International Technology Transfer for Climate Policy

While the developed world is starting to limit emissions of greenhouse gases, emissions from the developing world are increasing as a result of economic growth. Reducing these emissions while still enabling developing countries to grow requires the use of new technologies. In most cases, these technologies are first created in high-income countries. Thus, the challenge for climate policy is to encourage the transfer of these climate-friendly technologies to the developing world. This policy brief reviews the economic literature on environmental technology transfer. It then discusses the implications of this literature for climate policy, focusing on the Clean Development Mechanism (CDM) of the Kyoto Protocol. It concludes by asking whether the current structure of the CDM provides sufficient incentives for technology transfer. Are CDM projects providing real emissions reductions, or are developed countries simply receiving credit for reductions that developing countries could have achieved on their own? What lessons can we learn from recent experience that may guide the development of the CDM (or other similar policy tools) during the next round of international climate policy negotiations?