International climate agreements are extremely difficult to achieve. Uncertainty about the country-specific benefits of climate protection as well as the fact the efforts are contributions to a public good and provide the possibility for non-contributors to free-ride, strengthen the incentives to wait and postpone own mitigation efforts. At the same time, the irreversibility of the damages makes early contributions desirable. A recent article by May Elsayyad and Florian Morath, at the MPI for Tax Law and Public Finance, explains why technology sharing may be a way out of the dilemma.
While getting countries to commit to binding greenhouse gas emission targets has hitherto remained an elusive goal, initiatives to support renewable technology seem to be more successful. However, the support of renewable technologies is also controversially debated. One argument against it is that unilateral investments in technology hurt the investing country, as the other countries can in return reduce their effort on climate protection.
In a recent article May Elsayyad and Florian Morath show that sharing cost-reducing technologies can be a promising approach to tackle the problem of climate change. The authors analyse a two-period public goals model where later contributions can be based on better information, but delaying the mitigation effort is costly because of irreversible damages to the ecosystem. They show that investments in cost-reducing technology affect the countries’ timing of contributing and can change the equilibrium contribution pattern. Whenever technology transfer induces other countries to increase their early contributions, the country that provides the technology faces a lower equilibrium burden of contributing.
While the transfer of technologies which are relatively more effective in reducing current contribution cost has a strategic benefit, technologies with a stronger impact on further contribution cost is strategically disadvantageous and can lead to a higher own burden of contributing. Furthermore, technology transfer mechanisms that lead to higher early contributions are desirable from a welfare perspective since the incentives to delay the current contributions causes total contributions to be inefficiently low.
Veröffentlichung: International Economic Review, 2016, 57(3), S. 1057-1084.