Climate agreements and technology spillovers—a modeling approach

Abstract

A significant reduction in global greenhouse gas emissions will require development of new technologies if such reductions are to be achieved without excessive costs. An important question is whether an agreement of the Kyoto type, which does not include elements related to research and development of new technologies, will give sufficient incentives to develop such new technologies. On the one hand, since greenhouse gas emissions will become costly for countries and private producers, there will then be incentives to undertake the effort and costs to develop new technologies. On the other hand, research and development in one country is not only advantageous for this country, but usually also for other countries. The reason for this is that producers in these countries will learn from the project in many cases; for example, through (informal) networks, journals, and, in some cases, through the import of goods from the country where the new technology is developed.

The purpose of this paper is to discuss properties of an international climate agreement of the Kyoto type, when research and development investments undertaken in one country are also beneficial for other countries. We examine whether a Kyoto type of agreement can provide the correct social amount of aggregate emissions, and research and development investments in new technologies. We argue that the outcome of a Kyoto type agreement will differ from the social optimum. In particular, for a given level of abatement a Kyoto type agreement provides too few investments relative to the social optimum.