Introduction

Technology is central to the transition to a low-carbon society and to global efforts to cope with climate change. Many technologies that could mitigate greenhouse gas (GHG) emissions exist, but most have not been widely deployed in developing countries. In many of these countries, economic development is producing unsustainable growth in energy demand. Therefore, the transfer of climate-friendly technologies and additional investment flows from developed to developing countries is vital to solve the global climate problem. The importance of technology transfer has been recognized since the Earth Summit in Rio de Janeiro—indeed it is emphasized in both the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol. Yet investment in technology transfer activities remains weak considering the gravity of the issue. After the 2007 Conference of the Parties in Bali, this issue has become increasingly important in the context of negotiations on a future climate regime, even as significant disagreements persist between developing and developed countries.

Article 12 of the Kyoto Protocol established the Clean Development Mechanism (CDM) to serve a two-fold objective: first, to help Annex I countries meet their emission targets in a cost-effective way and second, to support non-Annex I countries in achieving the goal of sustainable development. Though technology transfer is not required for projects that receive CDM credit, experience shows that this program may contribute significantly to technology transfer. However, it is difficult to induce large-scale technology transfer through the CDM in its present form. The project-specific nature of the CDM leads to high transaction costs and makes it difficult to create economies of scale and pool risks across projects of the same type.