Can we blame strong IP protection for climate change?

In recent years, there has been a growing concern about the increasing levels of greenhouse gas emissions and their detrimental effect on the environment. To respond to this concern, countries have agreed to abide by world-wide abatement targets by reducing CO₂ emissions to a certain level.  However, curbing greenhouse gas emissions in developing countries has been a challenging task.  It has been argued that strong IP rights grant developed countries a monopoly over carbon abatement technology (CAT), which raises the price and reduces the access to such technology. A recent report commissioned by the European Commission, however, concluded that strong IP rights should not be blamed for the limited access to climate change technology in low-income economies.

In particular, the report estimated that between 1998 and 2008 more than 215,000 CAT patents were registered worldwide, 10% of which were in emerging economies, 0.1% in developing countries and the rest in developed countries. It could be argued that the substantial share of patents held by developed countries could put monopolistic pressures on the price of CAT and thus impede the transfer of such technology to low-income countries. However, the report noted that in most developed countries there is more than one company that offers CAT, which allows for competition to significantly drive down the price.

The report also concluded that developing countries hold very few patents for CAT and ownership is in the hands of very few firms. This uneven distribution, however, does not demonstrate that strong IP protection drives competition out and CAT’s prices up. It probably means that the size of the market in the least developed countries is currently too small to allow for more competition. This might be for several reasons.

Firstly, for CAT to be implemented, a certain infrastructure must be in place. This requires additional investment, which developing countries can not afford. Secondly, many developing countries (such as Brazil, Russia and India) set barriers to trade in the form of tariffs that discourage developed or emerging economies from transfering technology. Thirdly, know-how (the information that helps someone to operate and even more efficiently utilize a technology) might be very important when a technology is transferred. The transfer of knowledge or know-how requires that the recipient be able to make use of the knowledge and information. This may only be achieved when the recipient possess a considerable level of experience with and education in that particular technology. This level of expertise might be too expensive for the developing countries. Fourthly, governments in developing countries sometimes award subsidies on the consumption of fossil fuels, which reduces the incentive to adopt CAT. Lastly, in a recent study by Branstetter, it was demonstrated that US multinational companies are more willing to transfer technology to countries where their IP rights are well protected. Thus, strong IP protection is crucial rather than detrimental to technology transfer in the developing world.

In short, the report provides a different perspective on why developing countries are unable to reduce greenhouse gas emissions. Strong IP rights do not reduce access to CAT and, in fact, might encourage technology transfer.