The Green Leap Forward 绿跃进

This is the second post of two covering an interview with Dr. David Tyfield (pictured) on the topic of international collaboration in low carbon innovation. The Green Leap Forward had the opportunity to interview Dr. Tyfield before a live audience of about forty attendees at an event hosted by the Beijing Energy Network on October 29 in Beijing.  The first post focused on questions posed by The Green Leap Forward, and this second post summarized Dr. Tyfield’s responses to questions posted by the viewing audience.

GLF would like to especially highlight his response  below on intellectual property protection in China.

Q:  Have you done any thinking on the relationship between low carbon innovation and the aspirations of the middle class, because what I see and a lot of us see is that the middle class in the West aspires to cars and we’re seeing the same thing happen in China.

DT:  We haven’t done any size of work or research on it.  My thoughts in particular would be on the issue of mobility rather than energy as far as the most obvious example of aspiration and the aspiration to cars and holidays.  What I would say is that this goes back to what i was saying about the biggest obstacle being, in a sense, political will.  Political will doesn’t just come from government; its a much more dispersed phenomenon.  I don’t think I’m a pessimist, perhaps I call myself a realist.  The people don’t look for alternatives until they are forces to.  Arguably, another positive to come out from the recession is that people from the West start to actually question the standard of living, the extremely indulgent, the highly carbon consumptive standard of living they have enjoyed for twenty, thirty years, in particular.  And therefore they will start to look for alternative.  Of course that is going to take a long time and the first inclination when someone loses something is to try to get it back.  So that the initial political pressure will be to do everything they can to preserve their high carbon standard of living.  But if that proves impossible, and I think it will prove economically impossible, then they will start to look for alternatives, and that is when aspirations will start to change.

In terms of the middle class situation in the west, they are in many ways the greatest culprits for high carbon standards of living.  But its when an electric car actually comes on to the market and becomes someting that peopel rush out to buy, just like when the new Apple iPhone came out. When that kind of thing happens, this will be the forerunners for developing these markets more widely in the West.  I dont; think we will see struggling single mothers on housing estates leading the way on green consumption.

Q:  What do you think about the various pump priming measures that China is currently discussing, i.e. build out of infrastructure such as railroads, and stimulation of domestic demand, especially in the rural areas.  Do you think such measures, which are still in their preliminary stages, would help the green sector or instead lead to some sort of path-dependency that brings China to repeat the development patterns of the West.

Thanks for that question as it actually gives me an opportunity to say something which I forgot to mention, which is that the extra issue for developing countries like China is that climate change will not dealt with in isolation from development.  That’s just an impossibility.  There has to be an exploration of ways where these two seemingly opposed issues of economic development and low carbon can actually become complementary  Unfortunately there is no historical precedent for an increase in energy without increased greenhouse gas emissions, which makes me extremely skeptical of “greenhouse gas Kuznets curves.”  On a global scale they strike me as just false.

So to answer you question more directly, economically, especially if there is a downturn, the dependence of China’s economy on exports on things like IT, electronics, clothing, etc., if there is a drop in the export market, then it has to boost domestic consumption.  It actually has to boost its own consumption anyways because its pretty imbalanced at the moment.  The questions therefore has to be not whether or not China builds and builds now, but how it does that.  And I get the impression at the high level of government the importance of climate change is taken more and more seriously.  Whether we see that in the upgrading of SEPA (State Environmental Protection Agency) to a Ministry, or various other signals, I think that climate change is being taken more seriously at the high level.  But is not yet take seriously enough and it does not percolate through the whole system; it does not peculate to local government, for instance.  What actually has to be a complete integration of developmental and environmental policy.  They have to be always thought of hand in hand.  So its not about do they in fact spend on infrastructure, but what kind of infrastructure they spend on–that really is the important decision.

There’s also another important point which I will not claim credit for.  This is a WWF report which says what we need is a total cap on emissions and there are different pathways in order for us to do that.  It may be that higher greenhouse gas emissions in China in the process of its building allow it for very much steeper reductions, and then a much longer term of very, very low carbon emissions, over a longer period.  Alternatively, they might emit a little bit less in 2009, and yet continue to grow seriously for the rest of the century.  Again, this is about infrastructure decisions–what is going to be built, not should something be built.  I suppose we’ll have to see what the decisions are in order to see which direction they go

Q:   In the international climate change negotiations, there has been some scholarship and thought to move from a cap-and-trade system to one of technology standards, i.e.   What are your thoughts on this?

DT:  My guess would be that the technology standards issue could be very difficult to be a runner.  We already know that the technology transfer is a hot potato.  If there’s going to be suddenly a global standard imposed on India and China that would presumably would be to match the idea cap-and-trade systems in terms of effect, which is quite a high [standard], then there will be an overwhelming demand [to the effect of] “You’ve made us do this, now you’ve got to give [the technology] to us.”   And that would make for very tough negotiations.

THe aother thing that springs to mind is that I’m not sure to what extent there could be an international carbon price wihout a cap-and-trade system.  My understanding is that there is still great interest in a carbon price, if only because if there is a high carbon price, they enable all kinds of market based solutions.  That carbon price may have to be extremely high, maybe ten times higher than it is now, if not more, for certain things like carbon capture and storage (CCS), to make them economically viable.  You have to be actually presenting dramatic losses as the alternative to doing these kind of technologies.  That’s your true cost of coal, right?  May that’s what actually needs to happen.  So I don’t to what extent you could have an international carbon price without that [cap-and-trade] system.

What sort of carbon cap-and-trade system [emerges] is a very open question.  Of course the major player is the U.S.  The U.S. has to be on board, they are therefore going to have a lot of cards to play and say, “No, we want the system that we want.”  But they are up against other major developing countries that may not want the same system.

Q:   Will the lack of intellectual property protection in China make it easier to apply new low carbon technologies, or will the presence of it provide incentive for innovation?

My starting point would be to say that you certainly don’t need strong patent right protection in order to have innovation.  Over the last twenty years, that has been the international argument of choice, and China has been beaten with that stick for quite some time.  The traditional example has been the pharmaceutical industry, but in fact the pharmaceutical industry has been the exception.  It is very dependent on basic science research and unless that is protected in some way, its very vulnerable.  And there is great expense in developing a pharmaceutical as well, so you can understand why firms are worried about losing the possibility of recouping that expense.  But I said the pharmaceutical industry is an exception.  There is no reason why low carbon innovation should follow suit, and especially given everything that we’ve been seeing about the fact that low carbon innovation doesn’t have to be high tech.  There are other kinds of possibilities for tinkering and therefore intellectual property protection without formal patent rights or formal implementation of highly [inaudible] intellectual property law.

The second issue is that intellectual property laws have historically reflected the state of development of the country.  That has not stopped countries from developing highly sophisticated architecture.  So, there’s no reason why in China it should not develop its own forms of low carbon innovation and just organically with the kinds of intellectual property protection that is being demanded in China.  When there are really substantive, highly lucrative, proprietary technologies being developed in China, don’t worry!  People will demand patents to protect them.  And no doubt, if they are bringing a lot of profit into the country, then the government will listen and strong patents will follow.   I don’t think its a chicken-and-egg question here.  I don’t think that until there are strong patents, there will not be low carbon innovation at all.  I think there is the possibility of really impressing important low carbon innovation, and then the patents will come, as and when they are necessary.

Q:  Coming back to your suggestion that a slowdown in China, is maybe a good thing for low carbon innovation. do you really think that Chinese companies, which are increasingly capitalistic, will invest in such innovation when profits suffer, competition stiffens, shareholder gripe, and cost-cutting seems necessary?

DT:  The great founding economist on innovation is the Austrian, [Joseph] Schumpeter, and he is specifically talking about capitalist economies.  The motivation to innovate is a systemic issue.  If you are just a farmer or a small time craftsman, you have very little actual systematic incentive to innovate.  You have the incentive to innovate if you are in a competitive, capitalist market because the fact your margins are continually being eroded means that you have to stay ahead of the game.  If you are short-sighted management, you can seek to cost cut just by shaving a bit here, shaving a bit there, trying to go back to the cheapest kind of technology.  But what you’ll find is that your competition is going to run ahead.  So okay, you’ll save a bit of money now.  But in five years time, your business is going to have to shut.  So the incentive to innovate comes from being under pressure for good profits.

There is the complication that the biggest companies in China are state-owned and the management may have different career structures.  There’s also the issue that many Chinese companies–what I was saying earlier about there being the lack of incentives to innovate–when times are good and you are making lots of profit, you might think this is a really good time to invest when you have a lot of profit.  But in a sense, because China has moved to capitalism so recently,  I think a lot of managers won’t have that mentality or don’t’ have that mentality.  What they are thinking is that “We are making a lot of money, Why am I going to go and invest in something?  Its just a waste of our money, we’re doing quite well anyways.”  On the other hand, I don’t doubt for a second that there are plenty of really able and farsighted managers as well who are going respond profit pressures by doing what they have to.  And that means maybe taking a bigger cut in profits this year but actually really investing heavily in R&D?  Are they going to invest in R&D for clean energy and low carbon?  That is not necessarily something the market can guarantee, and that’s another element of government policy.  If government policy can up the carrots and sticks, and say “not only are you under profit pressure, but the way you need to move is to move into low carbon,” then I think they will respond.

Q:  So government action is important.

DT:  Yes, absolutely.  As I was saying, I think the senior leadership here is increasingly aware of the issue of climate change and the fact that it is an issue for China.  It matters for China and they can see the trajectory of growth in the country.  It is already the biggest absolute emitter.   It is not, fairly, a climate criminal yet because of the low per capita emissions, but as I said that is going to change in a very, very short window, and they know that.  They also know the climate here is very sensitive to climate change.  As the glaciers of the Himalayas melts, there will be severe floods in the south.  They are already short of water in the north, and that’s going to get much, much worse if climate change get much more severe.  So they are sensible to the fact that they have to tackle it.

On top of that, there is the other issue that even if that isn’t enough, there are plenty of complementarities with other issues which simply are to do with your pocket, which simply have to do with economics–the issues of energy security or air pollution.  Everybody now is beginning to count the cost of air pollution in a country without a widespread health service.  It costs people’s lives.  It costs people’s days at work.  These are all direct costs on the economy.  So there are plenty of other reasons for which the government will be pushing very hard on environmental legislation.

GLF:  Thank you, Dr. Tyfield, for sharing your valuable time and insights with us this evening.

DT:  Thank you!

Tags: capital and finance, China, cliamate change, David Tyfield, economy, government, intellectual property, low carbon innovation