International Property Rights and Climate Policy: Implications on the Diffusion of Climate-Friendly Technologies

Technological change has been attributed an important role in reducing the costs associated to climate change mitigation through GHG emission reductions. The adoption and deployment of low-carbon and environmentally friendly technologies has been at the center stage of climate negotiations. Technology transfer from developed to developing countries can facilitate access to affordable and appropriate emission-reducing technologies. Deployment of climate friendly technologies will result both in lower greenhouse gas emissions and in more economic development, increasing the likelihood that developing countries accept binding reduction targets. Despite the importance attributed to technological innovation and transfer within climate negotiations, still too little is known about the dynamics of technological change, its drivers, and the resulting economic and environmental performance. While a number of recent contributions in the literature analyze technology innovation and transfer in energy and climate-friendly technologies, they are characterized by a number of important limitations. Most analyses concentrate on demand determinants of innovation. Conversely, only a few point to the role of other drivers, such as knowledge stocks, the importance of Intellectual Property Rights (IPR) regimes or the role of environmental policy. This is mostly due to data availability issues and with the challenges of building appropriate proxies to measure these determinants. Therefore, this paper aims at bridging this gap and examining the impact of these drivers on the diffusion of selected climate-friendly technologies such as renewable energy sources.For the analysis we employ country level panel data using econometric methods. An important step is the development of indicators representing the stringency of environmental and climate policy as well as the strength of IPR regimes. In order to construct a policy indicator, comprehensive data on renewable energy policies, energy efficiency policies and climate change policies from the IEA Policies and Measures Databases are collected. These data provide detailed information on the technologies the specific policy is aimed at as well as on indicators such as the policy type and the jurisdiction, i.e. whether the policy is implemented on a national, regional or municipal level. Regarding the IPR indicator we rely on two available proxies: the Patent Right Index developed by Ginarte and Park (1997, Research Policy) and updated by Park (2008, Research Policy), and the quality index for patent systems developed by Saint-Georges and van Pottelsberghe (2011, CEPR Discussion Paper 8440). Whereas the former index mainly concentrates on the strength of patent protection, the latter puts more emphasis on the quality of the patent system. Therefore, we construct a composition of these proxies to combine the advantages of both and to account for the strength of IPR regimes as well as their quality in terms of inventiveness conditions and transparency and certainty. These indicators together with variables such as energy investment, trade in energy and emission intensive sectors, and foreign direct investments, serve as explanatory variables to study the impact on technology diffusion measured by foreign patent applications.Preliminary results show a positive influence of climate and environmental policy stringency in developing countries on the diffusion of climate-friendly technologies from developed to developing countries. Furthermore, also a higher policy stringency in developed countries increases technology diffusion from developed to developing regions, though to a lesser extent. The reason for this outcome could be that stricter policies induce a higher innovation level for climate-friendly technologies in developed regions which in turn leads to a market expansion for those technologies and thus exports (of patent applications) to developing regions increase. Moreover, preliminary results on the influence of the IPR regime show a positive impact on diffusion from developed to developing regions as long as the IPR regime in the developing country increases. Inventors benefit from stricter patent protection in developing regions and hence apply for patents abroad inducing technology transfer. Conversely, if IPR protection is high in developed regions and low in developing regions, there is no incentive to apply for patents in the latter regions which attenuates technology transfer in terms of foreign patent applications.