By John H. Barton
For the world to make the transition to a low carbon economy, renewable energy technologies must be made available globally. One concern often flagged is that the intellectual property (IP) system may hinder access by developing countries. In a detailed research paper for the International Center for Trade and Sustainable Development (ICTSD), John Barton, Professor of Law at Stanford University, explores whether IP is a bottleneck in the solar, biofuels and wind energy sectors. He briefly summarizes his conclusions in this article, focusing on Brazil, China and India.
In the pharmaceutical sector, patents often have a substantial impact on price, as there may be no substitute for a specific new drug. In such circumstances, the patent holder is in a strong market position and may be able to charge a price well above production cost. In contrast, in the three renewable energy sectors considered here, solar photo-voltaic (PV), biomass and wind, the basic technological solutions have long been off-patent. What are patented are usually only specific improvements or features. Thus, a number of competing patented products exist – and as a result of the competition, prices are brought down as compared to the royalties and the price increases that would be charged under a monopoly. In addition, there is competition not only between firms within a specific sector, but also between the sectors and between other sources of fuel or electricity.
Basic photovoltaic technology is widely available. Here, a solar panel on a remote hut in Khevsureti, Georgia; and a PV plant in Freiberg, Germany. Photos: (left) CC Wim Koolhoven; (right) Eclipse.sx
The photo-voltaic sector
Basic PV technology involves manufacture and treatment of a silicon slice used to create electricity when illuminated by the sun. There are a number of PV firms, organized in a loose oligopoly; the leading 5 firms make up about 60 percent of the market. Hence, the benefits of the basic (silicon-slice) technology are likely to be available to developing countries even in the face of patents.
Similarly, if developing country firms wish to enter the field as producers, they are likely to obtain licenses on reasonable terms because of the large number of firms in the sector. The possibility of entry is demonstrated by Tata-BP Solar, an Indian firm based on a joint venture, and Suntech, a Chinese firm, which has not only been able to develop its own technologies but has also purchased developed country firms.
Biofuel technology
Typical biofuel technology is based on the conversion of sugar or maize into ethanol. In this context, again, developing countries have reasonably good access to current technologies. Indeed, Brazil has long been a leader.
The questions become more challenging with regard to future biofuel technologies. There are government and venture-capital funded efforts underway to develop new processes, enzymes, or microorganisms for producing biofuel, that is not now readily available for fuel use. There will be many patents in these areas. Nevertheless, production is necessarily decentralized and there is competition among biofuel manufacturing methods and between alternative fuels. Hence, it again seems likely that the holders of patents in this area will be willing to license their technology, and that the licensing fees for these technologies are unlikely to remain high for very long.
There have been patent battles with respect to some steps in biofuel production and with respect to standards for fuels. Nevertheless, key barriers encountered by developing countries will probably not be related to IP, but to the tariffs and other trade barriers against the international sugar and ethanol markets. For example, the US has a tariff in place on Brazilian ethanol – which is cheaper, economically and environmentally – than US maize-based ethanol.
The wind sector
The wind sector is more concentrated than the PV sector – here four firms make up roughly 75 percent of the industry. The sector is, however, competitive enough to allow developing nations to build wind farms incorporating equipment from the global market without enormous IP costs.
It could be more difficult for developing nations themselves to enter the global market for wind turbines, however. The current industrial leaders are strong, and are hesitant to share their technology for fear of creating new competitors. There have been significant patent battles in this sector in the US. In addition, the engineering aspects of technology transfer have sometimes proven difficult. Nevertheless, both China and India have succeeded in building major firms over the last 10 years. The leading Indian firm has been buying developed country competitors.
Exports, firm purchases and IP
To summarize, there do not seem to be significant IP barriers hindering the world from benefiting from reduced carbon emissions in developing countries. When it comes to developing country opportunities to enter the export markets for PV cells, biofuel and wind engines, the picture is slightly more mixed. Certainly, for ethanol, the key concerns would relate to tariff and similar barriers, not IP barriers. For PV, the IP system is unlikely to be a significant barrier. For wind energy, there is some ground for concern, but again, IP problems would probably be minor.
The world is also seeing a new technology transfer mechanism in the form of developing countries purchasing developed country firms. However, there is a simultaneous risk of global concentration, particularly in the wind sector, so the world should be alert to the risks of cartel behavior.
The three renewable energy sectors discussed above serve as examples of other important questions developing countries are facing. Should they strengthen their IP protection in order to make foreign investors more willing to transfer technology? The evidence from these sectors suggests a possibility that stronger IP might help in the more scientifically advanced developing nations, and offers little indication of risks associated with such strengthening. The answer may be different in poorer nations.
The role of subsidies
The three sectors examined also show that the economics of renewable energy often require government support or regulation if the technology is to be developed (e.g. a feed-in law requiring that a portion of the electricity on a grid be supplied from renewable sources). Developed country governments are likely to seek to ensure that national manufacturers are favored in the process of licensing technology that has benefited from public funding at the development stage. This builds a bias against developing nations. It is possible to eliminate this bias if developed countries will agree to forego their national favoritism in licensing publicly funded inventions, at least with respect to technologies of global environmental importance. This would be similar to the “humanitarian clauses” being considered in the medical and nutritional areas. It would be far better to go even further – for developed countries to commit themselves to devote a portion of their technology development to the special needs of developing countries, and to ensure that developing country firms have the opportunity to participate in the efforts.
Removing trade barriers
Finally, the most important task would be to remove unnecessary barriers to trade in renewably sourced fuels. Unless the world moves to a global carbon tax, renewable energy subsidies are essential. However, current subsidies are often designed in response to domestic concerns, particularly domestic agricultural concerns, and may end up discriminating against developing countries. A more equitable structuring of environmental market intervention would itself create stronger incentives for technology transfer to developing nations.
This shortened version of Professor Barton's article was reproduced courtesy of the ICTSD.