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 politically-sensitive pharmaceutical sector, patents often have a substantial impact on price, as there may be no substitutes for a new product. In contrast, in the renewable energy sectors considered in this article, the basic technological solutions have long been off-patent. Usually, only specific improvements or features are patented. Thus, a number of competing patented products exist – and as a result of the competition, prices are usually 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 renewables sector, but also between the sectors and alternate sources of fuel or electricity. As a result, much of the benefit of the technologies is shared with the ultimate customers.
Another characteristic of the photovoltaic (PV), biomass and wind sectors is that some of the renewable energy technologies, particularly PV technologies, are not yet inexpensive enough to compete without some form of subsidy or regulation (such as a feed-in law requiring that a portion of the electricity on a grid be supplied from renewable sources). Moreover, firms have been hesitant to invest in substantial research on their own, except in areas with significant subsidies – as seen in the current ethanol boom in the U.S. Hence, much of the research in these areas is funded by the government. At least in the U.S., the subsidised research will almost certainly end up protected by patent rights. When the research is licensed, a certain amount of favouritism is, by law, to be shown to U.S. manufacturers.
Renewable energy markets
There are three types of markets for renewable energy capabilities for developing nations. The most obvious one is the market for enabling the nation itself to reduce its CO2 emissions (not currently required by international law, but possibly required in the future). The second is the market for providing carbon offsets under the clean development mechanism (CDM) under the Kyoto Protocol. Both these markets can be served by importing products incorporating the technology, e.g. photovoltaic panels for off-grid electrical supply.
The third type of market is for renewable products, such as biofuel (or conceivably electricity), and equipment, such as wind turbines, in which the developing country industry can become integrated into the global industry as a supplier. For this type of market, the nation must license the capability to produce such products, perhaps in an indigenous firm or in a joint venture between a local firm and a developed country firm. Alternatively, it can develop the national capacity to research and produce the products independent of a foreign licensor.
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 photovoltaic 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. Suntech 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, but there are many other ways to convert biomass into fuels. 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, paricularly by breaking down lignin, an important compenent of many plants 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 out of 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, ethanol (or other renewable fuel) 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 would 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 underline the importance of public support for new technologies. 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 firms are favored in the process of licensing technology that has benefited from support at the development stage. Part of the political basis for the support is the hope of helping national manufacturers. This builds a bias against developing nations. It is possible to eliminate this bias by asking developed countries to agree to forego their national favoritism in licensing publicly funded inventions, at least with respect to technologies of global environmental importance. This would be quite 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.
Such arrangements could be negotiated in either of two ways. The first would entail commitment to make technology more readily available within the climate change negotiations. This could take the form of a quid pro quo for stronger environmental constraints upon developing nations. Making this work would require a stronger technology transfer commitment than has been typical for global environmental agreements. The other approach would be to create a stand-alone technology arrangement, with the quid pro quo based on reciprocity among research funders.
Removing trade barriers
Finally, the most important task would be to remove unnecessary barriers to trade in renewably sourced fuels, and perhaps in the future in renewably sourced electricity. 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. Subsidies should ideally be redesigned so as not to distort trade or discriminate against developing country firms. A more equitable structuring of environmental market intervention would itself create stronger incentives for technology transfer to developing nations.
This article was reproduced with the permission of ICTSD.