Under the United Nation’s Framework Convention on Climate Change (UNFCCC), “developed country Parties should provide new and additional financial resources to support the transfer of technology and take all practical steps to promote, facilitate and finance the transfer of, or access to, environmentally sound technologies and know how to developing country Parties.” However, a UNFCCC report revealed that a large portion of developing nations do not take advantage of CDM projects to import technology.
As long as technology transfer from developed countries is a convenient low-cost means for China to reduce GHG emissions, why doesn’t China have more CDM projects that involve technology transfer? [continue reading to see our analysis]
Lack of Policy Incentives
Currently, the 《清洁发展机制项目运行管理办法》[Measures for Operation and Management of Clean Development Mechanism Projects] (the “CDM Project Measures”) are the only specific “CDM project” related legislation in China. The CDM Project Measures have set out related procedures and requirements but with respect to technology transfer, however, these Measures only specified a general principle that “CDM project activities should promote the transfer of environmentally sound technology to China.” Notably, these provisions did not impose any mandatory obligations or incentives to the foreign party and Chinese project owner to include technology transfer factors in proposed CDM projects.
Many Chinese enterprises are not interested in introducing technology transfer into CDM projects. For most Chinese enterprises, equipment and technology provided by foreign parties indicate longer cooperation terms and are associated with bigger risks. In addition, project owners normally will consider the payment of operation fees and maintenance fees once the clean technologies and equipment are put into use. If the technology transfer is free of charge but the operation and maintenance fees are expensive (the assumption of Chinese companies is that technical teams from western countries charge very high fees for remedial services), this may not be a good deal for the Chinese party. For Chinese companies, it is important to make sure that technology transfer does not impose large up-front costs.
Intellectual Property Concerns
Companies from developed countries are also concerned whether their intellectual property rights can be effectively protected should the technology transfer be implemented. As such, “some of the technologies imported under the CDM projects are second or third class in exporting countries. It is not possible [for Chinese enterprises] to touch the newest emission reduction technologies.”
The UNFCCC and Kyoto Protocol are subject to adjustments or even drastic change after 2012. Before the CDM system is rescinded in multinational negotiations on climate change, China should fully use these valuable opportunities to gain access to more advanced emissions reduction technologies from developed nations to achieve sustainable development through the following means.
Amend the CDM Project Measures to mandate a certain degree of technology transfer involved in each of the CDM projects, unless the particular types are unsuitable for technology transfer. Technical standards and criteria should be set out to screen the out-dated technologies. More legislative efforts should also be made to promote the activities of technology transfer under the CDM projects, such as providing taxation incentives and favorable treatment to both Chinese and foreign participants.
(2) Provide incentives to the private sector both domestically and abroad.
From the standpoint of Chinese enterprises, the current mechanism for allocation of revenues from CERs under the CDM Project Measures can be adjusted by reducing the portion of the cake taken by the government. In addition, the Chinese government may require that, as a contractual condition, “the foreign companies executing CDM projects should be responsible for costs incurred until the anticipated improvement in emissions is achieved.” As such, the economic concern of Chinese enterprises may be largely eliminated.
In order to encourage more foreign companies to do technology transfer, in addition to the legislative efforts, the government may popularize a “bundled CDM project package”. In this way,“[a] consortium of advanced technology equipment manufacturers and the GHG emission reduction credits buyers may obtain the purchase order and GHG emission reduction credits respectively by providing advanced equipment and advanced technology transfer and carbon funds accordingly.” This is a new “kind of CDM cooperation mode with complementary advantages” – several examples in China proved its feasibility and popularity.