When being a good Samaritan?
The incentives to green technology transfer
Julie Ing and Jean Philippe Nicolai
June 2, 2015
Abstract
This paper studies the determinants of the green technology transfer from a developed
country (North) to a developing country (South). We assume that both countries compete
for the production of one polluting good. This paper shows that incentives to transfer
technology depend on three major factors: the choice of the regulatory instruments, the
nature of abatement technologies and the technological gap. We consider two regulatory
instruments: a carbon tax and an emissions standard. This paper focuses on two types of
technology: end-of-pipe technology and cleaner technology. We show that if both countries
implement a carbon tax, the North always shares its end-of-pipe technology while it only
shares its cleaner technology if the damage is large and if the South is already relatively
clean and implements a low carbon tax. If both countries implement constraining emission
standards, whatever the type of technology, the North only shares its technology if the
South is already relatively clean (low emissions intensity or low abatement costs) and if
it implements a high emission standard.
JEL codes: D43; F18; Q5
Keywords: Technology transfer; Imperfect competition; Climate policy; Abatement technology
1
Introduction
Climate Change is probably the most pressing challenge felt throughout the world. While
requiring the implementation of environmental regulations across the world, it is conditioned
by local realities that decision makers have to face. Developing countries are still reluctant
to implement environmental regulations. In particular they often denounce the unequal burden sharing, claiming that climate change policies are too constraining in terms of costs and
growth. A promising avenue proposed during COP 16 consists in enhancing the transfer of
green technologies from developed countries to developing countries. Developing low carbon
technologies appears crucial to mitigate carbon emissions. However green technologies are
concentrated in developed countries. For instance, according to [2], between 2000 and 2005
two third of the newly developed technologies were patented in USA, Germany and Japan.
1
In 2012, developing countries such as China, India and Mexico produced almost 70% of the
world's CO2 emissions. Green technology transfers could constitute both a way to reduce costs
associated with carbon emissions policies and an argument to convince developing countries
to ratify environmental regulations.
Being potentially highly benecial for developing countries, the transfer of green technologies raises nevertheless serious obstacles for developed countries. Indeed, Sharing technological
innovation may enable developing countries to reduce more rapidly the technological gap with
developed countries. Furthermore, developed and developing countries being part of a globalised economy, they may compete with each other in the market for products. With such
technology transfers, developing countries could be more competitive and gain market shares.
Technological transfers therefore may modify production processes and consequently aect
competition. The green technology recipient (developing country) may become more competitive which decreases the prot in the donor country (developed country).
In this light, the paper analyses the conditions under which a developed country has interests in sharing its low carbon technologies with developing countries that constitute potential
competitors. Competition in the international trade being ordinarily imperfect, we use imperfect competition model to tackle this issue. Thus, this paper contributes to the literature
on technology adoption from an original viewpoint. Indeed, while there is a large literature
on the determinant of green technology adoption ([1], [3], [7], [4] [5]), as far as we know, little
attention has been paid to the determinants of green technology transfer.
It appears that incentives to technology transfers depend on three major factors: the choice
of the regulatory instruments, the nature of abatement technologies and the technological gap.
First, both developed and developing countries have access to a plethora of regulatory instruments - carbon taxes, pollution permits and emission standards and so on - that aect the
production process and eventually competition. Depending on the instrument chosen, the
technology transfers have dierent eect on the competition. By implementing on their territory an instrument more favourable to developed countries in terms of competition eect,
developing countries may increase developed countries' incentives to transfer green technologies.
Second, the technologies used to curb carbon emissions (also called abatement technologies) widely vary according to sectors and geographical areas. [6] identies two main types
of abatement technologies: end-of-pipe abatement and process-integrated abatement. While
end-of-pipe abatement technologies are independent from the production process, the processintegrated abatement technologies consists in changing the production process, such as shifting
to a cleaner technology or reducing the energy intensity of production. By contrast, end-ofpipe abatement corresponds to capture and storage systems and pollution lters.1
1
Pollution lters are used once both production and pollution have occurred. Carbon capture and storage
2
Third, it is necessary to take into account the technological gap existing between each developed and developing countries, the question being whether donor countries should preferably
transfer technologies to recipient countries that are drastically in need of technologies or better
advanced technologically speaking.
This paper focuses on two countries, one potential donor having a technological advantage
and one potential recipient of technology. Both countries produce and consume a polluting
good, they are in competition in the same market. We assume Cournot competition and no
transport costs. We consider two types of environmental regulations - carbon tax and emissions standard - and the two types of green technologies previously discussed. We further
assume that sharing an end-of-pipe technology decreases the recipient's abatement cost while
sharing a process integrated technology decreases its emissions intensity.
The results are twofold. First, when considering an environmental regulation based on
carbon tax, we demonstrate that the donor country always shares its end-of-pipe technologies. Indeed, such transfer reduces carbon emissions in the recipient country without aecting competition in the market. By contrast, the donor country will be reluctant to transfer
process-integrated technologies as they will lower its rms'competitiveness. Such transfers will
be enhanced when the recipient country already possesses process-integrated technologies and
implements a low carbon tax regulation. Second, if emission standards are implemented in
both countries (with larger emission quotas for the latest), and if both rms are constrained
before and after the transfer, the more advanced country only transfers its technology if it
implements low standard (stringent policy) while the less advanced country implements large
standard (lax policy). Furthermore, for both type of technology, the transfer occurs when the
technological gap is low.
The paper is structured as follows. Section 2 presents the modelling assumptions. Section
3 focuses on the implementation of carbon tax. Section 4 presents the technological transfer
under emission standards. Section 5 discusses the results and the policy implication. Section
6 presents the conclusion.
2
The Model
Assume two regions, the North and the South denoted respectively by i = {N, S}. The
consumers in the two regions purchase the same homogeneous good. In each country, the
consist of capturing carbon once pollution has occurred and storing it and are thus mainly independent of
production decisions, although there are several kinds of carbon capture and storage, some of which may
depend on production decisions.
3
demand is respectively given by:
pN
qN = aN −
2
pS
qS = a S −
2
(1)
(2)
where pN and pS are respectively the product price in the North and in the South. We
assume that there is no transport cost and the price of the good is the same in both countries:
pN = pS = p. Thus, the price is given by the inverse demand function:
P (Q) = aN + aS − Q
(3)
where Q = qN + qS
From (1) and (2), the consumer surplus is:
Z
CSi =
pi
p∗
p
{ai − } dp
2
(4)
where pi = 2 ai is the choke price and p∗ the equilibrium price
In each region, there is a single rm producing this good. The two rms compete in quantity.
Firms use polluting technologies. Let µi be the emission intensity; one unit of production
induces µi unit of emissions in the country i. The emissions in each country are then given
by:
ei = µi qi
(5)
The pollution is global. Assume that damage is linear and given by:
D(E, λ) = λ E
(6)
where E = eN + eS
To curb emissions, the two countries implement an environmental regulation and two instruments are at disposal: emissions tax or emissions standard. This paper considers that the two
countries choose the same instrument.
The technology in the North is more advanced than in the South and the technology cannot be split. Thus, the North decides to transfer all its technology or none of it. There is no
loss of generality in that assumption. Indeed, within our specications, the interior solution
(to give a part of the technology) is always dominated by one of the two corner solutions (to
give everything or nothing). As a consequence, if the North shares its technology both regions
end up with the same technology. We consider two types of green technology: end-of-pipe
abatement technology and cleaner technology.
End-of-pipe technology
4
End-of-pipe technology reduces emissions once rms have produced; for instance, lters. Note
that this type of technology does not modify the production process and, therefore, does not
modify the emissions intensity. Assume that in order to abate pollution by an amount of Ai ,
the rm has to bear a cost:
C(Ai , βi ) = βi
A2i
2
(7)
where βi is the cost parameter for end-of-pipe abatement.
Before the transfer, the North is more advanced than the South: βN < βS0 where βS0 is the
initial technology in the South and βN the technology in the North. The transfer of an end-ofpipe technology decreases the abatement cost in the South. After the transfer the technology
in the South is:
(
βS0 No Transfer
(8)
βS =
βN Transfer
Cleaner technology
Here, the technology transferred is a more environmental-friendly production technology. Before the technology transfer, the North pollutes less than the South. µN < µ0S where µ0S
is the initial emissions intensity in the South and µN the emissions intensity in the North.
The transfer of a cleaner technology decreases the emissions intensity in the South. After the
transfer the emissions intensity in the South is:
(
µ0S No Transfer
µS =
(9)
µN Transfer
The government in the North cares about its consumer surplus (CSi ), the prot (πi ), the
tax revenue and the environmental damages. We denote Wi the welfare in country i and we
denote WiT and WiN T , the welfare of country i respectively with and without transfer.
3
Carbon tax
Each country implements a carbon tax τi > 0. We consider the two types of technology:
end-of-pipe technology and cleaner technology.
3.1
End-of-pipe technology
The North decides to share or not its technology taking into account that sharing its technology may aect the prot, the consumer surplus, the damages and the tax revenue. We solve
5
this problem backward. First, for a given technology, we determine the quantity produced and
the abatement level in each country. Second, given the polluting good market equilibrium, the
North decides whether it transfers to the South its technology.
Polluting good market
In each country the rm chooses the production qi and the abatement levels Ai to maximize
its prot. Abatement is costly and the rm pays a tax τi on its emissions ei = µi qi − Ai .
Thus, the prot of the rm which is located in country i may be written as:
max πi = P (Q) qi − βi
Ai ,qi
A2i
− τi (µi qi − Ai )
2
(10)
Firms decide productions and abatement. From the four rst-order conditions, The solution
τ ) and (Aτ , q τ ) is deduced;
of this problem (AτN e , qN
Se Se
e
τN
βN
1
τ
qN
(aN + aS + µS τS − 2 µN τN )
e =
3
τS
AτSe =
βS
1
τ
qSe
= (aN + aS + µN τN − 2 µS τS )
3
AτN e =
(11)
(12)
(13)
(14)
Notice that since technology is end-of-pipe, abatement and production decisions are independent. Indeed, end-of-pipe abatement does not modify the marginal cost of production and
then does not modify rms' output decisions. End-of-pipe abatement may be understood as a
second rm's activity; rms abate if and only if it is protable. In other words, the technology
in the South βS does not aect neither the production nor the abatement in the North. As
a result, the decisions in one country do not depend on the abatement cost parameter of the
the other country.
Technology transfer
Let now consider the incentives for the North and the South to, respectively, share and adopt
the technology.
By transferring its technology, the North modies the abatement cost parameter in the
South. The North takes in to account its own welfare, which is written as:
max
0 ,β }
βS ={βS
N
WN = CSN + πN + τ eN − D(eN + eS (βS ))
(15)
By deriving the welfare function in the North with respect to the abatement cost parameter
6
in the South, we see that the North has a strict incentive to share the technology.
∂ WN
= −D0 (eN + eS )e0S (βS ) < 0
∂ βS
(16)
Indeed, the transfer of an end-of-pipe technology does not modify the production nor the
abatement in the North. However, it reduces emissions in the South. Since, pollution is
global, the transfer of the technology is welfare improving for the North.
On the other hand, the South accepts the transfer only if the welfare after transfer is higher
than without: WST > WSN T . From the previous calculations, we calculate the dierence of
welfare, which is equal to:
βS0 − βN τS
T
NT
(2 λ − τS ) > 0
(17)
WS − WS =
2 βS0 βN
We conclude that the South accepts when the tax implemented in its area is lower than:
τS < 2λ
(18)
When the tax implemented is two times higher than the Pigovian tax, the South does not
adopt the technology. Indeed, reducing the abatement cost parameter increases the abatement
level and consequently increases the total abatement cost. When the tax is relatively high
compared to the marginal damage, this cost increase is not fully oset by the reduction of the
environmental damage.
From, the previous results the following proposition is deduced.
Proposition 1. When both regions implement a carbon tax and and rms use end-of-pipe
abatement:
(i) the transfer from the North to the South:
does not aect in the North: the emissions, the prot nor the consumer surplus.
increases in the South the abatement and the prot.
decreases the emissions in the South.
(ii) The North always transfers its technology.
(iii) The South refuses the transfer when the carbon tax is relatively large compared to the
damage.
Proof. We calculate the prots and the consumers' surplus in the North which are given by:
τ
CSN
c =
1
(5 aN − aS − µS τS − µN τN )2
36
τ
τ 2
πN
c = qN c
(19)
(20)
7
From these two previous equations and the equations (11)-(14), we calculate and then deduce:
∂ EN
∂ πN
∂ AS
∂ ES
∂ πS
∂ CS
∂ βs = 0; ∂ βs = 0; ∂ βs = 0; ∂ βs > 0; ∂ βs > 0; ∂ βs < 0
The main message of this proposition is that, since abatement and output decisions are
separable, transferring end-of-pipe technology has no eect on trade. Thus, the single motivation for the North is to decrease the world-wide emissions. For this reason, the North always
wants to share its end-of-pipe technology. However, if the South has a too stringent policy,
it may not adopt the technology in order to keep the abatement costs borne by the domestic
rm to a low level.
3.2
Cleaner technology
Polluting good market
In each country the rm chooses the production qi to maximize its prot knowing that it
pays a tax τi on its emissions ei = µi qi . There is no abatements. The technology is now
represented by the emissions intensity µi . Thus, the prot of the rm which is located in
country i may be written as:
max πi = P (Q) qi − τi µi qi
qi
(21)
Firms decide productions. From the two rst-order conditions, the solution of this problem
τ and q τ is deduced:
qN
Sc
c
1
(aN + aS + µS τS − 2 µN τN )
3
1
= (aN + aS + µN τN − 2 µS τS )
3
τ
qN
c =
(22)
τ
qSc
(23)
For each unit produced, the rm of country i pays µi τi . Then, the higher the emissions tax in
region i, the lower the production in this region. Furthermore, the more polluting a rm is,
the lower its production is.
Technology transfer
The technology transfer from the North to the South decreases the emissions intensity in
the South which modies competition between the rms. The welfare in the North is given
by:
max
0 ,β }
βS ={βS
N
WN = CSN (µS ) + πN (µS ) + τ eN (µS ) − D(eN (µS ) + eS (µS ))
8
(24)
By replacing the equilibrium quantities, the welfare may be rewritten as:
1
1
(5 aN − aS − µS τS − µN τN )2 + (aN + aS + µS τS − 2 µN τN )2
36
9
1
1
+ (τN − λ) µN (aN + aS + µS τS − 2 µN τN ) − λ µS (aN + aS + µN τN − 2 µS τS )
3
3
(25)
WN =
As previously, the North shares its technology if and only if WNT − WNN T >0.
(µ0S − µN )
[12 λ (µN τN + aS + aN − (µN + 2 µ0S ) τS )
36
+ 2 τS (µ0S τS + µN τN − 5 aS + aN ) − (5 µN + 7 µ0S ) τS2 ]
WNT − WNN T =
(26)
The North is more willing to share its technology when the damage parameter (λ) is large,
the carbon tax implemented in the South (τS ) is low while the one implemented in the North
is large and when the initial emissions intensity in the South (µ0S ) is low.
The welfare in the South is symmetric to the one in the North, the South accepts the
transfer if and only if WSN T > WST
WSN T − WST =
(µ0S − µN )
[τS 7 µN + µ0S τS + 2 µN τN + 14 aS + 2 aN
36
+ 12 µN τN + aS + aN − µN + 2 µ0S τS λ] > 0
(27)
If the parameters are such as the North is willing to transfer its technology, the South always
accepts the transfer.
From, the previous results the following proposition is deduced.
Proposition 2. When both regions implement a carbon tax:
(i) the transfer of cleaner technology from the North to the South:
decreases in the North: the production, the prot and increases the consumer sur-
plus.
increases in the South: the production, the prot and the consumer surplus.
decreases the emissions in the North and may increase or decrease the emissions in
the South.
(ii) The North transfers its cleaner technology if: it implements a strong environmental policy
while the south implements a lax policy, if the damage is large enough, it decreases the
overall emissions and if the South is already relatively clean.
(iii) The South always accepts the transfer.
9
Proof. We calculate the prots and the consumers' surplus in the North and in the South
which are given by:
τ
CSN
c =
1
(5 aN − aS − µS τS − µN τN )2
36
(28)
τ
τ 2
πN
c = qN c
1
τ
CSSc
= (5 aS − aN − µN τN − µS τS )2
36
τ
τ 2
πSc
= qSc
(29)
(30)
(31)
From these 4 previous equations and (22) and (23), we calculate and then deduce:
∂ CSN c
∂ CSSc
c
(i) ∂∂qµNSc > 0; ∂∂πµNSc > 0; ∂∂eµNSc > 0; ∂∂ qµSc
< 0; ∂∂ πµSc
< 0; ∂∂ Q
µS < 0; ∂ µS < 0; ∂ µS < 0;
S
S
∂ eSc
∂ µS
=
1
3
(µN τN + aS + aN − 4 µS τS );
∂ Ec
∂ µS
=
1
3
(µN τS + µN τN + aS + aN − 4 µS τS )
(ii) From qS∗ > 0, µS τS + µN τN − 5 aS + aN < 0 and
T −W N T )
∂ (WN
N
∂ τN
>0;
T −W N T )
∂ (WN
N
∂ µ0S
T −W N T )
∂ (WN
N
∂ τS
< 0;
<0
A necessary but not sucient condition for the transfer to occur is: µN τN + aS + aN − (µN +
∂ (W T −W N T )
N
N
2 µ0S ) τS > 0 implying
> 0 and E T < E N T
∂λ
(iii) We compare the conditions under which the North transfers and the South accepts:
(µ0 −µN ) τS ((µN +µ0S ) τS +2 as )
(WNT −WNN T )−(WST −WSN T ) = S
> 0 ⇔ WNT −WNN T > WST −WSN T .
3
Thus, if the North is willing to transfer, the South always accepts the transfer.
From the North's point-of-view, as in the end-of-pipe case, transferring technology reduces
the total emissions. Yet, it also decreases the perceived marginal cost of production in the
South. The technology transfer improves the Southern rm's competitiveness and consequently
its prots. The North is more willing to share its technology when the South implements a
lax environmental policy and when the South is already clean.
The prot and the consumer surplus in the North are both convex in the emission intensity
in the South. On the one hand, if the emissions intensity in the South is low, the transfer
slightly decreases the prot and highly increases the consumer surplus. As a result, if the
initial emission intensity in the South is low (the emission intensity in the North is necessarily
low), the North always shares its technology. On the other hand, if the emissions intensity
in the North is large, the transfer highly decreases the prot and slightly increases the consumer surplus. As a result, if the emission intensity in the North is large (the initial emission
intensity in the South is necessarily large), the North never shares its technology. For a given
emission intensity in the North (initial emission intensity in the South), the North only shares
its technology if the the initial emission intensity in the South (the emission intensity in the
North) is below a threshold. As the carbon tax in the South increases, the initial emission
intensity under which the North is willing to share its technology decreases.
The existence of the environmental regulation in the South highly aects the transfer. Let's
consider for a moment that the tax in the South is null. If so, sharing an end-of-pipe technology
10
has no eects. Indeed, in this case the rm does not abate no matter how ecient it is. On
the opposite, the North always shares its cleaner technology. Indeed, the competitiveness of
the rm from the South does not depend on its emission intensity. The transfer of cleaner
technology only decreases the emissions from the South without hurting the competitiveness
in the North. Thus, the implementation of a carbon tax or any environmental regulation in
the South may prevent the South from receiving cleaner technology.
4
Emission standard
Each country implements an emission standard, the emissions in region i, cannot exceed E i .
The standard is exogenous and we assume that E S ≥ E N . Since the North has a more
advanced technology (lower abatement costs or lower emission intensity), it makes sense to
assume that the North implements a lower emissions quotas. Note that if the rm from the
South is not constrained by its emissions standard, the case is similar to case where τS = 0.
Thus, we will only consider the cases where the Southern rm is constrained without transfer.
4.1
Cleaner technology
Polluting good market
Each rm chooses the production qi to maximize its prot, the rm's emissions ei = µi qi
cannot exceed the quotas E i .
max πi = P (Q) qi
(32)
s.t µi qi ≤ E i
(33)
qi
We only study the case where before the transfer, the environmental policy is stringent. If
both rms are constrained by their regulation, they produce:
Ei
µN
(34)
eE
ic = E i
(35)
qiEc =
1
1
The lower their emissions intensity is, the higher the production is. A decrease in the emissions intensity in the South does not aect the production in the North. However, it increases
the production in the South which decreases the price of the polluting good. As a result, the
consumer surplus increases and the prot from the North decreases.
Technology Transfer
The North decides to transfer or not its technology. We only consider the case where after the transfer both rms are still constrained. Yet, after the transfer, it is possible that only
11
the rm from the North is constrained or none of the rms. If before and after the transfer,
both rms are constrained, the transfer only aect the prot and the consumer surplus. The
North shares its technology only if WNT > WNN T . However, the dierence of welfare is given
by:
WNT − WNN T =
0
(µ0S − µN )
0
[2
(a
−
a
)
µ
µ
+
E
−
E
(µS + µN ) + E N (µN − µ0S )]
N
S
N
S
N
S
0
2
(2 µN µS )
(36)
The South always accepts the transfer since the transfer increases its prots and the consumer surplus.
From, the previous results the following proposition is deduced.
Proposition 3. When both regions implement an emission standard:
(i) the transfer of cleaner technology from the North to the South:
decreases in the North the prot without aecting the production
increases in the South the production and the prot.
has no eects on the emissions and it increases the consumer surplus.
(ii) The North is more willing to share its technology if:
the emissions standard in the South is large while the one in the North is low,
the technology gap is low,
the market size in the North is is large while the one in the South is low.
(iii) The South always accepts the transfer.
Proof. We calculate, in the case that both rms are constrained, the prots and the consumers'
surplus in the North and in the South which are given by:
2
(aN − aS ) µN µS + E N µS + E S µN
=
4 µN 2 µS 2
E N (aS + aN ) µN µS − E N µS − E S µN
E
πNc =
µN 2 µS
E S (aS + aN ) µS µN − E S µN − E N µS
τ
CSSc =
µS 2 µN
E
(a
+
a
)
µ
µ
−
E
µ
−
E
µ
S
S
N
S
N
S
N
N
S
τ
πSc
=
µS 2 µN
(37)
E
CSN
c
From these 4 previous equations and (34), we calculate and then deduce:
∂ CSSc
∂ CSN c
∂ eSc
c
(i) ∂∂ qµNSc = 0; ∂∂ eµNSc = 0; ∂∂ qµSc
< 0; ∂∂ Q
µ S < 0; ∂ µ S < 0; ∂ µ S < 0; ∂ µ S = 0;
S
∂ πN c
∂ µS
> 0;
∂ πSc
∂ µS
<0
12
(38)
(39)
(40)
∂ eN c
∂ µS
= 0;
T −W N T )
T −W N T )
T −W N T )
T −W N T )
∂ (WN
∂ (WN
∂ (WN
∂ (WN
N
N
N
N
< 0;
>
> 0;
< 0;
∂ aS
∂ aN
∂ ES
∂ EN
T
N
T
T
N
T
∂ (WN −WN )
∂ (WN −WN )
< 0, the North always shares and if
> 0, the
∂ µ0S
∂ µ0S
(ii)
0
If
North shares when
is low.
(iii) From
µ0S
∂ CSSc
∂ µS
< 0 and
∂ πSc
∂ µS
< 0, the South always accepts.
If the quotas are met before and after the transfer, the transfer does not correct for the
environmental externalities. Since the transfer has no eect on the emissions, the transfer does
not reduce the damage. Thus, the North is willing to transfer its technology only to curb the
imperfections in the market for product; rms are in duopoly and then under-produce. The
technology transfer decreases the emissions intensity in the South and since the standard has
not changed, the southern rm produces more. This increase in the southern production has
two eects. On the one hand, the product price decreases and since the production in the
North is constant, the prot in the North decreases. On the other hand, the decrease in the
product price increases the consumer surplus in each region. The North is willing to share its
technology only if and only if the positive eect on the consumer surplus compensate for the
negative eect on the prot.
The North is more willing to share its technology if the emissions standard in the South is
large while the one in the North is low. Indeed, transferring technology to the South allows this
latter to produce more while satisfying the burden and the production increases the consumers'
surplus increases. If the technology gap is high, the increase of output is too important and
the northern rms are highly aected. If the market size in the North is is large while the one
in the South is low, the increase of the Southern production induces an higher increase of the
consumers' surplus.
4.2
End-of-pipe technology
Polluting good market
Each rm chooses the production qi and the abatement levels Ai to maximize its prot given
its environmental regulation. The rm's emissions ei = µi qi − Ai cannot exceed the quotas
Ei.
max πi = P (Q) qi − βi
Ai ,qi
s.t µi qi − Ai ≤ E i
A2i
2
(41)
(42)
In the case of end-of-pipe abatement, the implementation of a standard is dierent from the
situation in which an emission tax is implemented. In the latter case the decisions of production and abatement are independent and separable. However, under an emission standard,
abatement and production are not anymore separated. Indeed, the constraint imposed by the
standard links the two decisions.
13
We only study the case where before the transfer both rms are constrained by the regulation.In this case, the equilibrium is given by:
βN E N µN βS µS 2 + 2 + (aS + aN ) βS µ2S + 1 − βS E S µS
E
(43)
qNe =
βN µN 2 (βS µS 2 + 2) + 2 βS µS 2 + 3
(44)
E
eE
Ne = µN qNe − ANe = E N
βS E S µS βN µN 2 + 2 + (aN + aS ) βN µ2N + 1 − βN E N µN
βS µS 2 (βN µN 2 + 2) + 2 βN µN 2 + 3
qSEe =
(45)
(46)
E
eE
Se = µS qSe − ASe = E S
The quantity produced in the North increases with the quota implemented in the North and
decreases with the one implemented in the South. The same applies for the production in the
South.
Technology transfer
The North decides to transfer or not its technology, note that in this case, there is no tax
revenue. Depending on the parameters two cases occur. First, the transfer of technology has
no impact on the emissions, both rms produce the quotas. Second, the transfer increases
so much the competitiveness in the South that the North decreases its production by a large
amount and emits less than the quotas, that is after the transfer only the Southern rm is
constrained by its regulation. Yet, we only consider consider the rst case.
max
0 ,β }
βS ={βS
N
WN = CSN (βS ) + πN (βS ) − D(eN (βS ) + eS (βS )) s.t
(47)
eN (βS ) = E N
(48)
eS (βS ) = E S
(49)
The technology transfer has no eect on the emissions, neither in the South nor in the North.
The two rms produce the level of the standard. The transfer of technology decreases the
abatements costs in the South and increases the overall production which increases the consumer surplus. However, the technology transfer decreases the abatement costs and decrease
the perceived marginal cost of production. The Southern rm becomes more competitive
which decreases the Northern rm's prot.
14
The North shares its technology only if WNT > WNN T , that is if:
− (βN + βS0 ) µS ((βN µ2N (βN µ2N + 4) + 5) (aS (3 βN µ2N + 5) µS − E S (2 βN µ2N + 3))
− aN (βN µ2N (βN µ2N (5 βN µ2N + 19) + 17) − 1) µS + βN E N µN (βN µ2N (5 βN µ2N + 22) + 23) µS )
− 2 βS0 βN (βN µ2N + 2) µ3S ((βN µ2N (βN µ2N + 4) + 5) (aS µS − E S ) − aN (βN µ2N (βN µ2N + 2) − 1) µS
+ βN E N µN (βN µ2N + 3) µS )
− 2 (2 βN µ2N + 3) (aS (βN µ2N (βN µ2N + 4) + 5) − aN (3 βN µ2N (βN µ2N + 2) + 1)
(50)
+ βN E N µN (3 βN µ2N + 7))
From, the previous results the following proposition is deduced.
(i) If before and after the transfer, both rms are constrained by their emission standard, the transfer of end-of-pipe technologies from the North to the South:
Proposition 4.
decreases in the North: the production and the prot and increases the consumer
surplus.
increases in the South: the production, the prot and the consumer surplus.
it has no eects on the emissions.
(ii) The North is more willing to share its technology when its quotas are small while the
quotas implemented in the South are large.
(iii) The South always accepts the technology transfer.
Proof. We calculate, in the case that both rms are constrained, the prots and the consumers'
surplus in the North and in the South which are given by:
1 E
(q + qSEe − aN + aS )2
4 Ne
βN 2 E 2
2
E
E 2
µN qNe − E N
πN
= qN
+
e
e
2
2
1
τ
E
CSSe
=
qSEe + qN
− aS + aN
e
4
βS 2 E 2
2
τ
E2
πSe = qSe +
µS qSe − E S
2
(51)
E
CSN
=
e
From these 4 previous equations and (43)-(46), we calculate and then deduce:
∂ CSSc
∂ CSN c
c
(i) ∂∂qβNSe > 0; ∂∂ qβSc
< 0; ∂∂ Q
< 0; ∂∂ eβSc
= 0; ∂∂eβNSc = 0;
βS < 0; ∂ βS < 0; ∂ βS
S
S
∂ πSc
∂ βS < 0
T −W N T )
∂ (WN
N
(ii)
∂ EN
Se
(iii) From ∂ ∂CS
βS
< 0;
<0
(52)
(53)
(54)
∂ πN c
∂ βS
> 0;
T −W N T )
T −W N T )
∂ (WN
∂ (WN
N
N
< 0;
> 0;
∂ aS
∂ ES
and ∂∂πβSe
< 0, the South always accepts.
S
If the abatement cost in the North is low (large), the North never (always) shares its technology whatever the South's technology. For medium abatement costs, the North only shares
15
if the technology gap is relatively low. For instance for a given initial technology in the South,
the North only transfer if its technology βN is above a threshold. The North is willing to
transfer its technology only to correct for the market imperfections. Indeed, if the quotas are
met before and after the transfer, the transfer does not correct for the environmental externalities, the damage parameter (λ) has no eect on the transfer.
The South always accepts the transfer since it increases its representative rm's prot and
the consumer surplus.
5
Discussion and policy implications
We discuss in the following section the robustness of the model and the various policy implications of this paper. Until now, we have assumed that there is no adoption cost in the South,
the environmental damage is linear, the environmental technology is owned by the State, there
is no innovation, the environmental domestic policies are exogenous. Let relax the previous
assumptions.
First of all, the adoption of the transferred technology in the South may be costly. Assuming an adoption cost does not modify the results concerning the North decisions but alter the
choice of the South to accept or not the technology. Indeed, in the case that adopting involves
high costs, the South may refuse the transfer.
Assuming transportation costs modies the consumers' surplus but it does not modify
qualitatively our results. Moreover, transportation costs or trade barriers reduces the trade
eect since it increases the eective marginal cost in the South. in the case of end-of-pipe
abatement and carbon tax, the trade eect has no eect. However, in the cases of emission
standard or cleaner technology, the trade eect matters. In such cases, the presence of transportation costs or trade barriers may then increase the incentives to transfer.
The environmental damage is assumed in the set-up to be linear. However, some scientists consider that the environmental damage is quadratic. Relaxing this assumption does
not drastically modify the results but aects the conditions under which the North is willing
to transfer technology to the South. In the case of end-of-pipe abatement and carbon tax,
the North has still always incentives to transfer technology. In the case of cleaner technology and carbon tax, in the linear case, two eects are at stake: the decrease of the damage
and the competitiveness's loss. If damage is suciently high, due to the convexity, the effect coming from the damage is more important than in the linear case and may then prevail
on the trade eect. If countries use emission standards, the North still faces a similar trade-o.
This paper assumes that the State may transfer the technology from the South. However,
a great share of the environmental technologies are owned by rms. However, if we assume
16
that technology is owned by rms we may consider that the State buys the technology with
a lump-sum transfer which does not aect our results. However, this lump-sum transfer may
increase the public debt. Furthermore, technology may also be expropriated from the rms to
the State. However, this hold-up may be anticipated which reduces the incentives to develop
the private cleaner technology.
Until now, we have assumed that rms implement environmental regulation but that the
level of the tax or standard is exogenous. If countries choose the tax maximizing the social
welfare (optimal carbon tax), several eects are at stake. For instance, lets consider the case
where both countries decide the carbon tax maximizing their welfare. Each country takes into
account the eect of the tax on the product market and on the other country's taxation. If
both countries choose the optimal carbon tax, the North always shares its end of pipe technology technology. Yet, the transfer has now two eects. On the one hand, the transfer decrease
the emissions from the South. On the other hand, the transfer increases the optimal tax in
the South. The transfer not only decreases the emissions from the South, it also reinforces
the competitiveness in the North. On the opposite, the transfer of cleaner technology highly
decreases the competitiveness in the North. Indeed, the transfer decreases in the South the
emission intensity and the optimal carbon tax. As a result, when both countries set their
optimal tax, the North may be more reluctant to share its cleaner technology than when the
tax is exogenous.
Finally, let discuss the paper's policy implications. The South may be strategic while
choosing the regulatory instruments according to the kind of technology used. Indeed, if
technology is end-of-pipe, it is preferable for the South to implement a carbon tax instead of
an emission standard in order to be transferred the environmental-friendly technology.
6
Conclusion
This paper shows that incentives to transfer technology depend on three major factors: the
choice of the regulatory instruments, the nature of abatement technologies and the technological gap. When the less developed country has no environmental regulation (or non binding
policies), a more developed country always shares a cleaner technology. On the opposite
sharing an end-of-pipe technology have no eect. Furthermore, we show that both countries
implement a carbon tax, the North always shares its end-of-pipe technology whatever the
carbon tax. By contrast, the North only shares its cleaner technology if the carbon tax implemented in the South is low.
17
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