UN World Investment Report 2010 - Office of Trade Negotiations

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1. Weighing the pros and cons of
promoting low-carbon foreign
investment
Low-carbon foreign Developing countries
investment can facilitate are faced with two
the expansion and major challenges in
upgrading of developing responding to climate
countries’ productive change and moving
capacities and export towards a low-car-
competitiveness, while bon economy: first,
helping their transition the mobilization of
to a low-carbon needed finance and
economy. However, such
investment; and, sec-
investment also carries
ondly, the acquisition,
economic and social
generation and dis-
risks.
semination of relevant
technology. Both are
areas where foreign investment can make
valuable contributions – hence the discussion
below focuses on the implications of lowcarbon
foreign investment and not on those
of moving towards a low-carbon economy
in general.
Nevertheless, while the future international
climate change regime – including specific
carbon reduction commitments and financial
and technological support for developing
countries – is still to be agreed upon, countries
need to examine whether it is in their
interest to facilitate low-carbon foreign investment.
When adopted, such strategies are
likely to help improve production processes
and the emergence of new technologies
(including enhancing their energy-, material-
and resource-efficiency) and industries.
Other advantages for early adopters include,
among others, leapfrogging to new clean
and environmentally friendly technologies
and gaining first-mover advantages giving
them an edge over competitors and attendant
export opportunities in key industries.
World Investment Report 2010: Investing in a Low-Carbon Economy
D. Strategies for low-carbon foreign investment:
policy options
In addition, a number of co-benefits may arise
from moving towards a low-carbon economy,
including specific sectoral benefits such
as rural electrification; safety and security
offered by stricter building codes; energy
security through diversification of energy
sources and energy efficiency improvements;
positive effects on the local natural
environment; and opportunities arising from
international funding and resources for moving
into a low-carbon economy.
On the demand side of the global economy,
a growing pool of responsible consumers
and the rise of a sustainability-oriented civil
society shaping consumer preferences, suggest
that there will be an increasing market
for low-carbon products and services. These
changes in global demand patterns could be
seized as export opportunities by developing
countries by encouraging low-carbon
foreign investment. Reasons for developing
countries to encourage low-carbon investment,
including through TNC involvement,
are discussed in a recent study. The study
identified three key “poles of clean growth”:
energy efficiency, sustainable agriculture and
renewable energies (UNCTAD, 2010c).
A number of possible disadvantages or
concerns must be weighed against the above
benefits, however, in pursuing low-carbon
foreign investments. Equipped with cuttingedge
technology and implementing more
efficient production processes, TNCs may
effectively crowd-out domestic companies
in developing countries, particularly those
who are still operating at an (overall) lower
level of efficiency, output and quality. Among
other consequences, this can lead to reduced
competition in host country markets and
thereby to the potential for market dominance
and restrictive business practices. With their
nascent regulatory and institutional structures,