UNEP workshop “Designing the Green Economy”

1. UNEP workshop “Designing the Green Economy” • Session 2: Innovation policy, environment, and growth: Comments on innovation policy • PD Dr. Rainer Walz Head of Competence Center “Sustainability and Infrastructure” Fraunhofer Institute Systems and Innovation Research

2. Questions Combining public and private (market-based) mechanisms? Need for well functioning innovation system How to affect rate and direction of technological change? Need for a visions based innovation policy Mix of instruments and characteristics of policies: Integration of second (or third) best policies in different policy arenas; single instruments often hindered by political economy (e.g. taxes, emissions trading) Has technology leadership worked? Common features of success:Feedback loops and lead market factors for success of first movers Indicators other than patents? Use more than patents, but patents have certain advantages; need for innovation policy indicators (because a lot of green innovations will be organizational) Key challenges in medium and low income countries? Increase absorptive capacities and understand that environmental policy can also be good industrial policyno one size fits all solution, but importance of international knowledge acquisition (but IPR issues not as important as in pharmaceuticals) Questions and content

3. General prerequisites General frame-work conditions Interactions between actors, networks, institutions Knowledge base Specificities of green innovations: Demand shaped by regulation Grid-based infrastructure : high path dependency Long time-horizon and uncertainties Prerequisite for green growth: a functioning innovation system for green innovations Rate and direction of technological change need policy mix and policy integration

4. Need for targeted approach to direct enabling technologies towards green growth to foster radical approaches in addition to incremental innovations of incumbents Skepticism with regard to use of traditional „man to the moon“ mission approach Not only high tech sectors are involved Not one big clear technological vision, but also many small solutions Many institutional and organizational innovations, which require knowledge of users, learning in the market, involvement of many value chains across sectors Not only public demand, much higher role of private actors necessary Towards a new “vision based” approach Must combine target orientation of the traditional missions approach with the need to involve much more private actors and solutions from outside “high-tech” => Base R&D priorities on missions to achieve green growth => Develop the perspective of radical change (roadmapping of transition to system change) => Look into cluster management as an approach to integrate more actors => Use environmental and sectoral policies also as tool to integrate activities of private actors in the vision based R&D New vision based approach

5. Characteristics of policies to stimulate innovation • Results from econometric study for 12 OECD-countries (binominalpanel estimation) for wind turbines • Dependent variable: transnational patents in wind energy • Explanatory variables • R&D subsidies • Domestic demand • Exports (foreign demand) • Policy indicator, reflecting type of instrument (FIT versus quota), diversity of supported technologies, policy style) • Explanatory variables highly significant in explaining patent development and differences between countries Source: Walz et al. 2011 Criteria for regulation • Type of regulatory instrument (market based) • Allow diversity of (techn.) approaches • Policy style • Predictability and incentives • Influence on Transaction costs • Open for newcomers • Overcoming path dependency • Don’t focus on type of instrument only; policy style, long-term vision and stability and legitimacy of policy might be more important • there is no “one size fits all” policy prescription

6. Success if virtuous cycles are established Interplay of demand (environmental) and supply (R&D) policies Positive feedback loops between different functions of an innovation system which are triggered by private and public response Conditions for success in national competitiveness: lead market factors Technology characteristics: first mover advantage not for every technology Technological capability advantage Complementary cluster advantage Market characteristics: Price and demand advantage, Transfer and export advantage Regulatory advantage Characteristics of successful technological leadership Examplefor positive feedbaclloop Source: Hekkert et al. 2009

7. Different innovation indicators because of systemic nature of innovation process Input indicators, e.g. number of scientists, R&D expenditure Intermediate indicators, e.g. publications, patents Output indicators, e.g. share of production with innovations, exports Statistical databases not easy to classify green technologies ; time series, international comparability Surveys Can be tailored to specific questions Bias in response? Comparability and availability Measurement of innovation with indicators • ISI database on green innovation indicators • Green innovations in • Energy supply • Energy efficiency • Material efficiency and renewable resources • Transport and mobility • Sustainable water industry • Waste management • Detailed technology-based bottom-up analysis necessary to translate technologies into suitable classification • Database • Publications: SCOPUS, SCI • Patents: transnational patents • Trade: UN-COMTRADE (all countries) CET-technologies

8. Competitiveness and technological capability Trade without Intra-EU Data: Fraunhofer ISI leadmarketdatabase • Business won‘t become active unless there is a clear opportunity: • innovation policy requires strategic positioning and priority setting;

9. Competitiveness and technological capability Source: Walz and Marscheider 2011 • Newly industrializing countries are increasing their capabilities, but no homogenous development between countries, and between different innovation phases

10. Development of green technology related publications Green innovation publications (SCOPUS) – strong increase in NICs Source: Walz and Marscheider 2011

11. Innovation systemcasestudy on wind energytechnologies • China and India both show successful development with regard to diffusion and manufacturing • Different policy avenues……but similar strategies with regard to international knowledge acquisition Accumulatedinstalled wind energycapacity Source Walz and Nowak Delgado 2010

12. knowledge build-up and IPR: example of Indian and Chinese wind turbine industry • Early 1990’s: no Chinese wind turbine industry, India starts • Strategy of Suzlon (started in the 1990s) • 1996: production licence for 270-750 kW turbine from Suedwind • 2001: rotor blade production licence from Enron Wind • 2005: joint venture for generators with Austrian ELIN Motoren • 2006: acquisition of gearbox manufacturer Hansen • 2007: acquisition of Repower • Strategy of Goldwind (founded 1999) • 1999/2001: production license 600/750 kW turbine from Jacobs/Repower • Since mid 2000s: joint development of MW size turbines with Vensys • 2008: Goldwind acquires 70 % of Vensys • Strategy of Sinovel (founded 2004) • Joint development of 1.5 MW turbine with Fuhrlaender • Joint development of 3.0 MW turbine with Windtec • Strategy of Dongfang (founded in 2005) • Production license of 1.5 MW turbine from Repower • Joint development of 2.5 MW turbine with Aerodyn (IPR owned by Dongfang) 1 Indian and 3 Chinese companies supply 20 % of global market Strategy moves from licensing to joint development to M&A Second tier European producers as key partners

13. Thank you very much for your attention! • Information:Rainer.Walz@isi.fraunhofer.de • Sources: • Walz, R. and Marscheider, F.: Technology specific absorptive capacities in Newly Industrialzing Countries, in: International Journal of Technology and Globalisation, Vol. 5, 2011, Nos. 3 / 4 (Special Issue on Sustainability innovations in Newly Industrializing Countries) • Walz, R.; Schleich, J. : The economics of climate policy: macroeconomic effects, structural adjustments, and technical change, Heidelberg: Physica 2009. • Walz, R. et al. (2011): Regulation, innovationand wind power technologies: An empiricalanalysis of OECD countries, final.dime-eu.org/files/Walz_C5.pdf • Walz, R and Nowak Delgado, J. 2010: Innovation in sustainabilitytechnologies - Globelics 2010 conference Malaysia http://umconference.um.edu.my/upload/43-1/papers/216%20RainerWalz_JonathanNowakDelgado.pdf • Walz R. et al.: Towardsmodelingeadmarkets in environmental technologies – indicatorsandmodelingapproach, Working paperNo. 5 of Fraunhofer ISI/ZEW/FFU leadmarketprojecthttp://kooperationen.zew.de/lead-markets/ergebnisse.html