low carbon, green growth, renewable energy, greening of conventional industry, economic profitability, environmental soundness, social responsibility, sustainable development
The world is simultaneously facing urgent environmental issues such as global warming and energy problems as well as economic difficulties stemming from the global financial crisis Accordingly, countries around the world are implementing Green New Deal policies. In Korea, on August 15, 2008, President Lee Myung-Bak announced a new vision for national development of "Low Carbon, Green Growth." Thereafter, a presidential committee on green growth was launched; work began on drafting legislation, the Basic Act on Low-Carbon Green Growth; and government appropriated budgeting for green growth.
Unlike in the past, when economic growth and environment protection were viewed as somewhat conflicting objectives, "green growth" embodies a view that economic profitability, environmental soundness and social responsibility can all be achieved simultaneously in a strategy for sustainable development. Hence, many nations, including Korea, are now attempting to discover new green businesses that will lead to efficient green growth.
However, the definition of green industry is yet unclear. This paper attempts to define it by dividing the industry into three parts. The first part is the greening of conventional industries. It recognizes the value and importance of conventional industries, but incorporates the urgent need to adopt environment-friendly methods. The second part is the environmental industry, which handles pollution prevention and the end-of-pipe pollution treatment as well. This includes all green technology, equipment and facilities, and consulting services that help to combat contamination and issues related to pollution. The third part is renewable energy. It is increasingly being seen as a substitute for fossil fuels (substitute energy), a solution to global warming (clean energy), and a new growth engine that can help the global economy escape from the worldwide recession.
Considering the characteristics of the renewable energy industry, it may be the most effective means of achieving green growth. This article takes a close look at renewable energy and suggests ways to facilitate domestic and global cooperation to secure green technology.
NEW & RENEWABLE ENERGY INDUSTRY
According to Korea's Promotion of Development and Use of New and Renewable Sources of Energy Act (2009), new energy refers to energy generated from fossil fuels used in an environment-friendly way, such as gasification of coal, while renewable energy refers to the use of solar, wind, hydro, and other powers. Simply, new and renewable energy (NRE) can be understood to mean clean fossil fuel energy or non-fossil fuel energy. (See Table 1)
NRE can provide both opportunities and risks In terms of opportunities, the renewable energy industry is expected to grow 10-20 percent annually, creating a number of new business opportunities, especially in countries where IT is highly developed with good business infrastructure and high quality labor. Risks in new ventures can be mitigated by taking advantage of government support programs such as feedin tariffs (FIT) and renewables portfolio standards (RPS).
As for the risks associated with the industry, high production costs and low efficiency makes economic stability difficult to achieve. Also, while it may be easy to play catch-up in equipments and operations, there exists a high technological barrier in developing proprietary technologies Moreover, excessive competition due to an overcrowded market is likely. (See Figure 1)
NRE Supply Policies around the World
Countries around the world consider NRE to be the best way to promote green growth and are now trying to increase the supply of renewable energy.
* The European Union's New Energy Strategy (2007) sets a goal of increasing the share of NRE in all of the EU's energy mix from the current 7 percent to 20 percent by 2020.
* The United States' New Energy Policy (2006) targets NRE at 25 percent of total energy supplies by 2025. To meet this goal, the development of solar energy, bio-energy, and hydrogen and fuel cells will be accelerated. Also, RPS, a regulation requiring a portion of energy to be generated from renewable energy sources, will be implemented on a bigger scale.
* Japan also set up its New National Energy Strategy (2006) and set a renewable energy target of 3 percent in primary energy by 2020. Japan aims to lead in the world's solar energy market, spread clean coal technology, and implement RPS on a bigger scale like the United States.
* China's 11th five-year (2006-2010) social and economic development plan sets a target of having 4 percent of its energy needs satisfied by renewable energy by 2020. As follow-up measures, the Chinese government announced the Renewable Energy Law, which serves as a legal basis to increase the supply of biomass energy, expand investment in fuel cells and hydrogen for transportation use, and promote coal gasification and liquefaction projects.
In Korea, the government's Third Basic Plan for New and Renewable Energy Technology Development and Deployment (2008) calls for NRE to be raised to about 6 percent of primary power supply by 2020 and 8 percent by 2030 (See Table 2). To meet these targets, the Korean government is planning to expand the supply of NRE sources, such as wastes (33.4 percent), bio energy (31.4 percent), wind power (12.6 percent), solar energy (4.1 percent), water power (4.4 percent), and others (1 1 .4 percent) by 2030.
Korea's NRE Technology Level
According to 2009 data from the Korea Institute of Energy Technology Evaluation and Planning, the technology level of Korea's NRE industry is low relative to those of industry leaders For example, Korea's solar cell technology, such as silicon and thin-film solar cells, is 61-88 percent of industry leaders' capabilities and accounts for a mere 0.7 percent of the global solar energy market. Korea's offshore and onshore wind farm technology is 68-79 percent of industry leaders' and has 1.1 percent of the global market. Korea's hydrogen fuel cell technology (for transportation, home, and power generation purposes) stands at 62-70 percent of industry leaders' with no share of the global market. With fossil fuels, Korea's Gas-to-Liquids (GTL) and Coal-to-Liquids (CTL) technologies stand at about 50 percent of industry leaders' with no market share in the global market. Korea's Integrated Gasification Combined Cycle (IGCQ technology, which turns coal into gas, also has no portion of the global market, and Korea's technology level stands at 56 percent of the industry leaders' capabilities.
As illustrated in Table 3, a lack of having core technologies makes it difficult for Korean companies to penetrate overseas markets. This is where efficient cooperation between participants is needed to narrow the technological gap with industry leaders
GLOBAL AND INTERNAL COOPERATION TO ACQUIRE GREEN TECHNOLOGY
The inherent difficulties associated with developing renewable energy technologies include: 1) the nature of being long-term technologies that require a considerable amount of time to develop; 2) the high risks and high returns; 3) a high level of technological uncertainty; and 4) substantial policy dependency. Accordingly, what is most important in development is setting up a system where companies, government, and research institutes can all cooperate effectively. The following looks into the problems in securing core technologies and possible solutions by dividing core technologies into 1) source and commercialization technologies and 2) basic and next-generation technologies.
Problems and Solutions in Acquisiton and Commercialization
All industry participants have difficulties in sharing research results, encounter a lack of cooperation with each other and face excessive competition in technological development. Indeed, R&D results, particularly on commercialization of technologies done at the company level, are understandably not shared enthusiastically. Also, it is difficult for many companies to participate in projects which develop core technology, meaning that the fruits of R&D are shared only among the participating companies. Another problem is that there is no coordination in technology development based on value chain potential. There are often cases in which many companies converge in a technological area, creating excessive competition in the market. Yet another problem is differing motives among companies in joining government projects.
Solutions to the problems could involve a division of roles, agreed upon multi-party participation in the same R&D, more corporate participation in government development projects, and promotion of technology dissemination. At the planning stage, roles should be divided in consideration of information sharing, corporate capability, and company size. Competition could be fostered by providing government support for projects with similar technology development goals A merit system also could help prompt companies in the same value chain to participate in government supported development projects. To encourage large companies to transfer technology to small- and medium-sized enterprises (SME), an incentive should be considered for those who transfer technology and designate the recipient SMEs as the preferred suppliers Another consideration would be for the government to broker technology transfer to boost sharing of project results with nonR&D participants.
The biggest problem in joint technology development between a company and a research institution is that corporate needs are not fully satisfied. Task selection and development wishes may not reflect the corporate wishes, leading to inefficient R&D results
Also, poor communications between a company and research institution often cause development projects to fan. SMEs alone cannot ask government research institutions to develop the technology and government research institutions cannot get appropriate credit for their development support of SMEs, nor do they receive sufficient incentives to support SMEs' commercialization technology.
To solve these problems, more companies should be attracted to development projects To this end, it is necessary to form conditions that induce the private sector into the development from the project planning stage. In addition, the PD (Project Developer) system should be introduced to commercialization of technology to provide the private sector more room to participate.
Furthermore, the current incentive system for research institutions needs to be revised. When evaluating government research institutions, development support for companies' commercialization technologies should be given the same amount of credit as that given when a paper is published. Also, additional credit should be given for joint research with SMEs and for providing technology development support.
Between Korean and overseas companies, lack of information has been a major difficulty in obtaining leading foreign technologies. It is especially difficult to obtain foreign technologies in a short time, and Korean companies, due to insufficient information, often have to spend a lot of resources in finding the best M&A partner. Even if a suitable M&A partner is found, bad timing may derail a deal. Shortage of funds is also pointed as a hindrance to smooth M&A.
There should be funding and information support to help companies to get core technologies in a short time through M&As and joint investments Setting up a "Green Fund" will be a good idea. It can provide financial assistance to companies that seek to diversify operations through M&As. To get necessary information about prospective companies for M&A, a joint taskforce may be formed with research institutions in the relevant fields. If foreign companies are considering a joint investment, a "test bed" in the Korean market can be provided to them.
Problems and Solutions in Securing Technology
Since a majority of development projects focus on commercialization technology, work on next-generation technologies are always put aside. Moreover, since development projects involve a high amount of inherent risks, companies tend to avoid them for a long term. Another problem is government's excessive "selection and focus" strategy, where the selected technologies receive government support. For example, most of the budget for NRE is spent on solar energy (thin-film solar cell), wind power (offshore wind power), and fuel cell (fuel cell for transportation purpose) areas among eleven NRE technologies. As for core next-generation technologies, the fact that the success of long-term development projects could create more jobs and added-value has frequently been ignored when government subsidies are allocated. The Korean government may not have fully utilized or appreciated the private sector's information-collecting capability and market outlook in selecting the country's next-generation technologies
Bolstering the use of the PD system, restarting technology research councils in NRE and selecting tasks and new evaluation platforms are all suggested options to strengthen technological competitiveness of market participants The current PD system has received positive reactions because it has attracted more private sector participation at project stages, ranging from planning and operation to evaluation. But the PD system is only available in the solar energy, wind power, and fuel cell technologies. Expanding it to other NRE technologies is suggested but on a gradual basis rather than a sudden wholesale installment. Improving the existing technology research councils should proceed first.
Also, when the government selects development tasks on next-generation technologies, it should differentiate the scope of research task selection and the size of government support according to the stages of development such as idea generation, technology development and commercialization (including technology testing). For example, the government should extend broader support at the idea generation stage, so that the scope of project selection can be widened and research deepened. Then, once this is done, the government should more narrowly focus its support to those ideas with the brightest market outlook and high-growth potential at the technology development stage and commercialization stage.
With regard to research institutions, a lack of cooperation between them is the biggest problem. They do not communicate nor cooperate, so that research results and data are not shared, slowing the pace of technology development. Also, testing data are not effectively utilized in development of source technology.
Strengthening cooperation through revision of the incentive system is recommended. In other words, the government should encourage joint technology development projects between research institutions from the early stages in facilitate sharing of databases and research findings With state-funded joint development projects among companies, the government, and research institutions, the costs companies usually bear should be used exclusively for R&D purposes.
There are few joint development projects between Korean and foreign research institutions. This is because domestic core technology development lags behind that of foreign research institutions, which gives no incentives to foreign institutions to pursue joint work with domestic institutions. A lack of information is another obstacle to joint development with foreign institutions because domestic institutions do not know well about what technologies foreign institutions are developing. The small number of personnel exchanges between Korean and foreign institutions is also hindrance to obtaining foreign technologies.
Joint development with foreign institutions is possible only when domestic institutions are engaged in similar research. So, it is important to collect information in advance of the technologies that foreign institutions are developing. Government support should be in place to help dispatch human resources to foreign institutions more easily. Also, the government should collect information on Korean research personnel abroad and should prepare an incentive system to attract them to Korea.
CORE TECHNOLOGIES AND BUSINESS OPPORTUNITIES
"Low Carbon, Green Growth" is suggested as a solution to the current economic recession, as well as the energy problem and global warming. In particular, NRE has been receiving considerable attention as an effective means to realize green growth. Like other industries, securing core technologies can bring high value-added and new growth and business opportunities The NRE industry offers advantages such as high growth, government support, and well-established infrastructure, but economic inefficiency, high technological barriers, and excessive competition remain problematic.
For participants in the NRE industry, the biggest task will be securing core technologies and turning R&D results into business opportunities This report divided the core technologies of NRE into source and commercialization technologies, and basic and next-generation technologies It identified problems and suggested ways that participants in various technology areas can cooperate. In source and commercialization of technology, participants were divided into industry participants, companies and research institutes and companies and foreign companies. In basic and next-generation technology, participants were divided into all technology development participants, research institutes, and domestic and foreign research institutes.
To lead green growth successfully, a virtuous cooperation circle involving government, companies, and research institutions is needed to turn green technology into business opportunities as well as development of green technology.
Translation: LEE Hae-Won
What is most important in development is setting up a system where companies, government, and research institutes can all cooperate effectively.
Korea's Green New Deal is regarded as a new growth engine, solution to energy needs, and pathway to addressing global warming. However, economic inefficiency, high technological barriers, and excessive competition remain stumbling blocks to acquire green technology. Better coordination and sharing among companies and research institutions is needed in Korea to commercialize green technology and to maximize their earnings potential and positive environmental impact.
1 Project Developer (PD) system was introduced to raise the efficiency and independence of research development of solar energy, wind power, and fuel cell technologies. The PD should draw a long-term plan ranging from designing a road map, acquiring technology, and commercializing its own technologies. In designing the road map for national projects, demand from the private sector should be reflected while encouraging its participation and an entire supply chain going beyond separate technology development should be considered.
2 Technology research councils operated for eleven NRE areas used to serve as a consultation body that provides technology development service and deployment strategies. Due to closed operations in selecting participants and overall management, they were abolished.
JANG Keeyoon is a research economist at POSCO Research Institute's Center for Green Growth Study. He was previously a research fellow at Samsung Global Environment Research Center and SERI. His research interests include environment management of SMEs and new and renewable energy strategy. He holds a PhD in Economics from Korea University. Contact: email@example.com.…