Building Competitive Green Industries

While policy change is not always and necessarilybad for business (indeed sometimes it iswelcomed), changes especially to instrumentsthat provide financial support to investmentsmust be developed in consultation with theaffected businesses and investors. Ideally changeshould be implemented gradually, after plenty ofwarning. Indeed, sudden and unexpected changesin policy are likely to cause most damage,especially when foreign companies and investorsare involved.Finally, it is important to bear in mind thechallenges surrounding the implementation,enforcement and regulation of any giveninstrument. In many developing countriesthis issue presents the greatest risk, whereeven well designed legal frameworks andfinancial mechanisms can fall victim to poorimplementation or compliance. Regulatorypolicies, such as import tariff waivers designedto support clean technology sectors, cancreate incentives for corruption as does thedemarcation of government funds to supportnascent industries. Indeed, 26 percent of thesolar energy firms surveyed in India (see Chapter4) identified corruption as a major barrier facingthe development of their business, with 22percent pointing to unfavorable customs andtrade regulations. In order to reduce the riskof rendering supportive instruments obsoletebecause of poor enforcement, governments andother stakeholders must sustain capacity buildingprograms, combined with reforms that allowfor greater transparency, reporting and auditingprocesses throughout public administration. Box7.5 discusses some of these issues, with regardto Ethiopia’s Climate Resilient Green EconomyStrategy.In the least developed countries and those withmajor resource constraints, governments andother stakeholders are advised to identify cleantechnology “sweet spots” in order to maximizethe co-benefits of economic growth and climateresilient development or greater energy access.This is of particular importance in countrieswhose greenhouse gas emissions are of globalinsignificance, such as in most Sub-SaharanAfrican countries, where there is a far greaterneed for economic development than climatechange mitigation. In such countries, instrumentsthat support clean technology sectors should beintegrated into national development strategies,BOX 7.6 Climate Smart Agriculture—a potential “sweetspot” industry offering environmental and social cobenefits?As discussed in the previous chapter, CSA is more aproduct of behavior change than hard technologicalchange; hence, policy support should be geared moretowards shifting farming away from unsustainablepractices. However the widespread uptake of CSApolicies by governments provides some opportunitiesfor SMEs (including small holder farmers) throughdemand for drip irrigation, food storage and similartechnologies. In order to design a policy frameworkto stimulate CSA, there is wide agreement on thefundamental need for effective coordination betweennational agricultural development plans, food securityand climate change (FAO, 2010). Since these are oftenthe domain of different Ministries, such coordination isa challenge.In terms of specific instruments to support CSA, theFAO identifies three key mechanisms: reformed credit,insurance and payments for environmental services,all of which should be designed to incentivize farmersto adopt CSA practices. First of all, commercial creditand insurance sold to farmers needs to be reformedin order to incentivize the use of crop residues andrestoration projects, which usually involve withdrawingland from short-term production, in order to obtaingreater longer-term productivities from increasednatural fertility. Traditional credit and insuranceproducts do not encourage such practices and viewthese ecological investments as negative financialtrade-offs. Governments are also able to legislatepayments for environmental services, in support of thetransition to CSA. Payment for environmental services,such as the mitigation of climate change, has beensuccessful in the forestry sector and is a service thatsmallholder farmers can easily provide, as a means tocompensate for the short-term productivity losses thatoften result from CSA practices.Many countries have already proposed the use of theseinstruments through national strategy or planningprocesses, such as Poverty Reduction Strategy Papers(PRSPs), National Action Plans for Adaptation (NAPAs),Nationally Appropriate Mitigation Actions (NAMAs) orTechnology Needs Assessments (TNAs) for climatechange. In addition to highlighting the ecologicalbenefits of CSA, governments and other stakeholderscould explore the potential benefit of CSA as a drivingforce for local SMEs supplying clean technologies,adding, where necessary, political support to the CSAagenda.Chapter 7: Policy to Support Clean Technology SMEs81