be made available for consideration by the subsidiary bodies at their thirtieth sessions, with a view to considering the role of new financing mechanisms and tools for scaling up development and transfer of technologies.
  2. The Subsidiary Body for Scientific and Technological Advice (SBSTA), at its twenty-eighth session, endorsed the terms of reference for this work, as proposed by the EGTT in document FCCC/SBSTA/2008/INF.2.[1]
  3. The SBSTA and the SBI, at their twenty-ninth sessions, requested the EGTT to prepare an advance report on financing options as input to the fifth session of the AWG-LCA.[2]

B. Scope of the paper

  1. This final report draws upon the views expressed by parties at the fifth session of the AWG-LCA. It should be read in conjunction with FCCC/SB/2009/INF.2, which contains detailed information on existing financing arrangements and future financing needs, as well as analysis of financing barriers and gaps.
  2. FCCC/SB/2009/INF.2 described three general options for future financing arrangements. In this final report the EGTT has elaborated the options to provide greater detail on the possible functions and means of implementation. The report presents recommendations which could facilitate consideration by the Parties of the role of new financing mechanisms and tools for scaling up development and transfer of technologies. The three options are presented as a continuum ranging from an enhancement of existing financing mechanisms to the establishment of a centralized international financing scheme under the Convention. The options are not mutually exclusive and it is assumed that the three options will provide the financial resources needed although in this document the question of how resources are to be generated is not addressed.

C. Possible action by the subsidiary bodies

  1. The SBI and SBSTA may wish to consider the recommendations by the EGTT on future financing options necessary for enhancing the development, deployment, diffusion and transfer of environmentally sound technologies under the Convention and determine any further actions arising from it. The SBI and SBSTA may wish to also provideguidance to the EGTT on its possible future tasks arising from this report, as appropriate.

II. Financing support for development and transfer of technologies

A. The current situation

  1. As reported in FCCC/SB/2009/INF.2, limited information is available on the financing resources that are currently available for the development, deployment, diffusion and transfer of mitigation technologies and technologies for adaptation. This is partly because there is no commonly used definition of climate change technologies for mitigation and adaptation and different definitions of investment needs and incremental costs. The available data relating to technology R&D, demonstration, deployment, diffusion and transfer are also very limited; for climate technologies, sound information is mostly only available for renewable energy technologies. In almost all areas, more and better information is available for mitigation technologies than for technologies for adaptation.
  2. This paper is based upon a technology typology derived from the IPCC Fouth Assessment Report and a wide range of other global and national technology assessments. The typology presents a list of 147 mitigation technologies and 165 technologies for adaptation with information on their stage of maturity[3] and how they are supported by the Convention mechanisms (GEF, CDM, JI), national assessments under the UNFCCC (TNAs and NAPAs), some international technology development programmes (Asia Pacific Partnership, International Energy Agency Implementing Agreements) and large national technology development programmes (Japan, USA, EU). The technology typology is presented in Annex 1 (Mitigation Technologies) and Annex II (Technologies for Adaptation) of this paper and may be useful in providing a consistent definition of climate change technologies to support future assessments and analysis. This paper also adopts a definition of investment needs and incremental costs for technology, consistent with FCCC/TP/2008/7. The definition is explained in FCCC/SB/2009/INF.2.
  3. Estimates of the financing resources currently available for technology research, development, deployment, diffusion and transfer are classified by stage of technological maturity, whether they are from the public or private sector, and whether they are under or outside the Convention. The estimates for mitigation technologies, shown in figure 1, total between USD 70 and 165 billion per year. For technologies for adaptation, research and development focuses on tailoring the technology to the specific site and application, so it is art of the project cost. Current spending on adaptation projects in developing countries is about USD 1 billion per year.

Figure 1. Estimates of current financing for mitigation technologies

  1. Althoughavailable information is limited, the broad patterns are clear:

(a)The financing resources for technologies for mitigation and adaptation make up only a small share (probably less than 3.5 per cent) of the resources devoted globally to all technology development and transfer;

(b)Most of the financing resources (probably over 60 per cent) for the development and transfer of climate technologies are provided by businesses, and most of the remaining resources (about 35 per cent of the total) are provided by national governments;

(c)Most of the public-sector resources (about 95 per cent) are provided directly by national governments, and the remainder is provided through multilateral sources including the Convention;

(d)Technology development is concentrated (about 90 per cent) in a few countries or regions – the United States, the European Union, Japan and China;

(e)Although R&D is becoming more international, there is no international funding and limited international coordination for such activities;

(f)Only about 10–20 per cent of total existingfinancing resourcesare for technology development in developing countries and transfer of technologies to developing countries.

  1. The existing mechanisms under the Convention and the Kyoto Protocol, i.e., the Trust Fund of the Global Environment Facility, the Special Climate Change Fund, the Least Developed Countries Fund, The Adaptation Fund, the Clean Development Mechanism and Joint Implementation:

(a)Make up a small share (probably less than 5 per cent) of the total financing resources available for the development and transfer of climate technologies;

(b)Provide very limited support for technologies at the “valley of death” demonstration and deployment stages;

(c)Provide support for about half of the technologies that developing country Parties need;

(d)Lack good coordination in terms of the technologies they support;

(e)Do not explicitly provide resources for technology transfer, but do contribute to technology transfer in other ways.

B. The challenge

  1. Stabilizing the atmospheric concentrations of GHGs will require current global emissions to be reduced significantly, which in turns requires mitigation action. Technology innovation is a key determinant of the long-term cost and benefits of mitigation, and the available evidence suggests that a significant increase in the financing resources for the development and transfer of climate technologies is economically justified. But there is no agreement on the appropriate level of resources, because such calculations depend on numerous assumptions about the future.
  2. Several estimates of the additional financing needed for research, development, deployment, and diffusion of mitigation technologies are available . The estimates are sensitive to the baseline and mitigation scenarios used. As shown in figure 2, they indicate that current financing for mitigation technologies needs to increase three to four fold. Such increases are consistent with current R&D targets and priorities for major developed countries/regions.
  3. The economic and social benefits of investing in climate change technologies - reduced costs of mitigation and adaptation, reduced pollution and health costs, greater productivity, energy security, economic development and job opportunities – are likely to be greater than the cost of making those technology investments.

Figure 2. Estimates of financing needs for mitigation technologies

  1. Future adaptation spending needs are estimated at USD 10s to 100s of billion per year. Most research and development and technology transfer for technologies for adaptation is likely to be included in the adaptation spending.
  2. The implementation challenge is to stimulate the development of a continuously changing set of technologies that are at different stages of technological maturity and have different requirements for further development (see Annex I and Annex II for the list of mitigation technologies and technologies for adaptation used in this paper). Those technologies need to be adapted for, and transferred to, about 150 developing countries, each with its own needs for specific technologies and enabling environments to support them.
  3. Developed countries, and increasingly some developing countries, will continue to play a key role in the development of mitigation technologies and technologies for adaptation. Most R&D activity, including for technologies to address climate change, occurs in these countries[4]. Many have quantified emissions limitation and reduction commitments and other policies and measures, which create markets for mitigation technologies. The scale on which the technologies are implemented in developed countries affects the costs of the technologies and hence the cost of transferring and implementing them globally.
  4. The challenge for the Convention is to ensure that the technology development and transfer needs for stabilizing atmospheric concentrations of GHGs and adapting to climate impacts are met. This cannot be done without a significant increase in the financing resources devoted to development and transfer of climate technologies. However, most of the financing resources are likely to continue to come from business and national governments in a limited number of countries, and most investment in new technology is likely to continue to come from private-sector sources.[5]

C. Potential activities for enhancing financing of technology R&D, demonstration, deployment, diffusion and transfer

1. Introduction

  1. This section describes the common elements, potential activities for scaling up technology R&D, demonstration, deployment, diffusion and transfer, and combinations of activities in three distinct options. The activities and options apply both to technologies for adaptation and mitigation.
  2. Current information suggests that the financing needs for technologies for adaptation differ from those for mitigation. Development and transfer of technologies for adaptation is expected to occur mainly in conjunction with the implementation of adaptation projects and programmes. In these cases, R&D largely consists of adjusting existing technologies to the local circumstances. The main vehicles for financing the development and transfer of technologies for adaptation are therefore expected to be the funds that implement adaptation projects and programmes, such as the Adaptation Fund. Adjustment of available technologies for adaptation to local circumstances, and associated technology transfer and capacity-building, should be essential features of the adaptation projects and programmes that the funds implement.
  3. In contrast, mitigation technologies typically progress through the stages of technological maturity until they are able to displace the incumbent emitting technology. Thus the indicative options presented in this study are described in terms of mitigation technologies, but this would include development, deployment, diffusion and transfer of technologies for adaptation as well, where appropriate.

2. Possible common elementsin options for enhancing financing of technology R&D, demonstration, deployment, diffusion and transfer

  1. This section describes the elements common to each of the three options for scaling up technology R&D, demonstration, deployment, diffusion and transfer, presented in section 3 and part Dbelow. These elements concern the amount and source of financing, interaction with emission market instruments, barrier removal, enabling environments and capacity building activities, international collaborative approaches to R&D, innovative financing options and risk management tools, and the role of governments and the private sector, taking into account lessons learned.
  2. All options require significant scale-up of current financing support to enhance technology R&D, demonstration, deployment, diffusion and transfer, in the order of an additional USD 262-670 per year for mitigation technologies and USD 33-163 per year to adapt to climate change (see FCCC/SB/2009/INF.2 pp 31-33). Enhanced action on the provision of financial resources and investment to support action on mitigation, adaptation and technology cooperation is part of the Bali Action Plan and could be part of a Copenhagen agreement. Parties and others have suggested numerous options for raising additional revenue within the Convention.[6] However, in this documentoptions for the generation of resources within the Convention are not explicity addressed. This paper focuses on mechanisms for disbursing financial resources and for mobilizing public resources outside of the Convention and from the private sector. It is assumed that each option will receive the resources needed for activities under the Convention from within the Convention and mobilize public and private financial resources as needed for activities outside the Convention.
  3. Changes to emissions trading and the project-based mechanisms under the Kyoto Protocol and possible new crediting mechanisms are under consideration as part of a future agreement. These mechanisms affect technology development, deployment, diffusion and transfer. For example, making a technology eligible under such a mechanism can stimulate its deployment, diffusion and transfer.[7] Though the new and revised mechanisms that may be agreed are not known now, the options to scale up technology development, deployment, diffusion and transfer will take into account the effects of any new and revised mechanisms.
  4. Programmes that remove barriersto finance and support the creation of suitable investment conditions and enabling environments for technology deployment, diffusion and transfer are generally considered essential elements of any future financing arrangement. As described in FCCC/SB/2008/INF.2, there are many barriers to financing technology, which are often particular to a country’s national circumstance and require country-driven reform processes. The removal of barriers and the creation of suitable investment conditions often require financial assistance and capacity building. Limited support is currently provided bilaterally and through agencies such as UNEP and UNDP. The experience of the Global Environment Facility (GEF), which has financed barrier removal activities in developing countries, illustrates that these activities can be essential prerequisites for successful technology deployment.
  5. The management of risk is a dominant factor in financing of mitigation technologies, as investments in mitigation technologies often have a greater risk profile and may consequently have a lower return on investment in comparison to convention technologies. The management of risk is also a dominant feature in technologies for adaptation which may not have an established market. Public financing instruments and policies for managing and reducing the risk to public and private sector investors and investments will be important in all options for scaling up technology R&D, demonstration, deployment, diffusion and transfer.
  6. Capacity building, including for the design of policies and programmes,for project design and implementation,and on the operation and maintenance of technological equipment, is a crucial factor in scaling up technology R&D, demonstration, deployment, diffusion and transfer. There is general support for enhancing capacity building activities, for better coordination of these activities and for increasing the level of support for effective capacity building in developing countries.
  7. As described in the advanced report, FCCC/SB/2008/INF.2,many technologies are insufficiently developedto meet the long-term emission reductions required to stabilize greenhouse gas concentrations at levels that would meet the ultimate objective of the Convention. There is a need for a more rapid development and demonstration of new technologies which will require increased domestic climate change related R&D expenditures and greater innovative capacity, both in developing and developed countries. An important strategy which has general support is international collaborative approaches to R&D and demonstration. International cooperation in the field of R&D and demonstration of technology would increase efficiency of research and development efforts, and could enable diffusion of innovations. They would also help developing countries building up their innovation systems. Strengthening of endogenous research and development capacity is particularly important for adaptation, long term emissions reductions and low-carbon economic growth.
  8. In all options, it is further assumed, based on the findings of this study, that:

(a)Governments operate in an international context and play a crucial role in stimulating the development, deployment, diffusion and transfer of mitigation technologies and technologies for adaptation;