Opening green windows of opportunity

The green transition holds many opportunities for developing economies to upgrade their productive capabilities and catch up with developed countries. However, the timing is crucial – countries must consider both the characteristics of targeted technologies and their domestic capabilities when defining strategies to open and seize green windows of opportunity.1

Technological considerations

Regarding technologies, it is important to consider factors like their maturity and tradability levels. More mature sectors, like biomass or solar photovoltaic (solar PV), have better socio-technical configurations including infrastructure, regulation, maintenance network and user practices.2 However, they also tend to have more competitive markets, which may create entry barriers for new firms from developing countries.

To seize these opportunities, then, forms may initially need some level of protection from competition.3 Immature technologies, like green hydrogen, concentrated solar power (CSP) or carbon capture, have different requirements. Capitalizing on these opportunities relies on the development of innovative capabilities and substantial investments in research and development (R&D), infrastructure and regulatory frameworks. On the other hand, they may also offer more opportunities for disrupting the industry. As a reference, one way to measure technological maturity is by considering the year the patent was applied for and the date that was cited (see next figure).

Domestic capabilities

Countries must assess their sectoral system and implement adequate policies to respond to opportunities as they emerge. Based on the preconditions and responses, green windows of opportunity could be categorized into four scenarios.

Green windows of opportunity scenarios

The first scenario is the most favourable context for opening and seizing green windows of opportunity, as it combines strong preconditions with strong responses by firms and governments. An example of scenario 1 is the Chinese Solar PV sector, which can build on large markets, a diverse industrial structure and national innovation capacity. The Chinese government has also been active when required: to respond to the drop in international prices after the 2009 financial crisis, the government stimulated domestic demand through subsidies, value chain collaboration and by encouraging intensified technological innovation.4

In scenario 2 (“windows to be opened”), countries have strong preconditions but their potential can be hindered by a weak policy response. The Indian National Solar Mission, for example, prioritized low-cost deployment over developing a local industry, resulting in import dependency.5

In scenario 3 (“windows within reach”), latecomers proactively develop sectors despite a lack of initial capabilities. Thailand, for example, offered subsidies, tax incentives and mandatory purchasing of electricity generated from biogas.6 In Ethiopia and Denmark, despite little initial experience with wind-powered energy, the governments actively ensured the growth of the industry through major transformative projects.7 8

Scenario 4 (“windows in the distance”) has the lowest potential for capitalizing on green windows of opportunity, with weak preconditions combined with insufficient policy responses. In Kenya, for instance, large-scale wind power development failed due to weak starting points and inadequate strategies to ensure local embeddedness and to encourage learning from projects.9

Priorities for latecomers

Although opportunities vary between countries and firms, there are some common priorities that latecomer governments should consider in order to identify, open and seize green windows of opportunity.

Sustainable development is a cross-cutting issue, requiring combined policy instruments that operate in synergy. For example, environmental, energy, science, technology, innovation and industrial policies must be aligned. This means that measures to promote green energy sectors, such as auctions or feed-in tariffs, should be coordinated with industrial policy efforts like local content requirements to enhance local production capabilities. Furthermore, investments, constant experimentation and steady improvements in more complex and greener sectors are critical for kick-starting and sustaining this effort.

Policymakers should also build up productive and innovative capacities demanded by emerging frontier technologies through support to R&D activities, raising awareness about the potential of green technologies across stakeholders, and promoting the development of infrastructure and skills to adapt, modify and adopt green technologies.

To absorb, adapt and develop green industries, countries must accumulate local knowledge, complemented by foreign expertise, to build capabilities along the value chain. This can be achieved, for instance, through collaborative research projects with external partners, public and private R&D, and measures to improve the available human capital. The accumulation of local expertise and the formation of a domestic industry also benefits from demand support through public procurement, local content requirements and tax incentives targeting specific technologies, production projects or companies.10

Windows of opportunity may be created, or they may appear serendipitously. What is certain, however, is that capitalizing on green opportunities will require a coordinated effort to ensure that capabilities, infrastructure, trade partnerships and funding sources are in place to take advantage of openings as they arise. Policymakers will also need to enable these efforts through supportive incentives and by lowering barriers to participation in the global green transition.

The text is based on Chapter 3 of the UNCTAD Technology and Innovation Report 2023.