Methodological and Technological Issues in Technology Transfer

Other reports in this collection

5.2.4. Financing by Multilateral Development Banks

The Multilateral Development Banks (MDB) have seen technology transfer as part of their mission to encourage development. More recently they started to focus on the challenges of the environment and the specific problems involved in transferring environmental technology. In response many have started to develop a range of initiatives and activities.

In particular, development banks have become aware of the role they can play in helping to mobilise private capital to help meet the needs of sustainable development and the environment, and of the potential to use financial innovation to encourage environmental projects and initiatives. While much of the earlier work they did was sporadic, the private sector arms of the MDBs are now seeking to identify ways they can work with international private capital to help address the environmental and developmental needs and are discussed in Section 5.5.

  • The World Bank itself is limited by its charter to only working with governments and quasi government organisations, although it is increasingly developing mechanisms to deal with private and quasi-private sector entities. Its affiliate, the International Finance Corporation (IFC), is most directly involved in private sector investment. However, the World Bank has developed a number of initiatives with the potential to support environmental technology transfer (Asad, 1997) . These include financing a number of environmental lending programmes at domestic financial institutions, which will then lend to industry. An important new World Bank initiative is the proposed US$60-$150 million Prototype Carbon Fund. This vehicle will provide additional finance for CO2 mitigating projects in return for carbon offsets, i.e. the right to transfer the credit for the CO2 saved to the investor. It is expected to have a substantial private sector financing and project execution. The World Bank has also prepared a major environmental strategy for the energy sector called Fuel for Thought.
  • The Global Environmental Facility is a financial mechanism that was established prior to the 1992 Earth Summit (see Box 5.2) to provide grant and concessional finance to recipient countries for projects and activities that aim to protect the global environment. There are three official implementing agents, the UNDP, UNEP and the World Bank. The World Bank also acts as trustee of the GEF Trust Fund. The focus of the GEF is on providing incremental funding for projects that would not be viable on the basis of domestic considerations alone. The GEF has supported a growing, but proportionately small number of private sector investment operations. As part of its private sector portfolio, the GEF has made US$110 million in commitments to the IFC for climate change mitigation initiatives. A requirement for funding by the GEF is the demonstration of incremental global environmental benefits. This can be a time consuming and expensive process that increases transaction costs, although these problems are more marked with the Biodiversity Convention than support provided under the FCCC. The Buenos Aires Conference (CoP4) also officially expanded the scope of the GEF, for example, to include adaptation.
  • The European Bank for Reconstruction and Development (EBRD), as the newest MDB, is the only one to have sustainable development incorporated in its charter. It is also much more active in working with the private sector than the other regional MDBs. Thus it is not surprising that it has shown a fair amount of leadership in helping to encourage technology transfer. It has built up a large and successful portfolio of loans in areas such as private energy service companies and municipal environmental infrastructure in developing countries. In addition, it has also worked with intermediary banks to educate them on environmental issues and the potential of clean technology.
  • Other MDBs, such as the regional development banks (ADB, IDB, AfDB) all play an important role in regional investment, and most have given some attention to issues of sustainable development, in varied ways. The European Investment Bank, while differing in that it is an institution of the European Union (and thus has a limited membership), is also a huge investor with an increasing focus on lending outside the EU, particularly to the Asia-Pacific-Caribbean countries under the Lome Convention, and also to Central and Eastern Europe and the countries of the Mediterranean basin. Its investment programmes, however, have not generally been coordinated with the EU's goals on sustainable development and climate change.
  • Various international agencies also harness considerable expenditure. Most notably, the UN Development Programme makes substantial grants in the area of institutional capacity-building. It has also directly supported the development of various financial mechanisms to encourage environmental technology transfer, such as supporting the feasibility work for an environmental venture capital fund.
Box 5.2: Technology Transfer and Market Development Promoted by the Global Environment Facility

Since its inception in 1991, the Global Environment Facility (GEF) has promoted technology transfer of energy efficiency and renewable energy technologies through a series of projects in developing countries. Following a three-year pilot phase, the GEF in 1996 adopted an operational strategy and three long-term operational programmes for promoting energy efficiency and renewable energy technologies by reducing barriers, implementation costs, and long-term technology costs. A significant aim of these programmes is to catalyse sustainable markets and enable the private sector to transfer technologies.

From 1991 to mid-1999 the GEF approved grants totalling US$706 million for 72 energy efficiency and renewable energy projects in 45 countries. The total cost of these projects exceeds US$5 billion, because the GEF has leveraged financing through loans and other resources from governments, other donor agencies, the private sector, and the three GEF project-implementing agencies (UN Development Programme, UN Environment Programme and World Bank Group). An additional US$180 million in grants for enabling activities and short-term response measures have been approved for climate change.

GEF projects are testing and demonstrating a variety of financing and institutional models for promoting technology diffusion. For example, fourteen projects diffuse photovoltaic (PV) technologies in rural areas through a variety of mechanisms: financial intermediaries (India and Sri Lanka), local photovoltaic dealers/entrepreneurs (Peru, China, Zimbabwe and Indonesia), and rural energy-service concessions (Argentina). Several other projects assist public and private project developers to install grid-based wind, biomass and geothermal technologies (China, India, Philippines, Sri Lanka, Indonesia, Mauritania, Mauritius). For energy-efficiency technologies, projects promote technology diffusion through energy-service companies (China), utility-based demand-side management (Thailand, Mexico and Jamaica), private-sector sales of efficient lighting products (Poland), technical assistance and capacity building (China), and regulatory frameworks for municipal heating markets in formerly planned economies (Bulgaria, Romania, Russia). In addition, projects provide direct assistance to manufacturers for developing and marketing more efficient refrigerators and industrial boilers through foreign technology transfer (China).

The achieved energy savings and renewable-energy capacity installed through GEF-supported projects are small but not insignificant relative to world markets. For example, wind-power capacity directly installed or planned for approved projects is 350 MW, relative to an installed base of 1,200 MW in developing countries in 1997. The GEF has approved close to 500 MW of geothermal projects, which compares with over 1,100 MW installed worldwide from 1991 to 1996. There are an estimated 250 to 500 thousand solar home systems now installed in developing countries and approved GEF projects would add up to one million additional systems to this total in the next several years. Replication or "indirect" effects are also key aspects of GEF project designs; through demonstrations, new institutional models, policy changes, stakeholder dialogues, and other project activities, GEF projects have provided an important stimulus for technology transfer beyond these direct project impacts.

Capacity-building is a central feature of most GEF projects and is resulting in indirect impacts on host countries' abilities to master, absorb and diffuse technologies. Projects build the human resources and institutional capacities that are widely recognised as important conditions for technology adoption and diffusion. For example, the China Energy Conservation project is building capacities of private-sector energy service companies, as well as those of public agencies to disseminate information, experience and best practices. In West Africa, a GEF project is helping develop regulatory frameworks, standards, tariff structures, and technical capacity for more efficient buildings.

Several GEF projects are designed to directly mobilise private-sector finance. For example, in the IFC/GEF Poland Efficient Lighting project (Case Study 2, Chapter 16), a US$6 retail price reduction for energy-efficient lamps was possible with only a US$2 grant because of manufacturer contributions, and 1.6 million lamps were installed. Through the International Finance Corporation (IFC), four GEF projects--the Renewable Energy/Energy Efficiency Fund, the Photovoltaics Market Transformation Initiative, the Solar Development Corporation, and the Hungary Energy Efficiency Co-financing programme are designed to leverage US$490 million in private-sector financing for technology transfer with US$105 million in GEF grants.

Sources: GEF 1996, 1997, 1998; Martinot and McDoom 1999.

Other reports in this collection

IPCC Homepage