ODA is still significant for the poorest developing countries. There is increasing
recognition that ODA can best be focused on mobilising and multiplying additional
financial resources, assist the improvement of policy frameworks and be based
on long-term commitments to capacity-development. However, the advantages of
public-sector finance may be offset by assistance in the form of tied aid, which
can be detrimental to the longer-term prospects for indigenous technology development
by preventing the establishment of the institutions to support technology choice,
financing, and operation and management. Tied aid is more useful at targeting
areas such as capacity building and project preparation.
There are several channels for international public finance. Bilateral development
aid is the largest, with very mixed records relating to technology transfer
and sustainable development that, furthermore, varies widely between countries.
The MDBs are another major route, and in many cases these now have more developed
environmental criteria and sources. Agencies such as UNDP may also strongly
influence technology transfer through their programmes. On the other hand, trade
support, such as export credits, rarely takes account of environmental factors
and may in many respects be biased against environmentally sound technologies.
The choice between different international financing routes is determined by
many factors. One major issue regarding the effective transfer of ESTs through
public finance is the fact that foreign aid expenditure tends to be institutionally
divorced from other powerful agencies that also have a huge influence on technology
choice and investment patterns, such as trade ministries. It is not uncommon
to find governments pursuing seemingly contradictory international financial
policies, and one of the strongest recommendations in this area is for greater
institutional coherence within donor governments.
An important trend is the shift away from the public sector to the private sector
as the principal source of finance. Transfers of ESTs are influenced by this
trend, partly because the private sector requires relatively high rates of return
and does not monetise externalities. Although the private sector has begun to
recognise the importance of climate change, governments can enhance private
involvement through various types of initiatives and partnerships. Private support
for climate-friendly technology transfer may also require financial innovations
and emphasis on different forms of finance such as micro-credit, leasing and
There is a wide variety of types of traditional private sector debt and equity
finance available depending on the scale and type of the project. The most flexible
way to finance debt is secured loan and leasing. The transfer of ESTs to developing
countries will also involve increased use of innovation to structure existing
financial products to new markets and to develop new ones as appropriate. Just
as support for scientific and technical innovation is seen as an appropriate
use of public funds, so is support for financial innovation. A number of worthwhile
initiatives have been undertaken to date (such as micro-credit, project finance,
green finance and also the use of strategic investors), and there is scope to
replicate and extend these as well as develop new concepts.
Although the private-sector pathway is one of the key channels for the transfer
of EST, it should not be assumed that the search for economic gains on the part
of individuals and firms will guarantee adoption of best-practice techniques.
A number of obstacles that are internal to firms can retard the diffusion of
pollution-reducing innovations even when such innovations would be profitable.
These obstacles are not instances of "market failure" in the traditional
sense, because they originate within firms rather than arising from the strategic
interactions between firms or from the existence of externalities or public
goods. These barriers can also retard the transfer of environmentally beneficial
technologies between firms. Policy measures, public-private partnerships, and
internal organisational improvements can help overcome these barriers and promote
the interests of all stakeholders.
Public-private partnerships are increasingly seen as an effective way in which
the public sector can achieve public policy objectives by working with the private
sector. For the public sector they have the potential of harnessing the efficiency
of the private sector, as well as overcoming budget restrictions and leveraging
limited public funds. For the private sector, they aim to help overcome some
of the internal and external barriers which prevent appropriate technology transfer
from taking place, and to create interesting business opportunities. There have
been a number of examples in this area, many of them funded by the multilateral
development banks, and the support of the GEF has been useful in many cases
- its flexibility and adaptability has been a major strength.
In order to overcome information barriers, technology information centres have
been widely advocated, but existing experience and literature does not provide
enough certainty about exactly what is required for key stakeholders at critical
stages. The value of other forms of technology intermediaries is better established,
such as national-level technology transfer agencies, electric utilities, and
energy service companies. ESCOs in particular have gained widespread acceptance
to stimulate innovative financing schemes- they address the financial, capability,
and other institutional market issues. An ESCO is a firm that offers energy
services to customers with performance guarantees. Typical performance contracting
arrangements provide customers with feasible means of improving their competitiveness
by reducing energy consumption costs. Governments and other public-sector entities
can develop technology intermediaries through direct support and other interventions.