TECHNOLOGY DEVELOPMENT AND DIFFUSION AND INCENTIVES TO ABATE GREENHOUSE GAS EMISSIONS

More technology implies higher welfare. Therefore, it is individually rational to cooperate on technological development. It is not individually rational cooperate on greenhouse gas emission reduction. If technology cooperation only comes with cooperation on emission reduction, incentives to free ride on the emission reduction agreement are reduced. However, countries would prefer to cooperate on technology but not on emission reduction. If technology progresses through a learning-by-doing mechanism, more emission reduction technology does not necessarily imply higher emission reduction. However, for reasonable parameter choices, it does. This implies that technological cooperation is an effective instrument in emission reduction policy, also if that policy is of a non-cooperative nature. It also implies that it is in the best interest of technology leaders to subsidise the export of greenhouse gas reducing technology.