The Climate Policy Hold‐Up: Green Technologies, Intellectual Property Rights, and the Abatement Incentives of International Agreements

• Date: 01 July 2017
• Published date: 01 July 2017
• Author: Timo Goeschl,Grischa Perino
• DOI: http://doi.org/10.1111/sjoe.12179

Scand. J. of Economics 119(3), 709–732, 2017

DOI: 10.1111/sjoe.12179

The Climate Policy Hold-Up: Green

Technologies, Intellectual Property Rights,

and the Abatement Incentives of

International Agreements∗

Timo Goeschl

Heidelberg University, DE-69115 Heidelberg, Germany

goeschl@eco.uni-heidelberg.de

Grischa Perino

University of Hamburg, DE-20354 Hamburg, Germany

grischa.perino@wiso.uni-hamburg.de

Abstract

The success of global climate policies over the coming decades depends on the diffusion

of “green” technologies. Using a simple model, we highlight a conflict between interna-

tional environmental agreements (IEAs) on emissions reductions and international systems

of intellectual property rights (IPRs) on abatement technologies. When IPRs are strong and

global, IEA signatories anticipate rent extraction by innovators. This hold-up effect reduces

abatement, potentially to levels below those of non-signatories, and it reduces the number of

signatories to self-enforcing IEAs. We explore policy options that respect existing property

rights, but avoid the strategic interaction between signatories to an IEA and innovators.

Keywords: Diffusion of innovations; intellectual property rights; international climate

policy

JEL classification:L12; O33; O34; Q54; Q55

I. Introduction

Over the next 20–25 years, much of climate-relevant technological change

is expected to come from the international diffusion of technologies that

are already known (Metz et al., 2007).1While some of these “green” tech-

nologies are in the public domain, the vast majority of them are owned

∗We gratefully acknowledge helpful comments by Scott Barrett, an anonymous referee, and

audiences at the Economicum in Helsinki, the International Association for the Study of the

Commons meeting 2014 in New York, the FZU-ZEW Brown-Bag seminar, and the Second

Environmental Protection and Sustainability Forum in Bath.

1Influential research has claimed that stabilizing the carbon stock in the atmosphere until

2050 at around 500 ppm can be plausibly met by a portfolio of currently existing technologies

(“stabilization wedges”) while underlying output growth continues (Pacala and Socolow,

2004).

CThe editors of The Scandinavian Journal of Economics 2016.

710 The climate policy hold-up

by private corporations located in industrialized countries (Reichman et al.,

2008; Hall and Helmers, 2013). These entities expect to enjoy the benefits

of ownership of their intellectual property rights (IPRs) for most of the next

two decades. This expectation rests, at the international level, on mecha-

nisms such as the system of Trade-Related Intellectual Property Rights

(TRIPS) that obligates countries that aspire to World Trade Organization

(WTO) membership to erect a domestic system of effective and enforceable

IPRs.

Recent discussions have started to challenge the merits of IPRs on

climate-relevant technologies and their enforcement through TRIPS. Inter-

national bodies and non-governmental organizations have floated ideas for

possibly drastic limitations on TRIPS for such technologies on the grounds

of encouraging their adoption in developing countries and of international

equity considerations (Lee et al., 2009). Examples for such limitations in-

clude compulsory licensing and revocation of IPRs in developing countries

(UNFCCC, 2010). Individual countries, such as India, have also suggested

shorter patent durations for climate-relevant technologies (World Trade Or-

ganization, 2013). This contrasts with the position of policy-makers in

industrialized countries where most of the corporations with the relevant

IPR are located. They have declared their intention to defend vigorously

the international protection of green IPRs and to push ahead with TRIPS

(Rimmer, 2009), not least because many have embraced the notion that the

patent rents that will be generated in the course of diffusing green tech-

nologies under TRIPS will offset some of the domestic costs of climate

policies (Fankhauser et al., 2008; Foxon, 2010). Whether TRIPS constitute

the right institutional mechanism under which the process of diffusion of

green technologies should take place is therefore under debate. Advancing

this debate, however, will require a better understanding of the issues of

distribution in international climate policies (i.e., how rents from green

technologies are shared internationally) and, at least equally important, of

the issues of efficiency that arise where decisions on international systems

of IPRs intersect with international agreements on greenhouse gas (GHG)

emissions.

In the present paper, we explore a new mechanism through which a

global system of IPRs affects the efficiency of global climate policies.

This mechanism captures the impact of strategic considerations when coun-

tries decide on individual contributions to an international environmental

agreement (IEA) on GHG emissions in the presence of IPRs on abate-

ment technologies. The impact arises in the form of a hold-up problem

that affects both the formation and the content of the IEA on GHG emis-

sions reductions. The mechanism presented here is therefore in addition to

the first-order concern that IPRs on green technologies create temporary

monopolies that restrict diffusion and decrease abatement, which is the

CThe editors of The Scandinavian Journal of Economics 2016.