Technological change drives productivity growth and economic development, and across all scenarios the role of technological progress is critical. Technological markets grow substantially (Figure 4), creating continuing opportunities for improved, adapted, and new technologies. But progress has a price. RD&D of new energy technologies and the accumulation of experience in niche markets require upfront expenditures of money and effort. These are increasingly viewed as too high a price to pay in liberalized markets where the maximization of short-term shareholder value generally takes precedence over longer-term socioeconomic development and environmental protection. Yet, it is the RD&D investments of the next few decades that will shape the technology options available after 2020. A robust hedging strategy focuses on generic technologies at the interface between energy supply and end use, including gas turbines, fuel cells, and photovoltaics. These could become as important as today's gasoline engines, electric motors, and microchips.
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In the regional polls technology was ranked a top-priority issue in NAM and PAO, each of which has a particularly strong RD&D and technology base. The PAO regional review emphasized the long-term possibilities of tapping unconventional fossil resources in the form of methane hydrates, an option that will require continued and concerted efforts in technology development. In Sub-Saharan Africa (AFR) the regional review stressed the importance of improved, low-cost technologies tailored to the region's specific circumstances and needs. In CPA the review stressed the importance of technological progress in reconciling rapid economic development and environmental protection.
A key theme of this study is that RD&D and investment choices in the next two decades will lead to technology improvements, and the technologies that benefit will become cheaper, thus making subsequent investments in the same direction more attractive. Given this conclusion, concerns in the WEU regional review that deregulation may curtail incentives for long-term RD&D are particularly important. In both the public and private sectors, recent declines in RD&D budgets need to be carefully checked and a coherent technology strategy developed to respond to long-term challenges. Of all OECD countries, at present only Japan seems prepared to invest in the kind of long-term thinking and technology development that is so vital from the perspective of the global scenarios.
Technological change increasingly crosses national borders. One example is that of PAO as the dominant source for both capital and technology for much of Asia. However, efforts to transfer technology frequently have failed because successful technology diffusion requires high local expertise. Infrastructures need to be in place, labor must be educated, and local RD&D capabilities are required for the necessary local adaptations, modifications, and extensions of new technologies that make the difference between success and failure. For this reason, capacity building is a resilient strategy for preparing for a transition away from fossil fuels to a more diversified energy supply system. If indigenous technological capabilities are not nurtured right from the outset, however, sunk costs in infrastructure and human capital make it progressively more difficult to change course.