Sustainable Development in a Changing Climate - International Development Committee Contents


Written evidence submitted by the United Nations Industrial Development Organisation (UNIDO)

EXECUTIVE SUMMARY

Potential impact for developing countries of steps by developed countries to mitigate climate change and potential benefits for developing countries of related technology transfers

  Important to differentiate between net energy importers and exporters. The overall impact of developed countries mitigation measures are likely to be positive for the developing countries. UNIDO has some concerns about the impact on trade with developing countries from climate conscious western consumers reluctant to buy goods with larger carbon footprints from developing countries. UNIDO is actively engaged in the transfer of climate change technologies to the developing world. These transfers represent opportunities for SMEs in developing countries provided financial and training needs can be addressed. UNIDO and DESA have been appointed by the Secretary-General as co-convenors of the UN's efforts to promote the transfer of climate friendly technologies. UNIDO is working with ISO in drawing up an International Energy Management Standard which will be applicable to both the developed and the developing world.

The impact of choices about power generation and energy sources in both developed and developing countries and the linkages between these energy sources

The Director-General of UNIDO is chair of UN Energy, bringing together all the UN organizations engaged in the field of energy. An International Conference "Towards an Integrated Energy Agenda beyond 2020" will take place in Vienna in June 2009. Developing countries have an overriding need to develop even in the face of climate change. They have some concerns about Western pressure to take up untested renewable energy technologies, particularly where subsidies are required to promote uptake. Appropriate renewable energy technologies represent a real opportunity for developing countries to develop their manufacturing sectors particularly in areas not linked to national grids and where power supplies are unreliable.

Opportunities for developing countries presented by sustainable approaches, such as carbon trading, direct fiscal transfers and addressing the needs of increasingly environmentally-sensitive consumers

Sustainable industrial development poses challenges and opportunities for enterprises in developing countries. UNIDO is working with SMEs providing training, guidance and access to relevant technologies to enable them to take full advantage of the opportunities. Environmental services in the developed world has created a €300+ billion industry. Indications are that this will soon be replicated in the developing world. UNIDO has an important role to play in promoting the necessary industrial support institutions—environmental laboratories, cleaner production and energy efficiency centres, waste management, air pollution, industrial design, environmental consulting and training. UNIDO is working with UNEP (UN Environment Programme) on a Green Industry initiative.

Pro-poor exploitation of natural resources, including minerals and forests, and the regulatory framework for exploitation: Matter of policy choice

UNIDO's experience has shown that abundant natural resources in developing countries often results in unfulfilled economic potential, the crowding out of manufacturing, (the so-called "Dutch disease") widening income inequalities, increasing poverty and violent conflicts. This need not be the case. UNIDO has found that the output of manufactured or tradable goods can increase, if developing countries use the revenues from resource extraction to increase domestic investment. Pro-poor exploitation of natural resources entails the promotion of locally based suppliers of inputs needed by extractive industries. The greatest impact of economic growth on poverty reduction occurs in those countries where small and medium enterprises (SMEs) actively participate in local and global value chains converting resource-based comparative advantages into competitiveness. UNIDO has been active in this area for many years. UNIDO is supporting the development of the Action Plan for the Accelerated Industrial Development of Africa which was drawn up by the Heads of State and Government of the African Union meeting in Addis Ababa, Ethiopia, in January 2008.

UNIDO's Industrial Development Report 2009 subtitled "Breaking in and moving up: New industrial development challenges for the bottom billion and the middle-income countries" spells out a concrete, practical framework for transforming resources into sustainable industrial development. The Report has been written by Paul Collier, author of "The Bottom Billion" and will be launched at Lancaster House in London on 23 February.

Potential impacts for developing countries of steps by developed countries to mitigate climate change, including in the context of the "post-2012" negotiations, and potential benefits for developing countries of related technology transfers

1.  The experience of the United Nations Industrial Development Organisation (UNIDO) has been that in the short to medium term, it is important to differentiate between developing countries that are net energy importers and those that are net energy exporters. The increased use of renewable sources of energy and energy efficient technologies by the developed countries in their mitigation efforts is likely to reduce supply constraints for fossil fuels, and therefore reduce their cost. In general, this would have positive impacts for developing countries that are energy importers but negative impacts on developing countries that are energy exporters. As the majority of developing countries are net importers, the overall impact on developing countries is likely to be positive. There will probably also benefit developing countries with abundant sources of renewable energy located near developed countries, which could become important sources of renewable-energy based electricity for these countries.

2.  UNIDO has some concerns about the possible impact on trade resulting from more climate-conscious consumers in developed countries becoming more reluctant to buy goods with larger carbon footprints from the developing world. We do not yet have any figures to back this up. But in the longer term this may well impact on the effectiveness of our trade capacity related work aimed at increasing access to developed markets—eg, the EU—for products (particularly food and agricultural products) from the developing world.

  3.  That apart, our overall assessment is that in the longer term, all developing countries are likely to benefit from the mitigation efforts of developed countries. Without these measures, the negative impacts of climate change would have disastrous consequences on global development.

  4.  UNIDO is actively engaged in transferring climate friendly technologies to the developing world. We do this through a variety of mechanisms using our extensive global network of Cleaner Production Centres and more broadly through our environment and energy, trade capacity building, and productive activities programmes. It is clear to us that the transfer of climate friendly technologies to developing countries can have real economic and environmental benefits for developing countries. The greater use of energy efficient technologies by industry in these countries will not only reduce their greenhouse gases (GHG) emissions but also increase their competitiveness locally and globally. The scanty data available suggest that industry in the developing countries is significantly more energy inefficient than industry in developed countries, so large gains appear to be possible. In any transfer programmes, it is important to stress the business benefits of such technology transfer since enterprises in developing countries are far more likely to take up these technologies where there are clear economic benefits. In UNIDO's view, it is unrealistic to expect an enterprise in a developing country to take up cleaner technologies where there is no obvious economic benefit to it. A particular problem for SMEs (Small and Medium Sized Enterprises) in developing countries is their inability to secure financing and receive adequate training to enable their companies to operate in a more energy efficient manner. This is where UNIDO has a significant role to play.

  5.  It is also important to consider "technology transfer" in its broadest sense, ensuring that the transfer of hardware is always combined with the capacity development necessary to ensure that these technologies are operated at maximum efficiencies, individually and within the larger systems of which they are a part. Once again, training is an essential component of this process.

  6.  In this context, it is important to note that the UN Secretary-General has appointed UNIDO and the UN Department of Economic and Social Affairs (UN DESA) as the co-convenors of the UN's efforts to promote the transfer of climate friendly technologies.

  7.  As manufacturing hubs, developing countries can also benefit from manufacturing and transferring to developed countries more energy efficient technologies/products, or technologies/products that otherwise minimize greenhouse gas emissions. UNIDO is working closely with the International Standards Organisation (ISO) in drawing up an International Energy Management Standard for Industry. In doing this, we will need to ensure that energy efficiency standards are sufficiently flexible to enable their adoption by developing countries. There will be the need for capacity development at the productive level, but also in standards and certification systems, to ensure barriers to trade from the developing countries are minimized. Handled properly, UNIDO foresees that climate friendly technologies should present developing countries, particularly middle-income countries, with export opportunities. Concrete examples are evident in China which now has a substantial and growing industrial sector devoted to the manufacture of renewable energy technologies, most notably solar panels. UNIDO is active in encouraging South-South cooperation to facilitate the spread of Renewable Energy and Energy Efficiency technologies to other parts of the developing world.

The impact of choices about power generation and energy sources in both developed and developing countries and the linkages between these energy sources

  8.  UNIDO is currently chairing UN Energy a body which brings together all the UN organizations engaged in the field of energy. In this context, we will be organising an International Conference focusing on the need to develop a sustainable long-term solution to meeting the world's energy needs beyond 2020. The conference will take place in Vienna from 22-24 June 2009.

9.  Our experience has shown that the choices made by developed countries about power generation and energy sources will have some impact on the choices made by developing countries, the resource endowments of individual countries are likely to play a greater role in decisions over power generation. For example, those developing countries with domestic coal or other fossil fuel supplies will find it very difficult not to use these supplies for power generation unless the costs of alternatives are brought down considerably. As the availability of Renewable Energy technologies becomes more widespread, costs will come down. UNIDO's activities have shown that appropriate Renewable Energy technologies represents a very real opportunity for developing countries to develop their manufacturing sectors, particularly in areas which are not linked to national grids and where power supplies are currently unreliable or non-existent.

  10.  UNIDO has found that infrastructural differences between developed and developing countries limit the linkages between choices. Developed countries have extensive national grids, whereas the developing countries do not. There are therefore many choices of technologies linked to electricity generation and transmission being considered and adopted in the developed countries that are not very relevant to developing countries. At the same time, there are technology needs in the developing countries (the use of small-scale renewable sources linked to stand-alone mini-grids, for instance) for which the developed countries might not have solutions. In general, the difference in scale of energy demand between many developed and developing countries could mean weak linkages between the choices about power generation and energy sources made by the two groups.

  11.  The overriding need of developing countries to continue their development even in the face of climate change compared to the overriding need of the developed countries to move strongly towards low-carbon economies might well also limit linkages between choices. For instance, there is concern in many developing countries that to mitigate climate change they are being encouraged to take up technology for energy generation that have not yet been proven to be economically viable in the developed countries unless significantly subsidised (which developing countries cannot afford to do). While some of the emerging economies already have the ability to lead in the development of technologies, the majority of developing countries do not. They are therefore, for legitimate reasons, unwilling to spend scarce resources on power generation and energy sources that are not fully proven. This makes it all the more important that the developed countries, perhaps in cooperation with the more technologically advanced developing countries, lead by example and thereby bring down the cost of these technologies.

  12.  There is a specific case where linkages between choices could be strong, and that is the case where developing countries with good renewable energy endowments are located near developed countries. In such cases, some developing countries could develop renewable energy-based sources where they otherwise might not. This is not only because of their proximity to developed countries, but also because of the subsidy regimes adopted by the latter for electricity based on renewable energies. These subsidies make it economically viable to generate such electricity and transmit it to them.

Opportunities for developing countries presented by sustainable approaches, such as carbon trading, direct fiscal transfers and addressing the needs of increasingly environmentally-sensitive consumers

  13.  It is clear to UNIDO that sustainable industrial development will pose challenges for enterprises in developing countries, especially for the SMEs that make up the bulk of the industrial sector in these countries. However, these challenges should also create business opportunities for alert entrepreneurs in these countries with sufficient foresight and willingness to take risks. This is where UNIDO can help working with SMEs and entrepreneurs, providing training, guidance and access to relevant technologies to enable them to take full advantage of opportunities where they exist.

14.  At the domestic level: As occurred in the developed countries from the 1960s onwards, as the populations in developing countries grow—especially their growing middle classes—they will demand safer and healthier products, more modern and more efficient appliances, and functioning environmental services (safe drinking water, waste water treatment, waste management, air pollution controls, and so on). With respect to environmental services alone, similar pressures in the developed countries have created a €300+ billion industry, along with all the new jobs this has entailed. The latest environmental challenges the world faces—climate change and growing water scarcity, to name only two—are spawning new industries. The rapidly growing renewable energy industry is the most obvious manifestation of this trend. This is also one in which developing countries already have a significant presence.

  15.  The rapidity with which these new industrial trends manifest themselves in the developing countries will depend on the willingness of governments to create the necessary enabling environments: developing—and even more importantly implementing—the necessary environmental laws and regulations; articulating other required sectoral policies (for instance, in the energy sector). It will also require promoting the necessary industrial support institutions—environmental laboratories, cleaner production and energy efficiency centres, waste management companies, engineering companies offering wastewater treatment and air pollution services, industrial design companies, environmental consulting companies to name a few, as well as creating or expanding the necessary university degree programmes and, even more importantly, the necessary supportive vocational training programmes. UNIDO has an important role to play in all these areas and with more resources we could do even more.

  16.  At the international level: Globalization is creating opportunities for developing country entrepreneurs to offer green goods and services to consumers in the developed countries, or to join global value chains offering such goods and services. Here, the menu of such goods and services is very wide. Developing country enterprises are already serious players in the global renewable energy industry. The bulk of the more efficient appliances sold in the developed countries are manufactured wholly or partly in the developing countries. Waste management is also going global, with used products in the developed countries (scrapped metal products, waste electrical and electronic equipment, even waste paper) moving to the developing countries for recycling and reuse. While much of this trade is still North-South, there is growing potential for it to be South-South. UNIDO is actively involved in pushing this forward working together with UNEP (UN Environmental Programme) on its Green Industry initiative.

  17.  UNIDO has found that, as with all globalized goods and services, enterprises in the developing countries must be able to manufacture green goods and services at the levels of quality required by the global market and certify that this is so. Once again, the ease with which they can do this depends on the willingness of governments to create the necessary enabling environment. In this regard, industrial support institutions are particularly important that can assist enterprises to meet quality standards, and the metrology and conformity assessment institutions that can allow them to make the necessary certifications. Through the relevant global mechanisms, governments can also work to ensure that private standards are developed that do not penalize the developing countries, that national environmental requirements are not used as technical barriers to trade, and that in the particular case of global waste management this is not used as a way of dumping hazardous and non-hazardous waste in developing countries unable to manage them correctly.

Pro-poor exploitation of natural resources, including minerals and forests, and the regulatory framework for exploitation: Matter of policy choices

Resource curse and bad governance

  18.  Natural resources are randomly distributed across the earth's surface. Unfortunately, this distribution has led to unequal outcomes. Some countries have abundant natural resources. Some people in countries have claim to abundant natural resources. Other countries have few or no natural resources. Or, within countries, many poorer people have little no ownership or claim to natural resources. Yet, the abundance of natural resources can give rise to many opportunities to increase incomes, reduce income inequality and poverty, and accelerate overall economic and social development. On the other hand, this favourable scenario has not been the experience of a number of developing countries in recent years. UNIDO's experience has been that invariably, abundant natural resources have led to largely unfulfilled economic potential, leading to performance being far below potential, the crowding out of manufacturing, widening income inequalities and increasing poverty levels with many large-scale violent conflicts. Development experience is littered with examples on all continents. The abundance of natural resources has often been viewed as a "curse" rather than a "blessing". This "resource curse" is often termed the "Dutch disease". This is the case when the discovery of an abundant natural resource or a significant increase in commodity prices raises the real value of country's currency, making manufacturing and exports ("tradeables") less competitive with other nations, increasing imports and decreasing exports.

19.  The richness of a country's natural resource endowment should not, however, further underdevelopment and push many more into poverty. Such a state of affairs often stems from inept policies and lack of good governance. The development experience of a number of resource-rich countries shows that "resource curse" is not inevitable and that sound economic policies can mitigate its ill effects and work positively for pro-poor growth. The recent development experience of Botswana, Brazil, Oman, Indonesia, Malaysia, and Thailand speaks powerfully on this issue. The problem is not the resources themselves but how the revenues from these resources are used. This is the fundamental policy challenge for pro-poor growth. This is not an easy matter. Governments have not always handled the abundance of natural resources well. Resources have often been wasted or illegally expropriated to the detriment of the poor in rural areas and overall sustainable economic growth and poverty reduction.

20.  UNIDO has found that the output of manufactured or tradable goods can increase, if developing countries use the revenues from resource extraction to increase domestic investment. They must consider using a large part of the revenues for investment instead of consumption and spending money on the right projects which generate the best social returns. Sadly, they do not always have the capacity to do so. They must also be able to moderate the increase in demand for non-tradable consumer goods and services which occurs when countries are flush with natural resource revenues to avoid fuelling the "Dutch disease". Hence, prudent investment and good governance dampen the tendency towards the Dutch disease by both augmenting supply and moderating demand. Understanding the critical level of governance to avoid the so-called "resource curse" is crucial.

Pro-poor exploitation of natural resources: the promotion of local suppliers and SMEs

  21.  UNIDO's experience has shown that pro-poor exploitation of natural resources entails the promotion of locally based suppliers of inputs needed by extractive industries. While the production of these inputs requires locally-specific knowledge, it will also require activity-specific knowledge that is not available locally. Policy instruments, incentives and support systems should thus promote small and medium enterprises and the required skills to meet the demands of extractive industries.

22.  While economic growth generally reduces poverty, it does so at different rates in different contexts. The greatest impact of economic growth on poverty reduction occurs in those countries where small and medium enterprises (SMEs) actively participate in local and global value chains which convert resource-based comparative advantages into competitiveness.

Spreading the pro-poor spill-over effects of construction booms

  23.  Construction booms are generally closely related to resource extraction. As commodity booms generate revenue booms which in turn if properly used sharply increase savings and public investment. Such investment takes two forms: equipment and structures. Most public investment is in infrastructure so that the boom in public revenues leads to a boom in the demand for the construction sector. UNIDO research suggests that the empowerment of the poor in the local resource-based production of building materials can lead to income generation and employment creation for the poor.

24.  Not only does the construction sector provide a critical link between resource revenues and effective investment, it also potentially provides the key link from resource revenues to the labour market. Construction can employ precisely the young males who, if left unemployed, are most susceptible to crime and violence. Again, this transmission depends upon the capacity of the construction sector to expand output. Spreading pro-poor spill-over hinges largely on the institutional and business support services that encourage small and medium enterprises in the vertical integration of the production of construction materials.

  25.  UNIDO has been active in this area for many years. As an example of a more recent development UNIDO has been active in supporting the development of the Action Plan for the Accelerated Industrial Development of Africa which was drawn up by the Heads of State and Government of the African Union meeting in Addis Ababa, Ethiopia in January 2008.

Regulatory framework for transforming resources into sustained development

  26.  In the forthcoming UNIDO Industrial Development Report 2009 subtitled "Breaking in and moving up: New industrial development challenges for the bottom billion and the middle-income countries" UNIDO spells out a concrete, practical framework for transforming resources into sustainable industrial development. The Report has been written with Prof. Paul Collier, author of "The Bottom Billion" and will be launched at Lancaster House in London on 23 February 2009.





 
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