5.2 Sources of Barriers and Opportunities
Technological and social innovation is a complex process of research, experimentation,
learning, and development that can contribute to GHG mitigation. Several theories
and models have been developed to understand its features, drivers, and implications.
New knowledge and human capital may result from R&D spending, through learning
by doing, and/or in an evolutionary process. Most innovations require some social
or behavioural change on the part of users. Rapidly changing economies, as well
as social and institutional structures offer opportunities for locking in to
GHG-mitigative technologies that may lead countries on to sustainable development
pathways. The pathways will be influenced by the particular socio-economic context
that reflects prices, financing, international trade, market structure, institutions,
the provision of information, and social, cultural, and behavioural factors;
key elements of these are described below.
Unstable macroeconomic conditions increase risk to private investment
and finance. Unsound government borrowing and fiscal policy lead to chronic
public deficits and low liquidity in the private sector. Governments may also
create perverse microeconomic incentives that the encourage rent-seeking and
corruption, rather than the efficient use of resources. Trade barriers that
favour inefficient technologies, or prevent access to foreign technology, slow
technology diffusion. Tied aid still dominates in official development assistance.
It distorts the efficiency of technology choice, and may crowd-out viable business
Figure TS.7: Penetration of environmentally sound technologies:
a conceptual framework.
Commercial financing institutions face high risks
with developing "green" financial products. Environmentally sound
technologies with relatively small project sizes and long repayment periods
deter banks with their high transaction costs. Small collateral value makes
it difficult to use financing instruments, such as project finance. Innovative
approaches in the private sector to address these issues include leasing, environmental
and ethical banks, micro-credits or small grants facilities targetted at low
income households, environmental funds, energy service companies (ESCOs), and
green venture capital. The insurance industry has already begun to react to
risks of climate change. New green financial institutions, such as forestry
investment funds, have tapped market opportunities by working towards capturing
values of standing forests.
Distorted or incomplete prices are also important barriers. The absence
of a market price for certain impacts (externalities), such as environmental
harm, constitutes a barrier to the diffusion of environmentally beneficial technologies.
Distortion of prices because of taxes, subsidies, or other policy interventions
that make resource consumption more or less expensive to consumers also impedes
the diffusion of resource-conserving technologies.
Network externalities can generate barriers. Some technologies operate
in such a way that a given user's equipment interacts with the equipment
of other users so as to create "network externalities". For example,
the attractiveness of vehicles using alternative fuels depends on the availability
of convenient refuelling sites. On the other hand, the development of a fuel
distribution infrastructure depends on there being a demand for alternative
Misplaced incentives result between landlords and tenants when the tenant
is responsible for the monthly cost of fuel and/or electricity, and the landlord
is prone to provide the cheapest-first-cost equipment without regard to its
monthly energy use. Similar problems are encountered when vehicles are purchased
by companies for the use of their employees.
Vested interests: A major barrier to the diffusion of technical progress
lies in the vested interests who specialize in conventional technologies and
who may, therefore, be tempted to collude and exert political pressure on governments
to impose administrative procedures, taxes, trade barriers, and regulations
in order to delay or even prevent the arrival of new innovations that might
destroy their rents.
Lack of effective regulatory agencies impedes the introduction of environmentally
sound technologies. Many countries have excellent constitutional and legal provisions
for environmental protection but the latter are not enforced. However, "informal
regulation" under community pressure from, for example, non-governmental
organizations (NGOs), trade unions, neighbourhood organizations, etc. may substitute
for formal regulatory pressure.
Information is often considered as a public good. Generic information
regarding the availability of different kinds of technologies and their performance
characteristics may have the attributes of a "public good" and hence
may be underprovided by the private market. This problem is exacerbated by the
fact that even after a technology is in place and being used, it is often difficult
to quantify the energy savings that resulted from its installation owing to
measurement errors and the difficulty with baseline problems. Knowing that this
uncertainty will prevail can itself inhibit technology diffusion.
Current lifestyles, behaviours, and consumption patterns have developed
within current and historical socio-cultural contexts. Changes in behaviour
and lifestyles may result from a number of intertwined processes, such as:
- scientific, technological, and economic developments;
- developments in dominant world views and public discourse;
- changes in the relationships among institutions, political alliances, or
- changes in social structures or relationships within firms and households;
- changes in psychological motivation (e.g., convenience, social prestige,
Barriers take various forms in association with each of the above processes.
In some situations policy development is based on a model of human psychology
that has been widely criticized. People are assumed to be rational welfare-maximizers
and to have a fixed set of values. Such a model does not explain processes,
such as learning, habituation, value formation, or the bounded rationality,
observed in human choice. Social structures can affect consumption, for example,
through the association of objects with status and class. Individuals'
adoption of more sustainable consumption patterns depends not only on the match
between those patterns and their perceived needs, but also on the extent to
which they understand their consumption options, and are able to make choices.
Another important barrier is uncertainty. A consumer may be uncertain about
future energy prices and, therefore, future energy savings. Also, there may
be uncertainty about the next generation of equipment - will next year
bring a cheaper or better model? In practical decision making, a barrier is
often associated with the issue of sunk cost and long lifetimes of infrastructure,
and the associated irreversibilities of investments of the non-fungible infrastructure