Energy Sector Strategies to

Support Green Growth

Module 04
Supporting Innovation for Green Growth
Lesson 3
Policy instruments to stimulate entrepreneurship &
absorptive capacity and strengthen international collaboration
World Bank
Institute

Presentation Script

Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 3: Policy instruments

Presentation Script

About this Presentation

In the previous lesson, you learnt about policies to promote frontier innovation
and strengthen adaptive innovation. In this lesson we will explore policies to
stimulate entrepreneurship & absorptive capacity of firms as well as mechanisms
for international collaboration.

This lesson will address the following topics

More specifically, you will learn about;

Policies to stimulate entrepreneurship and firms absorptive capacity

How international collaboration mechanisms can support research,

development and adoption of green technologies, with a special focus on
south-south collaboration

We will also provide some links to references and resources for more
information.

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 3: Policy instruments

Presentation Script

Innovation policies to stimulate entrepreneurship & absorptive capacity

We start with policies that can stimulate entrepreneurship and the absorptive
capacity of firms.
Entrepreneurship and the absorption of existing technologies can be stimulated
through market transformations. This means policies that tackle constraints that
impede experimentation and at the same time encourage entrepreneurship and
innovative behavior. We will look at three cross-cutting policy areas that are vital
for creating a business environment that enhances entrepreneurs and firms
capacity to commercialize, absorb, and adapt knowledge.

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 3: Policy instruments

Presentation Script

The first policy goal is to encourage experimentation and quick market re-entry
following failure, the second is to facilitate collaborative learning by workers and
firms globally, and third is attracting and retaining talent to countries.

Innovation policies to stimulate entrepreneurship & absorptive capacity

An essential step for increasing firms absorptive capacity is simply o let them
abandon less successful businesses when they fail and at the same time
encourage them to re-enter the market with renewed experimentation.

One of the best ways to get people to try out new ideas is to have robust
bankruptcy laws that make it easier to close ill businesses without losing too
much. Many developing countries struggle with this, taking several years to close
and recover businesses.

Innovation policies to stimulate entrepreneurship & absorptive capacity

Next we have policies that facilitate the global connectivity of people and firms.
Governments can play a key role in encouraging firms to take part in global value
chains. This is related to trade policies but an important feature here is that
Governments can help support platforms where they can communicate and
collaborate with national firms. This can facilitate the knowledge exchange
between firms.
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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 3: Policy instruments

Presentation Script

Both China and Indias rapid development of wind energy were boosted by
international mobility that was supported by Governments. For example Suzlon,
the leading Indian wind turbine manufacturer, established R&D facilities in
Germany and the Netherlands to have its workers learn from their expertise,
while Goldwind, the leading Chinese manufacturer of wind mills, sent employees
abroad for training. Fibrovent Wind, a Chilean wind turbine blade company was
created by inserting itself into a Spanish global value chain where it also
benefited from international mobility of skilled workers. In their case, there was
South-South transfer not only of equipment knowledge but of management
knowledge as the firm hired a Brazilian wind turbine expert to help set up the
company.

When it comes to how Governments can help in connecting small and medium
enterprises to global value chains, we can learn from a recent public-private
partnership program in Mexico. Click here to learn more
Mexicos Green Supply Chains Program : This program initiated by the Mexican
Government, uses large multi national anchor companies (MNCs) to solicit small
and medium-size enterprises (SMEs) participation through education and
support. The program proves to be a promising model for diffusing eco-efficiency
techniques to SMEs. During the 2005-07 pilot phase, 14 MNCs with operations in
Mexico participated together with 146 SMEs. The average SME generated huge
environmental improvements such as reduced water and electricity usage,
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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 3: Policy instruments

Presentation Script

carbon dioxide emissions and waste disposal, along with significant economic
savings and improved supply chain relationships. These results show the
potential win-win opportunities of improved information dissemination,
mentoring and learning in the value chains of companies. Source: Dutz et al
2012

Innovation policies to stimulate entrepreneurship & absorptive capacity

A final policy area for stimulating entrepreneurship and absorptive capacity
concerns developing entrepreneurship through incentivizing talented individuals
and successful firms to remain in the country. These kind of policies do not have
to be solely directed to the energy sector. Indeed policies to tackle so called
brain drain affect many essential sectors of a country.

Brain drain can be defined as a large scale emigration of a large group of

individuals with technical skills or knowledge.
The policies to tackle this come with many social co-benefits for the countries in
terms of enhanced skills in various domains.

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 3: Policy instruments

Presentation Script

In China, there are plenty of examples of how Governments attract and retain
talent to certain areas. Please take your time to read through the mix of
instruments that can be used.

Policies to promote Base of the Pyramid innovation

We are now going back to Base of the Pyramid Innovation to look at what
policies are most relevant. It is important to keep in mind that policies should
target both frontier and adaptive innovation.
A 2012 policy brief from the Brookings Institution provide the following policies
as most important.

In the early research stages, there is a need for Government-funded R&D, and
patent policies such as compulsory licensing agreements and patents pools as
well as applied research networks. Also prize funds can be used to trigger
invention. It is also highly relevant that firms get training in the needs of
populations at the base of the pyramid. Training could include demonstration
tests and supply chain development. Next, international venture capital and
other support polices for small and medium enterprises can help support
technology deployment and commercialization. Here it is important that firms
are allowed access to national, regional and global markets.
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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 3: Policy instruments

Presentation Script

Policies to promote Base of the Pyramid innovation

We will now illustrate how some of these policies, prize funds and public funding
to labs and universities, have been used to promote Base of the Pyramid
innovation in the energy sector.
In 2011, The Ashden Awards for Sustainable Energy in India, managed to
generate innovation in the use of rice husks, one of Indias most common waste
products. Husk Power Systems (HPS) adapted and converted an existing biomass
gasification using diesel technology into a single fuel rice husk gasifier for rural
electrification. This helped households decrease their use of dim kerosene lamps
(with associated reductions in CO2 emissions) and facilitating evening
studying/learning and other productive activities.

Funding for labs and universities has improved the sector of indoor cooking
stoves in both China and India. The countries have invested much effort into the
research and development of indoor cooking stoves. As the table shows, China is
the leading source of patents across many types of stoves. In addition, India is
the leading source of scientific articles for 3 of the 4 stove technologies brought
up in this table. This has been driven by research from universities as well as
non-profit foundations.

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 3: Policy instruments

Presentation Script

We are now going to look at mechanisms that can strengthen International

Collaboration.

Policy instruments for innovation

We are now going to look at mechanisms that can strengthen International
Collaboration.

International collaboration
We will now look at international collaboration. This slide is dedicated to four
global technology transfer programs while the next slide takes up south-south
collaboration.
In order for clean energy technologies to cross borders, technology transfer
programs are important. These programs can facilitate the transfer of
technological know how and devices across borders. It therefore helps
technologies reach target populations in developing countries as well as reduces
the transaction costs of international market access. First out is the UNFCCC
Technology Mechanism. followed by The International Energy Agency
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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 3: Policy instruments

Presentation Script

Implementing Agreements, The Clean Development Mechanism and The World

Bank Climate Innovation Centers.

Please take your time to read about the four different international collaborative
mechanisms, then proceed to the next slide.

South-South exchange
We will now look specifically at South-South collaboration. Several studies show
that there is very little South-South collaboration on energy innovation. The
graph shows that the occurrence of North-South collaboration on green patents
is almost identical to the occurrence of south-south green patents. Among all
green patents granted between 1995 and 2010, there is only one instance of
South-South collaboration.

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 3: Policy instruments

Presentation Script

Yet, since many developing countries share similarities in the energy sectors in
terms of financing, technological capabilities, institutional arrangements, and
power sector priorities, they would benefit immensely by cooperating on
exchanging energy technologies.
Lessons learned from South-South projects suggest that:
Technologies developed and operated in other close-by developing countries are
more economical and easier to transfer than those from developed countries.
The cultural similarity between South-South countries enables better adaptation
of technologies and thus, a more sustained operation. In addition, based on the
experience gained, local capacity to further expand the delivery of technology
can be built.
Capacity building should not only include classroom training but should be
accompanied by on-the-job training to give practical experience and build
confidence.
Please proceed to the next slide to learn more about how south-south
collaboration can be improved.

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 3: Policy instruments

Presentation Script

How South-South collaboration can be enhanced?

The policies needed to enhance South South collaboration can be divided into
two categories: the ones that facilitate the research and development
collaboration and the ones that facilitate exchanges of already-in-place
technologies. Even though these categories represent two different phases in
the technology cycle, they are mutually reinforcing.

On the R&D side, policies are:

The set up of regional science foundations that can fund patent pools and
avoid research overlaps. Examples are the ICSU regional offices for Latin
America and the Caribbean, Africa and East Pacific, which bring together
scientists and scientific organizations from the respective regions and focus
on sustainable energy among others.

Strong R&D policies to strengthen university and research networks. This will
help trigger frontier and adaptive innovation as well as stimulating
entrepreneurship and absorptive capacity. Example is ANSOLE, which is an

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 3: Policy instruments

Presentation Script

African research network that focuses on the deployment of wind power in

an African context.

The set up of scientific and entrepreneur study abroad programs. An

example is the Knowledge for Tomorrow which is an exchange program
between Germany and Scholars from African countries.

We then turn to the next step, which is an exchange of best practices of already
commercial technologies. For example, China, India and Brazil, all are prominent
in at least one field. These countries have good experiences of implementing
technology into their setting and could rather easily transfer this knowledge to
other developing countries.
There are many successful examples of such technological interchanges between
countries. Click on the box to learn more about the lessons learned from two.

Framework for Government innovation policies

We have now reached the end of this third and last lesson of the Module. We
will therefore summarize the policies that we have gone through in order to
identify what kind of policy mix may be needed in different country contexts.

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 3: Policy instruments

Presentation Script

As a general principle, the best way to use government policies for innovation is
to create a combination policy framework applying policies as technology
maturity and deployment increases in different industries. So how would the
innovation policies that we learnt about in this module be applied? Well, lets
start by looking at the five different stages of technology development. For every
stage in the cycle there is a range of policy instruments at the national and
international levels. For the research stage, we have at a national level, support
to R&D, through funding, tax credits, research grants and prize funds. At an
international level, they can make use of university networks, science centers,
patent collaboration and exchange programs. When we move on, we have early
stage development financing through promoting business incubators, VC funding
and risk capital as well as policies for market-re entry and experimentation. Here
it is also important to connect firms globally and on an international level,
governments can make use of the UNFCCC Technology Mechanism and the
International Energy Agency Implementing Agreements.
Later on, there is a need to stimulate the uptake of technologies, this can be
made through market pull policies such as standards and procurement. Trade
and FDI can also help with the adaption of technologies to local conditions. For
technologies that are already in a very mature stage of the market, governments
can stimulate their demand through public procurement and well tried out
technologies can internationally be implemented through the clean
development mechanism.
As you can see, less mature technologies further from economic competitiveness
need, beyond continued R&D support, very stable low-risk incentives, such as
cost incentives. Once a technology is competitive with other alternatives and
ready to be deployed on a large scale, and when appropriate incentives are in
place, these policies can be phased out altogether. At that stage, green energy
technologies will compete on a level playing field with other energy
technologies. Hydropower is an example of this.

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Energy Sector Strategies to Support Green Growth

Module 4: Supporting Innovation for Green Growth. Lesson 3: Policy instruments

Presentation Script

Key Messages
This slide is dedicated to summarizing key messages from this lesson. Please take
your time to go through them and in the next slide you will find references, in
case you wish to learn more about the subject covered in this lesson.

References and Further Reading

Here are some useful references if you wish to learn more about the subject covered in
this lesson.

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