Green cluster to vitalize regional economy

  • Published : Sept 30, 2010 - 18:25
  • Updated : Sept 30, 2010 - 18:25
With the emergence of a low-carbon growth paradigm and the creation of a growth base through new markets as a national agenda, advanced countries around the world are actively pursuing a green growth strategy. Prime examples are the Obama administration’s Green New Deal in the U.S. and the EU’s Sustainable Development Strategy and new energy policy. Japan is also striving for green growth by trying to achieve a low-carbon society through green technology and industrial development. In step with this trend, the Korean government has proposed “Low Carbon, Green Growth” as its new national vision and at the G8 Summit in L’Aquila, Italy, Korea proclaimed itself as an active participant in the global efforts to address climate change.

The importance of green growth can also be found in “The impact of renewable energy policy on economic growth and employment in the European Union,” a report recently published by the European Commission that concludes that employment and the creation of added value will be achieved in the field of renewable energy on a different level through the installation and implementation of new policies than what was achieved in previous industries. As for employment, it forecasted that up to 3.36 million people will have jobs in this field by 2030, which is nearly a three-fold increase compared to 2005 and the generation of added value will also grow to 190 billion euros by 2030, a growth of about 3.3 times that of 2005.

As such, advanced countries are coming up with practical support policies to achieve green growth, namely, investment in R&D and the creation of new markets. For instance, Germany adopted the Feed-in Tariff policy while providing assistance to R&D through its federal government. The U.S. is carrying out a support policy through its state governments while focusing on next generation technology R&D and Japan is also pursuing a subsidy policy and R&D investment.

Along with R&D investment and market support, the green growth strategy of advanced countries includes the formation of green clusters. By establishing clusters based on solar energy and wind power and creating new growth drivers for the region, they are enhancing national competitiveness and vitalizing the regional economy. Major wind power clusters include Ringkøbing, Denmark, the Basque Country in Spain and the state of Texas in the U.S. In particular, Basque has built a wind power cluster to overcome the slump in its steel and shipbuilding industries. Meanwhile, major solar energy clusters include the state of Thringen in Germany, the Rhne-Alpes in France and the Silicon Valley in the U.S. In Silicon Valley, California, green technology is increasingly underlined as a new growth engine for the regional economy. The increase in jobs related to green technology in California was 36 percent from 1995 to 2008, which is triple that of the total increase in jobs in the state, 13 percent, among which jobs related to solar power occupy the greatest proportion.

Therefore, in face of the intensifying global competition in green industries, it is imperative for Korea to establish an effective strategy on green clusters that will strengthen its competitiveness in domestic green industries and vitalize its regional economy. Korea’s green technology standards are only 5080 percent of that of advanced countries and its share in the global market is depressingly small. The green industry calls for convergence and a combination of various technologies and industries and it is also known as an industry where the agglomeration effect based on regional connection is significantly large. In this context, in order to narrow the technology gap with advanced countries and overcome our competitive disadvantage, the creation of clusters that agglomerates various related technologies and industries is important. However, the domestic environment to build green clusters is very poor. In addition, the problem of inefficiency due to the duplication of solar and wind power clusters in the local autonomies is becoming another concern. As a consequence, green clusters should be transformed into national growth drivers through a rational coordination of multiple plans on clusters of local autonomies, upon which the innovation of various related technologies must be facilitated.

Features of green technology innovation

Green technology innovation requires government policy intervention due to the high risks that exist in the process of technological development and proliferation and innovation by the active participation of consumers plays an important role. In addition, the industry’s complex nature enables it to have high relevance to front and back industries. Furthermore, the previously accumulated knowledge is highly utilized and it is important to vitalize the connection between industries. Therefore, a green cluster strategy must be pursued by considering the following characteristics of green technology innovation.

The green technology innovation process requires government policy intervention because of externalities. In the achievement of green growth, technological change is a very important issue, but the accompanying externalities are obscuring voluntary technological innovation. In this sense, the need for government policy to overcome this obstacle is supported by theories of market failure. As a consequence, government policy interventions are essential to reduce the development and proliferation risks and an incentive system for businesses and consumers that composes the value chain must be set up to facilitate technological proliferation. In particular, green technology innovation must facilitate vibrant innovation activities by businesses based on government intervention through the creation of early markets and thereby invigorate private consumer demand. This is the reason why advanced countries are implementing various new and renewable energy proliferation policies, such as FIT and the Renewable Portfolio Standard.

The products made through green technology innovation are expensive compared to general goods, which is why the generation of voluntary consumer demand may be difficult. Private economic players in a market do not have an economic incentive to conserve energy or improve the environment, which explains the lack of voluntary demand to develop environment-friendly technologies. Consequently, a social movement to improve consumers’ inception of the environment and the establishment of social businesses must be made to stimulate consumers’ participation and consumer innovation. In Europe, there are many success stories of green technology innovation led by regional consumers. Germany’s bioenergy village, Jhnde and the Morbach Renewable Energy Park are good examples of local resident participation models. The Vep wind project in western Hungary is also an example of a successful social business led by local residents.

Green technology innovation industries are often complex because various industries come together. They are also closely tied to their front and back industries and therefore, green technology and industries show a high utilization of the existing knowledge and industries in their development and proliferation of new technology. Solar energy, for example, is closely tied to the chemical, electronic and electric industries. The manufacturing of silicones and wafers, which are basic materials in solar energy, have a strong link to the chemical industry and likewise with solar batteries and the electronics industry that produces cells and modules and power utilities with the electric industry, which produces inverters and batteries. In addition, green technology typically utilizes the knowledge infrastructure of a previous industry in order to transform into a new industry. In the case of the semiconductor equipment industry in California, it transformed itself into a solar energy equipment industry and Israel’s aviation and semiconductor industries have transformed into photocell industries. Denmark’s agriculture/fishery and shipbuilding industries have formed the base of its wind turbine industry and Wales’ aviation, ICT and photoelectron industries developed its photocell industries.

In terms of the features of green technology innovation, the connection between the related industries has a critical impact on the success of innovation. Therefore, collaboration between industry, academia and research plays a relatively big role. In the case of green technology, the proportion of collaborative research is 72 percent, significantly higher than the overall R&D project average of 57 percent (as of 2007). To be more specific, collaborative research is very active, with industry, academia and research collaboration the highest (19.6 percent), followed by collaboration between industry and academia (12.7 percent) and industry and research (9.6 percent). It can be concluded that in focused technology fields where the proportion of application and R&D is dominant, collaborative research with businesses is very active.

Model to find and create reen clusters

A green cluster is a type of industrial cluster and can be defined as a collection of related industries in the value chain. However, as examined above in the features of green technology innovation, market creation, consumers’ recognition of the environment and the relativity to previous industries are highly important. Therefore, it calls for a systematic approach rather than a simple linear relationship that begins from technology development. In addition, previously developed industrial clusters that transformed into green innovation-related industries due to the manifestation of diversity have gone through the process of Jacobian Cluster Transformation. Like this, green clusters should strive for competition and diversity rather than specialization.

Therefore, in order to find and create green clusters that are based on the theory of innovation features of green technology and clusters, the following Core-Gate model should be established to measure capacity and propose policy measures. In other words, promising green clusters must be identified based on an analysis of regional cores including R&D, manufacturing, consumption and the relation to previous industries and governments must focus on a differentiated gate strategy that strives to expand the front and back gates (demand base R&D, commercialization and business establishment, test certification, public procurement and FIT, consumer innovation, etc.) of the regional major cores.

Diagnosis of the validity of regional green clusters

The results of an analysis of the regional core capacity of 14 cities and provinces, excluding Seoul and Gyeonggi-do, according to the Core-Gate model above are as follows. The green technologies that were analyzed were solar energy, wind power, hydrogen/fuel cells, bioenergy, green cars and LED.

● Based on the R&D investments and the number of patent applications in the field, which represent the R&D results, Daejon has the highest R&D capacity as a region with a high concentration of government contribution.

● Gyeongnam, Gyeongbuk and Incheon performed well in the compatibility of focus industries based on patents and business standards and green technology industrialization capacity based on the number of businesses related to green technology.

● Gyeongnam recorded the highest in terms of its utility of related industries measured by the level of specialization of green-technology-related industries. Consumers’ “green” mindset, as measured by the demand for comfortable lifestyles, was highest in Gwangju, Daegu and Incheon.

In order for each field to develop green clusters, the top four vital core capacities R&D capacity, industrialization capacity, utility potential of related industries and consumers’ green mindset must be above a certain level. Therefore, the top three regions that are above average in each capacity must first be chosen. Based on this, the region that satisfies all top four vital core capacities should be designated as a promising green cluster. The following are the analysis results:

● The Daegu, Gyeongsang and Chungcheong (including Jeollabuk-do) regions are promising in the field of solar cells and the southeastern region has potential in wind power. In the case of the Chungcheong region, solar-cell-related businesses in the Chungbuk region are mostly related to cells and modules, thus, including businesses that are located in Jeollabuk-do will heighten the effectiveness. In addition, it is highly likely that LG Electronics’ solar cell line in Gumi, Gyeongbuk will develop into a cluster. As for wind power, the southeastern region, which is above average in all four vital core capacities, holds the greatest promise. HYOSUNG, a major wind power business in the region, acquired international certification from the German Wind Energy Institute Offshore and Certification Centre (DEWI-OCC) in 2009.

The Gyeongsang region (Daegu, Gyeongsangbuk region and the southeastern regions) has the highest potential in hydrogen/fuel cells and the Chungcheong and Gyeongsang regions (Daegu, Gyeongsangbuk region and the southeastern regions) are both promising regions in bioenergy. In the hydrogen/fuel cell field, the Gyeongsang region, which records a well-balanced possession of the four core capacities, although slightly weak in research, holds great potential. A major business, POSCO, has begun to construct a factory in Pohang that can manufacture stack, which is the core material in fuel cells and has completed the construction of related development facilities. As for the Chungcheong region, its industrialization capacity and utility potential of related industries are somewhat lacking compared to its research capacity. However, the hydrogen/fuel cell field is a sector where research capacity is relatively more important and therefore, this region can be developed into a cluster. It also has an advantage in that LG Chem is planning to nurture Ochang, Chungcheongbuk-do into an industry center for next generation batteries. In addition, the Chungcheong and Gyeongsang regions have potential in the field of bioenergy.

● In the LED sector, the Honam region (Jeolla-do, Gwangju and Jeju Island) is promising, whereas the southwestern region holds potential in green cars. The industrial infrastructure is particularly important for LEDs and green cars. In this context, Hyundai and Kia Motors are planning to concentrate their investments in the development of environmentally-friendly cars under the greater goal of becoming one of the top four businesses in green cars in the world. Furthermore, Ulsan City’s “green electric car development and research infrastructure construction project” will begin next year, thereby giving the southeastern region the greatest potential for green cars.

Green cluster strategy

As examined above, no city or province can acquire all of the four vital capacities in building green clusters (R&D capacity, industrialization capacity, utility potential of related industries and consumers’ green mindset) and therefore, it is more desirable to pursue the strategy on a metropolitan economic region level. According to the field, a super-metropolitan cluster may be more relevant, namely, solar cells (Chungcheong region and Jeollabuk-do) and hydrogen/fuel cells (Daegu, Gyeongsangbuk region and the southeastern region). Above all, in order to pursue the green cluster strategy by metropolitan economic region, a regional control tower must be constructed. To this end, the R&D special zone project should be transformed into a policy that covers metropolitan economic regions and grant it the role as a control tower in the implementation of the green cluster strategy.

Support policies also require regional differentiation. A valid option is the Gate Expansion Strategy that completes the value chain. In other words, specializing in the core capacities that are pivotal to a region’s value chain will contribute to the completion of the value chain on a national level. Government support policy should focus on expanding gates in the front and back industries of such core capacities to minimize investment duplication.

Projects to support green clusters should be conducted on networks in each field. To begin with, assistance should be provided in the building of a network that is relevant to that field. The purpose of this is to integrate the core capacities in the value chain of each region and complement any vulnerable fields through an external network. For example, in the case of solar cells, the Daegu and Gyeongsang regions are promising. Therefore, it is more effective to integrate them led by local universities, venture companies and small-and-medium-sized enterprises. Affiliated research institutes, large conglomerates and investment institutions are advised to build an open network that covers areas outside the region. As such, the policy should begin with the provision of support to the building and operation of an open network for each field and expand to provide overall support, including R&D, nurturing of professional talent, SME consulting, market creation and marketing activities.

This is the 35th in a series of articles introducing the Korean government’s R&D policies. Researchers at the Science & Technology Policy Institute will explain Korea’s R&D initiatives aimed at addressing major socioeconomic problems facing the nation. Ed.

By Lee Yoon-Jun