International Agreements and Cooperation Theory: Impact on Technological Change

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International climate agreements ideally aim to increase the pace of innovation so that carbon-intensive technologies can be replaced more quickly than they otherwise would.  Market mechanisms do this by putting a price on carbon (either directly through a tax, or indirectly through a permit system).  Regulation also puts a price on carbon, albeit indirectly.  But in any case, when carbon-intensity becomes a factor in the price of inputs, production is expected to shift toward less-polluting options.  In the international context, the chief concern is carbon leakage—if the climate agreement is not comprehensive, production might simply migrate from countries with strict regulations to countries without them, thus weakening the incentive to create new, cleaner technologies.

But technological change can be accomplished in other ways, too.  Direct investment in research and development for clean technology by national governments (or even potentially by international bodies like the UN or IMF) is one option.  Another is to provide subsidies for certain technologies (wind, solar, etc.), or perhaps to award prizes for certain technological accomplishments.  In all cases, the goal is to create situations where firms can capture some of the social benefits that investments in clean technology are expected to produce.  A related concern is the extent to which uncertainty in the policy realm effects firms’ decisions to invest in clean technology.

One of the more exciting issues in the technological field is the potential for breakthrough technologies.  While some possibilities are derided as science fiction, others hold out hope of being a key part of solving (or at least adapting to) climate change.  The pace of technological innovation—whether it progresses linearly, accelerates over time, or is marked by discontinuities—is a matter of intense dispute. 

Another issue is the manner in which technology diffuses, both within and between countries.  Technology transfers between rich and poor countries are one option.  However, questions remain regarding the proper scale of such programs, and whether they might potentially retard the incentive to innovate (or even exacerbate dependency) in the countries receiving the technology.  Technology is often context-sensitive, and so it remains important to consider the unique needs and circumstances of different places and people in shrinking their carbon footprint.

A final issue is whether and to what extent international agreements on climate-related technological innovation might act as a replacement for emission-quota regimes like the Kyoto Protocol.  Some commentators argue that technology agreements are uniquely palatable, and are more likely to overcome the free rider problem. Technology agreements ideally would promote joint research and development, and would encourage sharing and coordination in investments.