Climate Policy with Technology Transfers and Permit Trading

In this paper, we analyze technology transfers (TT) and tradable emission rights, which are core issues of the ongoing climate negotiations. Subsidizing TT leads to the adoption of better abatement technologies in developing countries, thereby reducing the international permit price. This is beneficial for industrialized countries as long as they are permit buyers, and as long as they can target subsidies to “additional” investments. We also consider how TT affects countries’ non-cooperative choices of permit endowments and find that it reduces overall emissions. Finally, a simple numerical simulation model illustrates some results and explores some further comparative statics.