“
Eco-innovations can be incremental
or radical and disruptive
5
Box 5.5 Solar photovoltaic in China
Moving towards greener structural transformation
China now leads the global solar photovoltaic sector. Seven of the top 10 global solar panel manufacturers in 2013 were based in China. In 2013, a record 13 gigawatts (GW) of capacity were added to a total of 20 GW existing capacity, and the target capacity for 2017 is 70 GW (IRENA 2014b). Projections indicate that by 2050, China will account for about 37 percent of total photovoltaic capacity globally, maintaining its position as world market leader (IEA 2014b). Solar photovoltaic prices decreased from around $4 in 2008 to $0.8 per watt in 2012. They are forecast to drop to $0.40 per watt by 2035, assuming that big efforts are still made to increase solar photovoltaic capacity. (IEA 2014b). In the Chinese solar photovoltaic value chain, 1.6 million people were employed in 2013, up from 0.3–0.5 million in 2011 (IRENA 2014c).
economic rationale only if the medium- to long-term economic impact is factored into prices. Change in the production structure Eco-innovations can be incremental or radical and disruptive, according to the degree of change they promote. Incremental innovations improve products, processes or organizational practices without changing the parameters of the manufacturing system. Over time, the accumulation of incremental changes can lead to substantial changes that may require the adaptation or redefinition of the whole production system. Radical innovations point to green innovations that promote paradigm shifts and system disruption, which could mean creating a new manufacturing sector, reconfiguring the whole system, introducing new products or services and profoundly changing technological systems (Eco-Innovation Observatory 2013). A “natural” tendency of the economic process Technological change reduces pollution because it helps change the production process, and firms change the production technique to produce more output by 130
minimizing inputs. But the economic structure also must change at the macro level. Countries have a natural tendency to industrialize by transitioning towards more emissions-reducing high-tech sectors.5 Low-income countries generally show the highest share of value added in low-tech sectors, but since the 1970s, that share has been decreasing. Medium-income countries have the highest shares of medium-tech sectors, and high-income countries, -of high-tech sectors. And the share of high tech tends to rise across all income categories (Table 5.2). This natural tendency to shift from low- to hightech sectors also brings in its wake a natural tendency towards pollution. The lowest environmental productivity (expressed as the value added-to-pollution ratio) is associated with medium-tech sectors (Figure 5.7). The medium-tech sector also shows the highest pollution intensity for other pollutants besides CO2 emissions, such as particulates, sulphur dioxide (SO2) and nitrogen dioxide (NO2), although with lower abatement costs than other sectors. Low- and high-tech sectors have higher environmental productivity—in other words, they generate fewer emissions when producing $1 of value added. Sectoral specialization towards high-tech sectors reduces emissions intensity.6 In short, a natural economic tendency contributes to inclusive and sustainable industrial development (ISID). But environmental protection improvements from the low- to high-tech transition may not be enough to decouple economic growth from pollution. Countries need to enforce actions to curtail environmental harm, even if those actions are not strictly related to the production process (as for pollution abatement technologies). But that non-profit-driven technological change can be expensive (Figure 5.8). The steep cost of abatement is one of the main factors deterring firms from intervening massively for pollution reduction well beyond any “natural tendency” and countries from adopting emissions caps. Low- and middle-income countries, especially, are reluctant to adopt environment-friendly technologies because adoption costs could hamper growth. But