As COP15 is rapidly approaching its climax, a number of conflicts between developed and developing countries have surfaced. These conflicts should not be surprising. First, the costs and benefits of actions taken to stop climate change vary across countries. Second, poorer nations argue that rich countries have caused the problems and should clean up their own mess. Third, individual countries have a unilateral incentive to free-ride on other countries actions.
Copenhagen has shown in a painfully evident way that it is impossible for the international community to resolve zero-sum games. For the international community to move from discussion to action – shifting from talk the talk to walk the walk – it needs to find ways to make change into something positive. The cost of climate change needs to be shifted to the benefits of sustainability.
Two ideas have created a particular tension between developed and developing countries. The first is the idea that new green technologies should be put in the public domain or alternatively be compulsory licensed. The second is the focus on financial aid from developed to developing countries. Both ideas are neither necessary nor effective solutions to the problems they try to address.
Starting with the issue of access to technology in developing countries, it is ineffective to undermine the system of intellectual property. A much more effective alternative is to promote dissemination through the development of global technology standards in combination with regulation that permits international price differentiation and low prices in developing countries.
New green technologies need to be invented. Once invented they need to be used. And preferably on a global scale.
Being global public goods it is economically most effective to finance global technologies with Ramsey pricing, i.e. international price differentiation such that developed countries pay high fees while developing countries pay low fees. This international price differentiation needs be supported with some restriction on parallel trade that makes it profitable for holders of IPRs to offer licenses to developing countries at very low prices. This in turn reduces or eliminates the need to impose compulsory licenses.
ICT standards can play an important role by fostering innovation and technology transfers. Standards strengthen the incentives to innovate to the extent that it allows innovators to benefit from economies of scale. ICT standards can similarly contribute to fast dissemination of technology in a way that improves productivity.
Turning to the second issue of redistribution, the idea of financial aid from developed to developing countries is not effective and there is a substantial risk that it will result in a dead-lock. The proposal is particularly problematic in political perspective in a situation when several large economies, including the US, have governments with very large deficits.
A much more effective alternative is to rely on a market solution. In a global cap and trade system, i.e. a system with tradable carbon emissions permits, poorer countries can be given permits that they could sell to developed countries. This system does not only have the benefit that it would allow developing countries to get financial support, it also allocate the burden to the polluters, which is particularly attractive. Perhaps even more important a “cap and trade system” would have the benefit that innovation and productivity improvements are fostered.
In sum, the trick to turning tigers into vegetarians is to create gains from change. Innovation and technology transfers supported by standardization, IPRs and international price differentiation and transfers based on a global cap and trade system would be a good start.
