Editing IPCC:AR6/WGIII/Chapter-16 (section)

==== 16.2.3.3 Internationalisation of Green Technological Change ====

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A unilateral effort to reduce emissions (via a combination of climate, industrial and trade policies) in a coalition of regions that are technology leaders will reduce the cost of clean technologies, and induce emissions reduction in the countries outside the coalition ( [[#Golombek--2004|Golombek and Hoel 2004]] ; [[#Di%20Maria--2005|Di Maria and Smulders 2005]] ; [[#Di%20Maria--2008|Di Maria and van der Werf 2008]] ; [[#Hémous--2016|Hémous 2016]] ; [[#van%20den%20Bijgaart--2017|van den Bijgaart 2017]] ). The literature suggests various mechanisms leading to this result. [[#Di%20Maria--2008|Di Maria and van der Werf (2008)]] argue that the effort to reduce emissions in one region reduces global demand for ‘dirty goods’. This will redirect global innovation towards clean technologies, leading to a drop in the cost of clean production in every region.

The model in Hemous (2016) predicts that such a coalition could induce acceleration of clean technological change through a mix of carbon taxation, clean R&amp;D subsidies and trade policies in that region leading to reduction of cost of clean production inside the coalition. Export of goods produced with clean technologies to a region outside the coalition reduces demand for dirty goods in that region. In the model by [[#van%20den%20Bijgaart--2017|van den Bijgaart (2017)]] local advancements of clean technologies by a coalition with strong R&amp;D potential are imitated outside the coalition. Furthermore, advancements of clean technologies will incentivise future clean R&amp;D outside the coalition due to intertemporal knowledge spillovers. In [[#Golombek--2004|Golombek and Hoel (2004)]] an increase in environmental concern in one region increases abatement R&amp;D in that region. Part of this knowledge spills over to other regions, increasing their incentive to increase abatement too, provided that the latter regions did not invest in abatement before.

However, this chain breaks if the regions that are behind the technological frontier (i.e., technological followers) are not able to absorb the solutions developed by regions at the frontier. New technologies might fail due to deficiencies of political, commercial, industrial, and financial institutions, which we list in Table 16.4. For instance, countries might not benefit fully from international knowledge spillovers due to insufficient domestic R&amp;D investment, since local knowledge is needed to determine the appropriateness of technologies for the local market, adapting them, installing and using effectively ( [[#Gruebler--2012|Gruebler et al. 2012]] ). From the policy perspective, this implies that simple transfer of technologies could be insufficient to guarantee adoption of new technologies ( [[#Gruebler--2012|Gruebler et al. 2012]] ).

'''Table 16.4 | Examples of institutional deficiencies preventing deployment of new technologies in countries behind the technolo''' '''gical frontier.'''

{| class="wikitable"
|-
! Institutions

! Examples of deficiencies

! Literature reference

|-
| Industrial

| Inability to benefit fully from international knowledge spillover due to insufficient domestic R&amp;D investment

| [[#Mancusi--2008|Mancusi (2008)]] ; [[#Unel--2008|Unel (2008)]] ; [[#Gruebler--2012|Gruebler et al. (2012)]]

|-
| Commercial

| Insufficient experience with the organisation and management of large-scale enterprise

| [[#Abramovitz--1986|Abramovitz (1986)]] ; [[#Aghion--2005|Aghion et al. (2005)]]

|-
| Political

| Vested interests and customary relations among firms and between employers and employees

| [[#Olson--1982|Olson (1982)]] ; [[#Abramovitz--1986|Abramovitz (1986)]]

|-
| Financial

| Financial markets incapable of mobilising capital for individual firms at large scale

| [[#Abramovitz--1986|Abramovitz (1986)]] ; [[#Aghion--2005|Aghion et al. (2005)]]

|}

Research relying on patent citations has indicated that Foreign Direct Investment (FDI) is a mechanism for firms to contribute to the recipient country’s innovation output as well as benefit from the recipient country in industrialised countries ( [[#Branstetter--2006|Branstetter 2006]] ) and in developing countries ( [[#Newman--2015|Newman et al. 2015]] ). However, insights specific for energy or climate change mitigation areas are not available, nor is there much information about how other innovation metrics may react to FDI.

Finally, technologies could be not efficient in developing countries, even if they are efficient in countries at the technological frontier. For instance, technologies that are highly capital intensive and labour saving will be efficient only in countries where costs of capital are low and costs of labour are high. Similarly, technologies which require a large number of skilled labour will be more competitive in a country where skilled labour is abundant (and hence cheap) than where it is scarce ( [[#Basu--1998|Basu and Weil 1998]] ; [[#Caselli--2006|Caselli and Coleman 2006]] ).

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