A firm’s absorptive capacity – its ability to use the information that comes from interacting with other firms, users and knowledge providers – determines its ability to benefit from the technological knowledge available in global and local networks. Absorptive capacity is generally low in firms in developing countries, but it can be expanded through training and information programmes.

Government’s role includes funding research and development (R&D) and supporting private sector research, encouraging adoption and diffusion of best available technologies, promoting demonstration projects and engaging international research partners. Best available technologies and innovation are key drivers of industrial energy efficiency, but they are beyond the means and capabilities of all but a few developing countries and can take a long time to yield returns. Most developing countries will continue to rely on foreign technologies, but even this requires building local absorptive capacity.