Is the risk of North–South technology transfer failure an obstacle to a cooperative climate change agreement?

We setup a stylized model with endogenous North–South technology transfer for climate change mitigation. We theoretically identify the driving factors that enhance or hinder cooperation with socially optimal binding targets on emissions and on investment in technology transfer. We find that the risk of technology transfer failure creates an obstacle to the achievement of the cooperative agreement: under cooperation, the South will have to fulfill the emissions target at high costs if technology transfer fails. Under non-cooperation without any binding targets, the North still has an intrinsic motivation to reduce emissions in the South at low costs via technology transfer; and the South does not have the pressure to fulfill an emissions target. As a result, non-cooperation shifts part of the costs of a technology transfer failure from the poor South to the rich North and can thus be preferable for the South. Two policy implications for achieving the cooperative solution are derived: first, the South should be insured against or compensated for a technology transfer failure. Second, an agreement on technology transfer should be formulated in terms of emissions reductions or low-carbon technology capacities that are to be achieved rather than in terms of monetary payments with uncertain effects on emissions. We discuss the model results in the context of empirical facts and current developments. Copyright Springer Science+Business Media Dordrecht 2013