International technology transfer, climate change, and the clean development mechanism

As the developed world begins efforts to limit its emissions of greenhouse gases, economic growth in developing countries is causing increased emissions from the developing world. Reducing these emissions while still enabling developing countries to grow requires the use of climate-friendly technologies in these countries. 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 article reviews the economic literature on environmental technology transfer and discusses the implications of this literature for climate policy, focusing on the Clean Development Mechanism (CDM). A key point is that technology diffusion is gradual. Early adoption of policy by developed countries leads to the development of new technologies that make it easier for developing countries to reduce pollution as well. Since clean technologies are first developed in the world's leading economies, international trade and foreign investments provide access to these technologies. Moreover, evidence suggests that some technologies, such as those enhancing energy efficiency, will diffuse to developing countries even without the aid of policy prescriptions, such as the CDM. This is important for assessing the potential emissions reductions of proposed CDM projects.