Building firm capabilities in the Global South for a low-carbon energy technology transition

• In Event: Governing Clean Technology Diffusion Across Society: From Firm Innovation to Household Adoption

Abstract

Accelerating the diffusion of low-carbon energy technologies in Global South countries is essential for climate mitigation. A critical yet underexplored determinant of successful technology diffusion in Global South countries is the innovation capabilities of firms. Yet the firm-, technology-, and sector-level factors that govern such capability-building in response to specific policy instruments remain poorly understood. This paper improves this understanding by presenting a case study of the Standards and Labelling (S&L) program for room air conditioners (RACs) in India.

The S&L program was established in 2006 by the Bureau of Energy Efficiency of India's Ministry of Power. It set minimum energy performance standards and 1–5-star efficiency labels for fixed-speed RACs, with benchmarks tightened periodically through industry-wide consultation. A second phase extended labelling to inverter-based RAC technology, requiring new testing standards adapted to Indian climatic conditions and resulting in a step-change in efficiency. In its nearly two decades of implementation, the program raised the average energy efficiency of RACs sold in the market by 72%. The study employed a mixed-method approach combining in-depth interviews with policymakers and firm executives with firm-level data from regulatory filings. From over 60 firms operating in the Indian market, we selected four for comparative case analysis—two domestic firms and two multinational subsidiaries (MNCs)—that together hold over 50% of market share and are consistently identified as sector leaders. 

Our analysis reveals that capability upgrading reached the level required to serve the highest-value domestic market segment, but no further. In the first phase of the S&L program, firms lacking access to foreign advanced component suppliers and RAC testing infrastructure delayed compliance and stalled implementation of tighter standards. In the second phase, only firms targeting the mass-premium market segment acquired the in-house adaptation capabilities for inverter technology demanded by the India-specific standard: MNCs drew on their parent firms' know-how, while domestic firms engaged foreign consulting agencies. A domestic firm, whose corporate strategy centered on commercial cooling, invested most aggressively in indigenous innovation capabilities because those capabilities offered competitive advantages beyond RACs. Domestic firms that did not perceive a strategic fit between the S&L requirements and their broader market positioning resisted upgrading, creating tension with the public sector and delaying the adoption of more stringent standards. 

These findings offer generalizable lessons for policymakers in the Global South seeking to advance both the diffusion of low-carbon technologies and domestic industrial development. While regulatory and information-based policy instruments are fiscally efficient tools for shaping consumer demand, their success in accelerating the transition depends on firms having accessible channels to acquire the required capabilities. Policymakers should anticipate the required innovation capabilities and provide targeted support for firms that lack global knowledge networks. They also need to explicitly manage the tradeoff between the pace of the low-carbon transition and the time needed for domestic capability development. This case demonstrates that technology diffusion and green industrial growth can be synergized, but only through deliberate policy design that accounts for firm strategies and market-segment dynamics.

Author

• Anurag Panda, ETH Zurich
  Presenting Author