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The Water-Energy-Food Security Nexus

Winter Semester 2012 / 2013

Lecture Series

Eco-Innovation for Greening Growth

Prof. Dr. Harald Sander Cologne University of Applied Sciences

Monday, 29.10.2012

Supported by

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Lecture series

The Water Energy Food Security Nexus

Cologne, winter term 2012/2013 Joint effort between DIE, Universität zu Köln, Cologne University of Applied Sciences

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Introduc)on to the lecture series

Prof. Dr. Lars Ribbe

Director of InsPtute for Technology and Resources Management in the Tropics and Subtropics (ITT) Cologne University of Applied Sciences Betzdorfer Straße 2 50679 Cologne, Germany

Content

1. Why „Nexus“?

2. The research cluster „NEXUS“ at CUAS 3. Other Nexus acPviPes and agenda for the winter

term

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Nexus lecture series: the partners

Universität zu Köln DIE ITT

Prof. Dr. Karl Schneider, InsEtute of Geography

Dr. WalEna Scheumann, DIE-‐GDI

Prof. Dr. Lars Ribbe, ITT

• Water, Food and Energy Security: Three pillars of economic development + socio-‐poliPcal stability

• Higher security levels in one sector may impact the other „security areas“

Today (2012: 7 bn populaPon)

No access to safe water (0.9 bn) , electricity (1.5 bn), sufficient food (1bn)

Tomorrow (2030: 8.5 bn populaPon)

if we want to combat poverty + supply a growing populaPon: Roughly 40 % more water, energy and food demands! 7

Why WEF Nexus?

Global AcceleraEon in the Anthropocene

(source: planet under pressure, policy briefs

Water – Food – Energy Security

Food Water

Energy

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Water demand of food producPon

Reservoir construcPon and operaPon

Hydropower development

Energy demands of water distribuPon and treatment

Biofuels

Energy demand of food producPon and processing

Water for Energy

Why WEF Nexus?

F W

E

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F W

E

2000 2030

Why WEF Nexus?

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Why WEF Nexus?

Role of research and educaPon?

Example: The Research Cluster „Water, Food and Energy NEXUS“ at Cologne University of Applied Sciences (CUAS)

Funded by Ministry of InnovaPon, Science and Research, state of NRW and CUAS (2013 – 2016)

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Current R & E AcEviEes:

Food Security

Energy Security

Water Security

Ingo Stadler Eberhard Waffenschmidt

Ulf Blieske

Sabine Schlüter Till Meinel

Wolfgang Kath-Petersen

Lars Ribbe Michael Sturm

Jackson Roehrig

Human Development

The research Cluster „Water Food and Energy Security at Cologne University of Applied Sciences (Funded by MIWF, NRW 2013-1015)

Harald Sander Johannes Hamhaber

Food Energy

Water

N EXUS

Work Group 1 : Food-‐Energy

Work Group 2: Food-‐Water

Work Group 3: Energy-‐Water

NEXUS-‐ Forum

Nexus of disciplines:

• Natural Sciences • Social Sciences • Engineering • …

InsPtuPonal NEXUS: cooperaPon

Higher Education

+ Research

Private Sector

Public Sector

+ (I)NGOs

KIC Knowledge and Innovation Community

Cooperative Programmes and projects

Applied Research Capacity

Development Implementation


Food Energy

Water

DIP GmbH

GREENPEACE Energy

RheinEnergie AG

Saint-‐Gobain Solar

Sunpower

TÜV Rheinland

DHI-‐WASY GmbH

Ribeka Sorware GmbH

SEBA Hydrometrie

GmbH

Deutsche Vereinigung für Wasserwirtschar, Abwasser und Abfall e. V. (DWA)

German Water Partner-‐ship (GWP)

AHK Sao Paulo

Deutsches InsPtut für EntwicklungspoliPk – DIE

Geografisches InsPtut der Universität zu Köln

Universität Kassel

ZEF/Uni Bonn

University of North Florida (USA)

University of Warsaw (Poland),

Dongbei University of Finance and Economics (China)

Technische Universität Eindhoven

Centre for Natural Resources and Development -‐ CNRD

UNEP Hochschulnetzwerk Private Sector, NGOs

AssociaPons and Networks

Research and EducaPon

Major acPviPes of the research cluster

1. Establish a knowledge base on the Nexus issues 2. Develop common research projects, involve

students

3. Develop teaching materials and case study material 4. Outreach and communicaPon with other

stakeholders

5. Establish partnerships and networks


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Further acPviPes of ITT: ScienEfic Conferences

Amman-‐Cologne School of IWRM:

• Amman 2011: „Water-‐Energy Nexus“ • Amman 2012 „Green Growth and Water Resources Management

in the MENA region“

• Amman 2013 „Nexus topics within the Arab Water Week Centre for Natural Resources and Development

• ITT, Cologne 2012: „Research for the Water Energy Food Security Nexus“

Further acPviPes of ITT: University Partnership

“Enquiry-‐based Learning in the Curricula of Master-‐Level Courses in the Water and Land Nexus” (Funded by DAAD 2013-‐ 2016)

Partners: • Khartoum University, Sudan;

• Addis Abbaba University, Ethiopia; • Jordan University

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The EBL-‐NEXUS project:

Last but not least….

I whish us interesPng expert inputs and a vivid debate!

Thank you!

ECO-INNOVATION FOR GREENING GROWTH AND THE WATER-ENERGY-FOOD SECURITY NEXUS

Harald Sander Director Institute of Global Business and Society and Professor of International Economics at Cologne University of Applied Sciences

Lecture held on October 29, 2012

Four Core Messages • Greening the economy requires green innovation.

(the same holds for addressing the synergies and trade-offs in the Water-Food-Energy NEXUS)

• To unleash eco-innovations a green technology policy must complement traditional environmental policies (double externality problem).

• Technology policy in developing countries should focus on technology transfer and building absorptive and adaptive R&D capacities for “environmental leapfrogging”.

• Setting the policy agenda is a process that is highly country-specific and requires tailor-made solutions involving all stakeholders.

Agenda I. The Quest for a Green Economy II. The Concept of Eco-Innovation III. How to trigger Eco-Innovation? IV. Eco-Innovation and Developing Countries V. How to Set the Policy Agenda? VI. Summary and Conclusions

I. The Quest for a Green Economy • What is a “green economy”?

“…one that results in improved human well‐being and social equity, while significantly reducing environmental risks and ecological scarcities. It is low carbon, resource efficient, and socially inclusive”.

UNEP, Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication, 2011

The Quest for a Green Economy • What is a “green economy”?

“a resilient economy that provides a better quality of life for all within the ecological limits of the planet.

Green Economy Coalition 2011 (a group of NGOs, trade union groups etc.)

The Quest for a Green Economy • Many definitions, but most include

• social dimensions • human well-being, social inclusive, reduced inequality,...

• economic dimensions • high income, high employment,…

• environmental dimensions • resource efficient, low(-er) environmental risks, sustainability, …

• Green Growth as a means to achieve a Green Economy?

“[G]reen growth means fostering economic growth and development while ensuring that natural assets continue to provide the resources and environmental services on which our well-being relies.

OECD, Towards Green Growth, Paris 2011.

Greening growth requires decoupling • Traditional economic growth usually uses more scarce resources • Green growth requires decoupling

• absolute decoupling: economic growth and/or higher per capita income with less use of resources

• relative decoupling: reduction of resource use relative to per capita income • Mixed evidence on decoupling depending on type of pollutant

(Environmental Kuznets Curve – EKC)

Environmental Kuznets Curve (EKC) pollution

per capita income absolute decoupling

relative decoupling

EKC

Greening growth requires decoupling • Traditional economic growth usually uses more scarce resources • Green growth requires decoupling

• absolute decoupling: economic growth and/or higher per capita income with less use of resources

• relative decoupling: reduction of resource use relative to per capita income • Mixed evidence on decoupling depending on type of pollutant

(Environmental Kuznets Curve - EKC) • Relative and absolute decoupling for NOX, SO2 in high income countries • No decoupling (yet) for CO2

• Decoupling depends on • Spatial closeness of negative effects • Time distance to the effect & time preferences • Cost of avoiding negative effects (e.g. abatement costs)

..but policies matter too (see Annex I Kyoto Parties) CO2 Emissions 1971-2009

Own Diagram. Data Source: International Energy Agency 2011

Innovation for greening growth “Existing production technology and consumer behaviour can only be expected to produce positive outcomes up to a point; a frontier, beyond which depleting natural capital has negative consequences for overall growth. By pushing the frontier outward, innovation can help to decouple growth from natural capital depletion. … Innovation is therefore the key in enabling green and growth to go hand in hand.”

OECD, Fostering Innovation for Green Growth, Paris 2011, p. 9

The EKC after eco-innovation: (absolute?) decoupling in high-income countries

pollution

per capita income

EKC before eco-innovation

EKC after eco-innovation

Eco-innovation and green growth in developing countries • Old approach

• grow first, clean up later • movement along the EKC viewed as a “normal” development

process • High social and environmental costs

• immediate costs (intra-generational) – direct benefits from greening growth (example: drinking water, cooking stoves)

• Long-term costs (inter-generational) of irreversible damage for future growth and prosperity (costs for present generation depends on time preferences)

• Cross-border regional and global (external) effects

• Greening growth in developing countries requires • Technology transfer • Development of “absorptive capacity“ • Development of own (adaptive) R&D capabilities

The EKC in developing countries: Illustration of relative decoupling after eco-innovation

pollution

per capita income



The EKC in developing countries: Illustration of absolute decoupling after eco-innovation

pollution

per capita income



II: The Concept of Eco-Innovation OECD (2009: 40) describes eco-innovation as: “the implementation of new, or significantly improved, products (goods and services), processes, marketing methods, organizational structures and institutional arrangement which, with or without intent, lead to environmental improvements compared to relevant alternatives.” OECD, Eco-Innovation in Industry. Enabling Green Growth, Paris 2009, p. 40.

Eco-Innovation comprises technological and non-technological social innovation

Industrial ecology Integrated systems of production, environmental partnerships,

product service systems

Closed-loop production Restructuring of production methods:

minimizing or eliminating virgin materials, product-service systems

Life-cycle thinking green supply chain management

Eco-efficiency Systematic environmental management and monitoring

Cleaner production Modify products and production methods:

process optimisation, substitution of material (non-toxic, renewable)

Pollution control Implementation on non-essential technologies:

End-of-the-pipe solutions

Source: Based on OECD, 2009: 37, 47

Machiba’s proposed framework of eco-innovations

Source: T. Machiba, Eco-innovation for enabling resource efficiency and green growth: development of an analytical framework and preliminary analysis of industry and policy practices, in: Bleischwitz et al. (eds.), International Economics of Resource Efficiency, Springer 2011: 361.

Illustration: Examples of eco-innovations

Source: Machiba 2011, 366

Eco-innovation and the NEXUS • The concept of eco-innovation is useful for the NEXUS as eco-innovation focuses on interdependencies over all three sectors

• … and beyond. • Three major benefits:

• A broad-based concept including social & non-technological innovation

• drawing on the insights of the innovation & sustainability literature

• Application of recent methods to identify drivers and binding constraints to eco-innovation

NEXUS forum on synergies & trade-offs of eco-innovations in the use of all three resources

III: How to Trigger Eco-Innovation? • Technical change requires three steps:

• Invention – creation of something new • Innovation – taking the idea to the showroom • Diffusion – the process of adoption of a new technology

• Diffusion is often the major bottleneck for eco-innovation

• Why? • Do eco-innovations pay off? Often not! • But even when they are profitable we often observe low

adoption rates (e.g. energy efficiency gap)

Problem 1: Do eco-innovations pay-off? • Some may get adopted because of secondary benefits

(e.g. fuel-efficient cars if the (discounted) savings in fuel exceed their higher costs)…

• …but still face multiple market failures. The most important market failures for eco-innovations are: • Environmental externalities • R&D market failures



• …but still face multiple market failures. The most important market failures for eco-innovations are: • Environmental externalities

• Environmental damage associated with the production or consumption of a good is not reflected in the market price

• Too much production and consumption of that good • To much environmental damage at a too low price • Market for alternative goods or production processes is under-

developed or even non-existent. • Internalization by environmental policies , e.g. Pigou tax, can address it.

Problem 1: Do eco-innovations pay-off?

• Some may get adopted because of secondary benefits (e.g. fuel-efficient cars if the (discounted) savings in fuel exceed their higher costs)…

• …but still face multiple market failures. The most important market failures for eco-innovations are: • Environmental externalities • R&D market failures, especially

• Public good nature (intellectual property rights) • Reward for R&D by means of patents are an incentive to innovate but… • …makes eco-innovations more expansive & reduce diffusion

• Path dependencies of R&D • History matters! Companies with a history in “dirty patents“ are likely to continue to

innovate “dirty” in the future (see: Aghion et al. 2012). • Network externalities

• Adoption of a new technology depends on a critical number of adopters



• …but still face multiple market failures. The most important market failures for eco-innovations are: • Environmental externalities • R&D market failures

• Double market failure is the key constraint on eco-innovations • Environmental externality: limits market size • R&D externality: limits innovation activity and diffusion

A coordinated policy response to address market failures is needed • Double externality problem requires a double policy

response to trigger eco-innovation • Environmental policy (internalization of external effects) to create a

market • Technology policy to promote technology development and

diffusion

• Each single policy actions is a necessary condition for unleashing eco-innovation...

• ...but neither policy action is sufficient when undertaken in isolation.

Evidence on eco-innovations and policies

Source: Dechezleprêtre et al. 2011: 119

Other reasons for low appropriability of returns • Other market failures may occur, too.

• Barriers to entry & competition

• Problems in governance • Bad governance, low institutional quality • Preference to incumbents, perverse subsidies • Incomplete property rights • Macro-economic instability • etc.

Problem 2: Low diffusion even when market and governance failures are properly addressed • Why? • Lack of social resources

• Norms and values • Habit inertia

• Lack of complementary economic resources • Infrastructure • Human capital (R&D, absorptive capacity, etc.) • Access to green technology

Summary: What holds back eco-innovation?

low returns to eco-innovation

lack of complementary resources

social resources

norms and values

habit inertia

economic resources

inadequate infrastructure

low human capital

access to green technology

low appropriability of returns

market failure

negative externalities

R&D externatlities and path depenendencies

barriers to competition

governance failure

Incomplete property rights

Preference to incumbents, pervers subsidies

low institutional quality

macro-economic instabilty

• Most R&D is done in developed countries • Many green technologies are already available and may allow for leapfrogging

• Three Problems: • Affordability of off-the-shelf technologies • Adaption of off-the shelf technologies to local

circumstances • Adaptive R&D • In innovating advanced countries (when home market for such

technologies is limited – Example: R&D in anti-malaria medicine) • R&D in (some) developing countries

• Absorptive capacity of the technology-importing country

IV. Eco-Innovation and Developing Countries

Most R&D is done in developed countries:


…but is there a new role for the BRICs?


Example: China’s patent boom • Filing for patents in China has

increased drastically, both for national patents (SIPO) as for US patents (USPTO).

• The analysis of Eberhard et al. 2011) suggests that although some patents are truly innovative, the majority is still incremental – mostly for adapting production process to local circumstances.

• Source of Graph: Yu/Eberhard/Helmers, Is the dragon learning to fly? An analysis of the Chinese patent explosion, in: VoxEU.org, 27 September 2011.

The problem of affordability: The 3 major channels of technology transfer • Patents are providing an incentive to innovate, but reduce

the diffusion by allowing to charge higher prices. • Three major channel of technology transfer:

• Exports • Foreign Direct Investment (FDI)

• 100% FDI • Joint ventures • Example: China’s joint venture regulation

• Licensing • Role of (international) financing

(e.g. Clean Development Mechanism offers polluters in credits for financing projects for reducing emissions in developing countries” – see Popp 2011 for more details)

Adaption of off-the-shelf technologies to local circumstances • Often technologies do not fit local circumstances • Adaptive R&D is needed

• Partly an explanation for China’s patent boom • Example: adapting production process and making them more

labor-intensive (photovoltaic in China)

• R&D policies for technology adaption required • Inertia and other cultural limits to eco-innovation adoption

• Example: cooking stoves in India • Randomized control trials may help to identify such constraints

(see Banerjee/Duflo, Poor Economics, New York 2011)

Importing technologies from developing countries • There is substantial R&D in (some) developing countries, in

particular China and India, especially on adaption • China wants to become a technological leader in environmental

technology according to the 12th 5-year plan. • Developing country technologies may be more appropriate in

terms of factor-proportions required in developing countries and thus easier to adapt to local circumstances

• Lower technological distance matters • Lower regulatory distance matters (for example in the

automobile industry where, according to Dechezlepêtre et al. 2012 ,“…countries are more likely to receive newly-innovated technologies from source countries whose regulatory standards are “closer” to their own).

New evidence on the geography of green technology transfer


The importance of advanced countries as exporters of eco-technologies


• Advanced countries need to pay attention to innovate adapted technology for developing countries…

• …especially when their home market for such technologies is limited

• Example: R&D in anti-malaria medicine

V. How to Set the Policy Agenda? • Prioritizing eco-innovation? What is most pressing? • Prioritizing policy instruments

• Comprehensive approach • Role of “framework conditions” • OECD Green growth diagnostics – old wine in new bottles?

• Decision-making process • National • International • Participation of stakeholders

How to set the policy agenda? • Prioritizing eco-innovation? What is most pressing?

Recent World Bank approach suggests to focus on those fields where net immediate benefits and risks of irreversibility are high:

Source: Hallegatte et al., From Growth to Green Growth, in: VoxEU.org, 24 March 2012

How to set the policy agenda? • Prioritizing eco-innovation? What is most pressing? • Prioritizing policy instruments

• Comprehensive approach • E.g. “Fishbone Approach” (see Wuppertal Institute, Eco-innovation,

2012). Comprehensive Analysis of certain eco-innovations regards all • Technical Drivers and Barriers • Economic Drivers and Barriers • Natural Drivers and Barriers • Social Drivers and Barriers


• Comprehensive approach • Role of “framework conditions”

„…the rate and pattern of “green” innovation is heavily influenced by another factor – the environmental policy framework. … a number of framework policies for innovation are important. First, a policy environment based on core “framework conditions” – sound macroeconomic policy, competition, openness to international trade and investment, adequate and effective protection and enforcement of intellectual property rights, efficient tax and financial systems – is a fundamental building block of any effective (green) growth strategy and allows innovation to thrive.” (OECD 2011: 46)

• Towards a green Washington consensus?


• Comprehensive approach • Role of “framework conditions” • Green growth diagnostics – old wine in new bottles?

• OECD 2011 (Towards Green Growth) has proposed a green growth diagnostics (GGD) approach to identify the (most) binding constraints to green growth.

• This GGD is based the Growth Diagnostics (GD) approach proposed by Hausman et al. (2008). The basic idea of GD is that each country’s economic growth is hold back by different binding constraints at a certain time.

• GD thus rejects the idea of a one-size-fits-all diagnosis. • Useful for identifying country- and time-specific binding constraints to

eco-innovations (see Sander, 2011 The use and usefulness of OECD’s green growth diagnostics, GLOBUS Working Paper, Cologne 2011)

A green growth diagnostic (GGD) decision tree for eco-innovation



social resources

norms and values

habit inertia

economic resources


low human capital



market failure




governance failure





The necessary conditions for triggering eco-innovations in the GGD (marked red)



social resources

norms and values

habit inertia

economic resources


low human capital



market failure




governance failure





GGD for triggering eco-innovation • Step 1: Are adequate environmental and technology

policies in place to address double market failure?

• Step 2: If yes, can they work – or are they facing other “binding constraints”?

• Step 3: Identify country-specific binding constraints and appropriate policies to reduce/remove these constraints.

• Involve all relevant stakeholders in identifying binding constraints

• GGD is a process as binding constraints change over time

VI. Summary & Conclusions (1) • Broadly defined eco-innovations are key for greening growth / the NEXUS.

• Eco-innovations need both, environmental and technology policies to address the double-externality problem.

• Developing countries need to develop a policy agenda for eco-technology transfer that is • country-specific, and • involving all stake-holders • in a permanent dialogue.

Summary & Conclusions (2) • Focus on projects where immediate local benefits are high and urgent (non-reversibility)

• Effective eco-technology transfer can be supported by • Developing absorptive capacity in developing countries • Developing own (adaptive) research capabilities • Drawing not only on advanced country R&D but also on

R&D from countries where the technological distance is lower

• R&D for adapted eco-technologies in advanced countries for developing countries

• Global and regional financing mechanisms

THANK YOU! QUESTIONS? COMMENTS? Harald Sander

For more information on GLOBUS see: http://www.fh-koeln.de/globus

For more questions and more comments: [email protected]

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