UN World Investment Report 2010 - Office of Trade Negotiations

CHAPTER IV Leveraging Foreign Investment For A Low-Carbon Economy 103
and policies and can lead to very fragmented
markets, thereby reducing demand for lowcarbon
investment. The country level focus
of the Kyoto Protocol also results in a situation
where the current international regime
does not contain adequate and effective
provisions related to investment. Secondly,
although the CDM and JI were expected to
generate foreign investment and technology
flows, in the main this expectation has not
been met. Finally, the current international
climate regime – which remains in a state
of flux – lacks what the private sector needs
most to reorient its strategies: a “loud, long
and legal” international and national commitment
by governments (WBCSD, 2005).
Uncertainties about the post-Kyoto framework
weaken the private sector’s ability and
willingness to make decisions in the area of
climate change.
Developing countries in particular are
grappling with the need to create a policy
framework that effectively leverages foreign
and domestic private investment for climate
change mitigation and development; and
underlying this difficulty is the more fundamental
question of the priority they give
to low-carbon strategies (UNCTAD, 2009f)
and, in that context, to foreign investment.
Many developing countries have limited resources
and capabilities, including requisite
technologies and skills for investment in appropriate
activities; and, moreover, the costs
of access to necessary low-carbon know-how
are high. As a result, focussing on moving
towards a low-carbon economy holds the
danger of slowing much needed growth. At
the same time, there are first-mover and other
advantages that could be derived from such
a move. TNCs can make particularly strong
contributions to the technological aspects of
the move towards a low-carbon economy,
as well as to the financing and investment
challenge it poses – if leveraged by supportive
policies. However, in this context,
current policy regimes – at the national and
international levels – are perceived as falling
short of effectively harnessing (foreign)
private sector investment.
B. The characteristics and scope of
low-carbon foreign investment
1. Low-carbon foreign investment
and the value chain
Low-carbon foreign
investment3 can be
defined as the transfer
of technologies, practices
or products by
TNCs to host countries
– through equity
(FDI) and non-equity
forms of participation
– such that their
own and related operations,
as well as use of their products and
services, generate significantly lower GHG
emissions4 TNCs can lower
global GHG emissions
through foreign
investments that
upgrade technologies
and processes in their
operations and value
chains. They can also
supply low-carbon
products and services.
than would otherwise prevail in
the industry under business-as-usual (BAU)
circumstances (box IV.3). 5 Low-carbon foreign
investment also includes FDI undertaken
to access low-carbon technologies, processes
and products.
Low-carbon foreign investment can potentially
reduce GHG emissions in host countries
in two ways:
•
TNCs’ operational processes and those
of related firms along their global value
chains can be upgraded (fig. IV.1) by
introducing low-carbon processes that
reduce GHG emissions. Although this
type of investment usually requires
R&D in both hard and soft technologies
when undertaken in home countries, it
often involves only the dissemination
of technology to the host economy when