DISCUSSION PAPER
N o ve m b e r 2 0 0 6 ; r e vi s e d M a r c h 2 0 0 7 „ R F F D P 0 6 - 4 8 - R E V
Reengineering
the Climate Regime
Design and Process Principles of
International Technology Cooperation
for Climate Change Mitigation
Takahiro Ueno
1616 P St. NW
Washington, DC 20036
202-328-5000 www.rff.org
Reengineering the Climate Regime: Design and Process Principles
of International Technology Cooperation
for Climate Change Mitigation
Takahiro Ueno
Abstract
International technology cooperation has recently gained attention as a promising component of
the post-2012 climate regime that may improve political acceptability and long-term environmental
effectiveness. International technology cooperation, however, may include countless policy parameters
and unmanageable complexity. Considering the nature of technology cooperation, this paper proposes
three principles for handling the complexity. First, nations should focus on research, development, and
demonstration cost sharing, learning-investment sharing, technology and performance standards, and
technology transfer, leaving other actions to a pledge and review scheme. Second, when technology
cooperation is coupled with emissions trading, each should be institutionally independent, in order to
limit complexity added by the combination. If they are integrated for political reasons, price caps and
programmatic Clean Development Mechanism may serve as the interface that limits the extent of the
added complexity. Finally, learning from bottom-up processes should be the guiding process principle for
exploring an acceptable range of policy parameters.
Key Words: climate change, technological cooperation, post 2012, parallel tracks
JEL Classification Numbers: Q54, F53, F59, O33, O38
© 2006 Resources for the Future. All rights reserved. No portion of this paper may be reproduced without
permission of the authors.
Discussion papers are research materials circulated by their authors for purposes of information and discussion.
They have not necessarily undergone formal peer review.
Contents
1. Introduction................................................................................................................... 1
2. The Nature of International Technology Cooperation.............................................. 3
3. Focusing on a Handful of International Actions and Encouraging Domestic
Policies.......................................................................................................................... 6
4. Limiting Interfaces between Technology Cooperation and Emissions Trading..... 8
5. Learning through Bottom-Up Processes................................................................... 11
6. Political Acceptability and Long-Term Environmental Effectiveness................... 13
Political Acceptability..................................................................................................13
Long-Term Environmental Effectiveness....................................................................14
7. Concluding Remarks .................................................................................................. 15
References........................................................................................................................ 16
Appendix A: Summary of Technology Cooperation Proposals and Analyses .......... 22
Appendix B: Cases of International Technology Cooperation for Energy and the
Environment.............................................................................................................. 23
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Reengineering the Climate Regime: Design and Process Principles
of International Technology Cooperation
for Climate Change Mitigation
Takahiro Ueno∗
1. Introduction
International technology cooperation has recently gained attention in the climate policy
community in terms of political acceptability and long-term effectiveness. Regarding political
acceptability, reengagement of the United States and further engagement of developing nations
are the leading concerns for post-2012 international architecture, and many expect that
technology cooperation can open a window of opportunity for that engagement. With regard to
long-term effectiveness, technological advancement is vital for reducing greenhouse gases
(GHGs) dramatically in the middle of this century (e.g., a 60 percent reduction from the 2000
level).
In actual international political settings, the possibility of technology cooperation for
climate protection has been seriously considered, especially since 2005. In 2005, three major
new arenas were set up for considering and realizing international technology cooperation: the
dialogue on long-term cooperative action under the United Nations Framework Convention on
Climate Change (UNFCCC), the Gleneagles Plan of Action by G8 countries, and the Asia
Pacific Partnership (APP) for Clean Development and Climate among six like-minded countries.
All emphasized technologies in their formal documents.1 Further, several policy proposals and
analyses for technology cooperation have been put forth, including Barrett (2003), Benedick
(2001), Justus and Philibert (2005), Edmonds and Wise (1998), Victor (2004), Schelling (2002),
and Grubb (2005). I summarize these studies in Appendix A.
∗Takahiro
Ueno is a researcher at the Central Research Institute of Electric Power Industry (CRIEPI) and is a past
visiting scholar at Resources for the Future (RFF). The author wishes to thank Heleen de Coninck, Richard Newell,
Carolyn Fischer, Richard Morgenstern, Daniel Shawhan, and Eri Saikawa for valuable comments on an earlier draft.
1For
instance, one of the topics of the UNFCCC dialogue is “[r]ealizing the full potential of technology.” The G8
countries declared that they would take further action to “promote innovation, energy efficiency, conservation;
mprove policy, regulatory,and financing frameworks; and accelerate deployment of cleaner technologies, articularly
low-emitting technologies.” The APP charter states that one of the purposes of the partnership is to “[c]reate a
voluntary, non-legally binding framework for international cooperation to facilitate the development, diffusion,
deployment, and transfer of existing, emerging, and long term cost-effective, cleaner, more efficient technologies
and practices.”
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Although political acceptability and long-term environmental effectiveness are expected
to be improved by technology cooperation, it may include a very high degree of complexity.
Compared to setting single-emission targets for respective nations, international technology
cooperation is considered to be more complicated.2 The Kyoto Protocol’s emissions targets focus
on results; technology cooperation focuses on actions. Many types of cooperative actions are
conceivable, including information sharing, international endorsement, policy review,
performance standards, joint projects, and technology transfer.3,4 Making commitments in a
technology-by-technology manner may complicate international agreements. Mitigation
technologies are classified into several categories, and each category has many subcategories.
The International Energy Agency (IEA; 2006) categorizes these technologies into 5 groups with
45 subcategories. Even if nations adopt a sector-specific approach in which multiple
technologies are embedded, some degree of complexity will still remain. Further, coupling
technology cooperation with emissions targets and trading will create an additional dimension of
complexity. Thus, a significant challenge for technology cooperation is to manage such
complexity while ensuring political acceptability and long-term environmental effectiveness.
Nations have experience handling complexity of international cooperation for many years, often
relying on simple principles. For instance, the international trade regime has dealt with
complexity through most-favored nation and domestic treatment. The General Agreement on
Trade in Services (GATS) streamlines negotiations on many parameters by a request–offer
method.
What types of principles work for handling the complexity of international cooperation
on climate change–mitigation technologies? I propose three strategies as follows:
1. Within international technology cooperation, countries should encourage domestic
policies and focus on a handful of international actions.
2. Countries should limit interfaces between technology cooperation and emissions
trading.
2
Note that, since design elements of emissions trading may also include huge complexity, technology cooperation
may not be necessarily worse than single-emission targets that are typically coupled with trading.
3
Some results, such as technology-performance targets, are also conceivable, but the main focus of technology
cooperation is on specific actions.
4To
review distinctions between results and actions, along with the disadvantages of results targets for climate
change, see Schelling (2002).
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3. To identify technologies that deserve deep cooperation and facilitate deliberating other
policy features, countries should learn through bottom-up processes.
Besides managing complexity, these strategies can ensure political acceptability and
long-term environmental effectiveness.
2. The Nature of International Technology Cooperation
Before I discuss these principles, I examine the nature of international technology
cooperation.
After analyzing past and current cases of technology cooperation for energy and the
environment, Ueno and Sugiyama (2006) concluded that these cases can be categorized into
several types according to “levels of cooperation” and technology stages. The cases summarized
in Table 1 are chosen to cover the entire chain of technology development from R&D to
diffusion. The two supplemental cases are unilateral actions and include, if any, minor
international cooperation. These national policies, however, have had significant international
effects on technology adoption. In Appendix B, I discuss these policies case by case (based on
details from Ueno and Sugiyama [2006]).
Figure 1 maps various technology cooperative actions onto two-dimensional space: levels
of cooperation and stages of technology development. According to Putnam and Bayne (1987),
policy coordination can be categorized into four groups:
1. mutual enlightenment—sharing information on policy directions
2. mutual reinforcement—endorsing mutual policies to help each other combat domestic
resistance
3. mutual adjustment—mitigating inconsistency among the policies of different
countries
4. mutual concession—making a “package deal” that requires concessions by all
participating countries to enhance collective welfare
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Table 1. Cases of International Technology Cooperation
Case Identifier
Title
Acronym, Abbreviation, or
Shortened Name
R&D and Demonstration Stages5
1
Energy R&D policy review and
Implementing Agreements under
International Energy Agency
IEA
2
European Organization for Nuclear
Research
CERN6
3
Carbon Sequestration Leadership Forum
CSLF
4
The Solvent Refined Coal II Demonstration
Project
SRC-II
Initial Adoption Stage
5
European Union’s Renewables Directive
EU-RD
Supplemental Case A
Domestic initial adoption policies
Case A
Diffusion Stage
6
International Convention for the Prevention
of Pollution from Ships
MARPOL
7
The Montreal Protocol on Substances that
Deplete the Ozone Layer under the Vienna
Convention for the Protection of the Ozone
Layer
Montreal Protocol
8
Energy Star Bilateral Agreements
Energy Star
Supplemental Case B
Automotive emissions regulations in the
United States, Japan, and Europe
Case B
5Because
policy instruments for both stages are very similar, I combined them.
6This
abbreviation is derived from the French name (Conseil Européen pour la Recherche Nucléaire [CERN]). This
name was used at the planning stage, but the organization’s “official” name later became l’Organisation Européen
pour la Recherche Nucléaire. It is still better known, however, as CERN.
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Level of Cooperation
International technology and
performance standards
RD&D cost sharing
Concession
Adjustment
2. CERN
(4. SRC-II )
Legitimization of
national policies
6. MARPOL
7. Montreal Protocol
5. EU Renewables
Directive
8. Energy Star
Bilateral Agreements
Non-binding coordination
of domestic policies
Reinforcement
1. IEA
3. CSLF
Enlightenment
Domestic policies affecting trade partners
A. National buy-down policy
B. Auto emissions standards
(renewables, hybrid car)
No cooperation
R&D/Demonstration
Buydown
Initial
Adoption
Diffusion
Stage of
technology
development
Figure 1. Grouping of Cases of International Technology Cooperation for Energy
and the Environment
Source: Ueno and Sugiyama (2006)
*
Because Case 4 (SRC-II) failed in the end, I added parentheses.
The figure shows that concession, the deepest level of cooperation, occurs only for cost
sharing of large research, development, and demonstration (RD&D) projects and technology
and performance standards. Instead of significant cooperative actions, most of technology
cooperation occurs as “extension of national policies” without tough compromises among
nations, such as legitimization (e.g. international endorsement) and non-binding coordination.
In The two supplemental cases of unilateral actions, nations are willing to take unilateral
actions for several reasons. First, these policies are politically supported by domestic concerns
such as energy security, job creation, and industrial promotion, even if they benefit other nations.
Second, other nations willingly follow certain types of national policies, even without explicit
policy coordination. For example, followers can deploy new technologies more easily because
they can enjoy cost-reduction benefits brought about by the efforts of leading nations.
In summary, nations cooperate in technology development and adoption, and types of
cooperation can be categorized into four groups according to levels of cooperation and
technology stages. Typically, nations cooperate at a deep level only to share the costs of large
RD&D projects and to implement technology and performance standards. Other types of
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cooperation can be regarded as extension of domestic policies. Even without international
coordination, domestic policies sometimes play a significant role in international diffusion of
technologies.
3. Focusing on a Handful of International Actions and Encouraging Domestic
Policies
The most effective way to handle complexity associated with international cooperation is
to reduce degrees of freedom. Historically, trade negotiations are disciplined by reciprocity
principles, and actions by each country are conditional to counterparts’ actions. Thus, degrees of
freedom of their actions are restricted.
Instead of reciprocity principles, focusing on selected international actions and
encouraging domestic efforts (with loose international coordination) would work better for
technology cooperation for climate change mitigation, because, among the cases examined by
Ueno and Sugiyama (2006), types of deep cooperation have been limited to RD&D cost-sharing
and technology and performance standards and domestic policies have made significant effects
on international diffusion of technologies.7
With regard to selected international actions, learning-investment sharing and technology
transfer may merit deep cooperation, in addition to RD&D cost sharing and technology and
performance standards.
Technology learning involves cost-cutting efforts that target new technologies, and buydown investment is essential for making these technologies competitive. Such learning
investments have a characteristic of public goods, because every country can enjoy costreduction benefits brought by the learning investments of other nations. To realize an adequate
7
Domestic policies can contribute to technology diffusion at a global level. As shown in Case A and Case B Ueno
and Sugiyama (2006) examined, preferential treatments for renewable energy sources, hybrid vehicles, and vehicle
emissions standards have accelerated international technology diffusion. Without explicit international coordination,
these domestic policies affected technology deployment in other countries through product trading. Focus on
domestic policy development is, therefore, internationally meaningful in those cases where national policies have
positive transboundary effects. See also Jacob et al. 2005.
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level of learning investment, free riding on others’ efforts should be deterred by binding
commitments among nations.8
Technologies can be transferred to developing countries through other types of
technology cooperation and through commercial activities, but keeping a distinct space for
technology transfer would attract interests of developing countries.9 A future climate agreement
can have a multilateral fund dedicated to demonstration and deployment of advanced
technologies in developing counties (as in the Montreal Protocol). Policy development assistance
for creating adequate enabling environments for technology transfer, such as sound investment
climate, credible regulatory system, and protection of intellectual property rights, may be
helpful.10
On the other hand, the rest of the cooperative actions Ueno and Sugiyama (2006)
examined were regarded as extension of national policies. They were realized without difficulty
in a bottom-up manner. Therefore, it is meaningful not to allocate negotiation resources to such
international cooperation.
Instead of negotiating agreements, encouraging and legitimizing national policies by
loose international coordination may be helpful. In the cases Ueno and Sugiyama (2006)
examined, nations encouraged each other with endorsements, indicative targets, policy reviews,
and harmonization.
To institutionalize such encouragement and legitimization of domestic actions in a
simpler and more systematic manner, a pledge and review scheme may work well. In this
scenario, nations pledge their actions in an international arena. After a certain period, the actions
receive international review. Pledge is nonbinding, but periodic review can motivate domestic
actions. Relying on pledges also works for avoiding negotiation complexities, because, in
principle, pledges are voluntary and do not require negotiation.
8
It is uncertain whether this theoretical argument is true in an actual setting. As shown in Case A (domestic initial
adoption policies), nations make unilateral learning investments even without binding commitments. However, such
investments may be insufficient for making new technologies competitive. If so, further investments should be
pursed by international commitments.
9
Schelling (2002) argues that recipients of financial assistance for technology transfer “will benefit and should be
required to assume commitments to emissions-reducing actions.”
10
Sugiyama and Ohshita (2006) proposes Policy Development Fund for East Asian Energy Efficiency Cooperation.
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Types of cooperation that warrant deep cooperation are, therefore, narrowed to four
building blocks: RD&D cost sharing, learning-investment sharing, technology and performance
standards, and technology transfer. To further reduce degrees of freedom, we can narrow a range
of technological options for cooperation. However, it is quite difficult to predetermine which
technologies should receive focus. Instead, we should set up processes for technology selection
and let the processes choose. I discuss process design later.
4. Limiting Interfaces between Technology Cooperation and Emissions Trading
Coupling technology cooperation with emissions trading creates an additional level of
complexity, and the wisdom of combining the two can be disputed. Those who are skeptical of
the cost- and environmental effectiveness of technology policies typically believe that carbon
price should be the core of climate change mitigation policy (see, for example, Fischer and
Newell 2004; Popp 2006).11 On the other hand, those who argue the inability of carbon-price
policy to harness technological innovations that would reduce future mitigation costs emphasize
the reform of R&D policy and prefer to set a substantial carbon price after R&D is successful
(Montgomery and Smith 2005).
Others who appreciate technological learning prefer to combine the two policies. When
technology learning that reduces technology costs is considered, an appropriate combination of
emissions trading and technology policy, especially learning investment, turns out to be more
cost-effective than emissions trading without complementary technology policy. Several energy
modeling exercises show that technology learning brings about improvements in costeffectiveness (see, for example, Nakicenovic 2002; Otto et al. 2006). Further, without adequate
technology policy, emissions targets and trading would risk bringing about premature lock-in.
This means that society is confined to a set of currently competitive or close-to-competitive
technologies and medium- and long-term innovative technologies that have vast potential of
emissions reduction are locked out (Sandén and Azar 2005). However, since the mechanism of
technology learning is not fully understood, some researchers hesitate to rely on this policy
(Montgomery and Smith 2005).
11This
does not mean that technology policy should be totally eliminated. Instead, more emphasis is placed on
carbon price than on technologies.
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Although the scientific rationale for the policy mix is still uncertain, technology
cooperation would be coupled with emissions trading; these two approaches attract much
attention from policymakers who want to bring about compromises among nations. According to
international relations theory, adding new components can expand the zone of possible
agreements and make international cooperation more likely (Haas 1980; Sebenius 1983).
How can we manage the complexity added by the combination? The fundamental issue is
the way of institutionally coupling these two ideas. In the climate change context, two modes of
coupling multiple-regime components are conceivable: parallel tracks and an integrated
approach (Pew Center on Global Climate Change 2005). If the parallel tracks approach is
chosen, tracks for technologies and a track for emissions trading coexist independently (although
some loose coordination is possible).12 In this case, no new complexity may be added to
technology cooperation. On the other hand, when technology cooperation is integrated with capand-trade approaches, an additional dimension of complexity will be added.
To avoid adding complexity, the two components should be independent. However, if
nations decide to integrate them, what kinds of policy designs may limit added complexity? In
other words, what is the second-best solution?
Integration can be achieved in two ways. One is integrated negotiations among different
tracks—multiple tracks coexist and nations negotiate their commitments along the tracks in a
packaged manner. Since nations care about whether their counterparts take fair responsibility,
comparing various efforts will be important. However, comparing emissions targets with
technology efforts is methodologically complicated, which could bring unmanageable
complexity to negotiations. As long as nations are concerned about fairness, it is almost
impossible to avoid methodological complexity.
The second choice is to directly integrate technology cooperation and emissions trading.
This approach may include unmanageable complexity. Even without integration with technology
12
Respective nations can pursue different domestic emissions pricing policies without formal linkages among them,
and a multilateral scheme for reviewing these actions would guarantee equivalency of actions by counterparts. Pizer
(2006) proposes this bottom-up approach as an initial step toward an eventual global agreement.
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cooperation, linking or harmonizing domestic and regional emissions markets is really
complicated.13 This approach will add further complexity.
A safety valve and its revenue recycling to technology funding may be a key design
element of simultaneously integrating technology policy with emissions trading and managing
the resulting complexity associated with this policy portfolio. Here, the term safety valve means
public sales of emissions permits at a predetermined fixed price (price cap). At a national level,
governments sell emissions permits. At an international level, an international organization can
sell permits, but other arrangements that do not include international organizations are also
possible. For example, nations can obtain excess permits in exchange for additional domestic
investment in technologies that is equivalent to the values of the excess permits without any
monetary transfer to international organizations. Although the original purpose is to limit the cost
incurred by emitters, the safety valve approach can create double technology incentives. Price
caps raise revenue from emissions permits sales, and this revenue can be recycled to technology
subsidies and other financial incentives. Additionally, announcing future price caps can send a
long-term price signal to private entities and create incentives for long-term technology
investment, which is currently constrained by uncertain future carbon prices.14 Thus, price-cap
level may be an easy proxy for measuring the efforts of nations, since it reflects combined efforts
of emissions trading and technology policy.15 A similar arrangement can be realized by setting
aside a certain percentage of allowances. Set-aside allowances can be auctioned off, and the
revenue can be recycled to technology development. While this approach does not provide price
certainty, integrity of emissions cap will be maintained.
In developing countries, the programmatic Clean Development Mechanism (CDM) might
work for connecting technology deployment policy and measures with market-based
instruments. Under this approach, the current project-by-project CDM would be fundamentally
13
Within a carbon trading or pricing track, respective nations can pursue different domestic policies without formal
linkages among them, and a multilateral scheme for reviewing these actions would guarantee equivalency of actions
by counterparts. Pizer (2006) proposes this bottom-up approach as an initial step toward an eventual global
agreement.
14However,the
credibility of a government’s announcement of a future carbon price is questioned (Montgomery and
Smith 2005).
15
This does not necessarily mean that the price should be leveled globally. Instead, even when the prices differ,
nations can balance efforts among them by adjusting technology funding. When a certain nation sets a lower price
than others, it can catch up with others by adding technology funding. On the other hand, nations setting a higher
carbon price can spend a part of revenues on purposes other than climate change mitigation.
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transformed into a programmatic type that provides emissions credits to programs under
government policy or policy in its entirety. In this setting, developing countries would be
financially encouraged to adopt policies and measures that would accelerate deploying
emissions-reducing technologies. This approach can also simplify CDM procedures and avoid
the complexity inherent in the current project-by-project approach.16
In summary, to avoid the complexity arising from combining the two types of policies,
they should be institutionally independent. If they are integrated for political reasons, price-cap
and programmatic CDM strategies may serve to limit the extent of the added complexity.
5. Learning through Bottom-Up Processes
Our discussion to this point has identified four components of technology cooperation
(RD&D cost sharing, learning-investment sharing, technology and performance standards, and
technology transfer) and two modes of coupling technology cooperation with emissions trading
(parallel tracks and an integrated approach). Technology selection, appropriate price-cap levels,
and revenue distribution (from permit sales) are important variables that nations can manipulate
to discover possible compromises.
However, even if the number of manipulative variables is limited to five, a range of
variation is still so wide that negotiators cannot avoid complicated calculations of their interests,
possibly risking miscalculations that lead nations to consider stepping out of agreements at a
later stage. Therefore, an appropriate guiding process principle is necessary for narrowing the
variation of policy-design parameters and for exploring possible stable agreements. Learning
from bottom-up processes should be this guiding principle.17 If adopted, policymakers can rely
on this principle to reduce the risk of implementation failure and to find a politically acceptable
set of policy designs.
Nations are currently cooperating in several technology initiatives. Among them are the
Gleneagles G8 Summit and its follow-up process and the APP. These initiatives, which started in
2005, deal with technology options. In response to requests from G8 countries, the World Bank
16
For details of programmatic CDM, see Samaniego and Figueres (2002) and Figueres (2005).
17
This principle is based on the regime-complex theory (Raustiala and Victor 2004). Reflecting a decentralized
nature of lawmaking at an international level, this theory provides analytic perspectives for overlapping regimes and
identifies four aspects of interactions among those regimes: path dependence, forum shopping, legal consistency,
and regime development through implementation.
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and the IEA have conducted research on ways to materialize technological potential. Both
organizations released their reports in 2006 (Development Committee 2006; IEA 2006). Japan
will receive these reports when it takes the G8 presidency in 2008. The dialogue on long-term
cooperative action to address climate change under the UNFCCC was launched in May 2006,
and one of the topics is “realizing the full potential of technology.” Review of the entire Kyoto
Protocol under its Article 9 will provide an opportunity to consider incorporating technology
components into the current architecture.18
In terms of emissions trading, the parties to the Kyoto Protocol have agreed to establish
an Ad hoc Working Group under Article 3.9 of the Protocol. The working group considers
further emissions-reduction commitments of industrialized countries. At national and regional
levels, various types of initiatives are developing. For example, the EU has established a regionwide emissions-trading scheme, and private companies in Japan are investing in the CDM. In the
United States, northeastern states and California are considering the adoption of mandatory
emissions targets and trading. At the federal level, Congress has recently deliberated a cap-andtrade program.
Experience gained from these initiatives yields clues to possible agreements. Various
technology initiatives would identify technological options that deserve significant cooperation.
From carbon market practices, a range of politically acceptable carbon prices would emerge.
Such information will make it easier for policymakers to decide on key policy designs.
The current parallel tracks would help in experimenting with different ideas among
different sets of nations. Participation in UNFCCC/Kyoto, G8 and its dialogue, and APP is
summarized in Figure 2. Each framework has a different emphasis, and maintaining multiple
tracks helps to nurture different ideas. Differences in membership reflect differences in policy
18
Article 9 of the Kyoto Protocol states that:
1.
The Conference of the Parties serving as the meeting of the Parties to this Protocol shall periodically review
this Protocol in the light of the best available scientific information and assessments on climate change and
its impacts, as well as relevant technical, social and economic information. Such reviews shall be
coordinated with pertinent reviews under the Convention, in particular those required by Artcile 4,
paragraph 2 (d), and Article 7, paragraph 2 (a), of the Convention. Based on these reviews, the Conference
of the Parties serving as the meeting of the Parties to this Protocol shall take appropriate action.
2.
The first review shall take place at the second session of the Conference of the Parties serving as the
meeting of the Parties to this Protocol. Further reviews shall take place at regular intervals and in a timely
manner.
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preferences among nations, and these revealed preferences would be useful for designing an
acceptable future agreement for climate change mitigation.
Dialogue on longterm cooperation
Dialogue after G8 2005
(G20)
UNFCCC
Group of Eight (G8)
NZ
Other EU
countries
Russia
UK Germany
France Canada
Italy
US
Japan
EIT
China
Annex B of
Kyoto Protocol
Australia
Korea India
Mexico
Ad hoc Working
Group of Article 3.9
Asia Pacific Partnership
South Africa Brazil
Other DCs
Others
Kyoto Protocol
Periodic review at COP/MOP2
based on Article 9
Figure 2. Parallel Tracks for Post-Kyoto International Architecture
6. Political Acceptability and Long-Term Environmental Effectiveness
If the three principles are adopted to manage complicatedness of international technology
cooperation, then political acceptability and long-term environmental effectiveness—the
expected advantages of technology cooperation—can be secured as well.
Political Acceptability
A portfolio of RD&D cost sharing, learning-investment sharing, technology and
performance standards, and technology transfer may address different political motivations.
Considering the nature of RD&D cost sharing as a global public good, successful RD&D
cooperation helps to build trust among participating nations (as CERN did). Learning-investment
sharing may be supported by industries that need public expenditures to reduce costs of
technological innovations. As MARPOL and the Montreal Protocol have demonstrated,
technology and performance standards sometimes create an incentive for nations to join
agreements instead of free riding, because adopting standardized technologies are more
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beneficial than staying aside (Barrett 2003). Technology transfer incentives attract developing
countries.
As I discussed in Section 4, coupling technology cooperation with emissions trading may
attract much attention from policymakers who want to bring about compromises among nations,
because the zone of possible agreements is expanded. Although it is desirable to keep technology
cooperation and emissions trading institutionally separate in terms of avoiding complexity, a
safety valve and its revenue recycling to technology funding might make sense in terms of U.S.
reengagement. The National Commission on Energy Policy (NCEP) proposes to adopt
mandatory emissions trading with a US$7 price cap and spend revenue from permits sales on
technology development and deployment. In the NCEP proposal, $36 billion in revenue is
expected in the first 10 years (NCEP 2004). If such a policy is adopted in the United States, the
combination of emissions trading and technology policy may become a more desirable regime
design in terms of U.S. reengagement.19
A bottom-up approach is also meaningful for ensuring political acceptability, because it
allows countries time to consider acceptable policy parameters based on their respective
preferences.
Long-Term Environmental Effectiveness
Long-term environmental effectiveness depends on how both domestic and international
efforts will advance technological innovations and adoption.20 As I discussed in Section 2,
international cooperation tends to play a minor role at R&D and demonstration stages, compared
to domestic policies. Further, both domestic policies and international cooperation are important
for international diffusion of technologies.
With regard to domestic policies, review of pledged action may be important for
encouraging domestic technology policies and making them environmentally effective in a long
run. Review can introduce some methodological complexity, especially when nations compare
effectiveness of different types of actions. Schelling (2002) mentions the Marshall Plan as a
19
In 2005, Bingaman submitted a mandatory cap-and-trade proposal to the Senate floor, based on NCEP (2004)
(Senate Amendment 868 to the Energy Policy Act of 2005). Although this proposal was recorded in the
Congressional Record, it was not discussed on the Senate floor.
20
Long-term environmental effectiveness also depends on the balance of emissions policies and technology
policies. However, as I discussed in Section 4, it is difficult to find adequate balance between them.
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successful example of “reciprocal multilateral scrutiny” that developed “relevant criteria” rather
than a formula. This experience may be relevant to the design of review procedures.With regard
to international cooperation, choice of technologies that deserve deep cooperation will be crucial.
It is frequently mentioned that governments tend to pick inadequate “winners” and spend money
on them wastefully. The fundamental difficulty in selection of technologies is the inherent
uncertainty of innovation process. Hence, keeping portfolio of technological options may be
useful for mitigating the risk of picking inadequate winners.
For bottom-up processes to select meaning portfolio of technologies, technology
assessments may be crucial. Actually, several international technological efforts embrace
information gathering and assessment of technological and commercial feasibility of new
technologies. Barrett (2003) points out that a hybrid system relying on committees comprising
both government and industry representatives has worked in past cases—including control of
vehicle emissions standards and ozone depleting substances—and similar public-private
partnership for climate change mitigation technologies is also necessary. It is still uncertain
whether or not this approach will actually work for climate change mitigation. At the very least,
continuing improvements of technology assessments are needed.
7. Concluding Remarks
In considering the nature of technology cooperation, I have proposed three principles for
handling complexity associated with international cooperation. First, to reduce degrees of
freedom, nations should focus on a handful of international actions and leave others to a pledge
and review process for domestic actions. I recommend this principle because actions deserving
significant cooperation are limited to RD&D cost sharing, learning-investment sharing,
technology and performance standards, and technology transfer. Second, when technology
cooperation is coupled with emissions trading, the two strategies should be institutionally
independent, thereby mitigating the complexity added by the combination of two types of
policies. If theses strategies are integrated by political reasons, price caps and programmatic
CDM may serve as the interface that limits the extent of the added complexity. Finally, learning
from bottom-up processes should be the guiding process principle for examining an acceptable
range of policy parameters. Various technology initiatives would help identify technological
options that deserve significant cooperation. From carbon market practices, a range of politically
acceptable carbon prices would emerge. Such information will make it easier for policymakers to
decide on key policy designs. These principles may also improve political acceptability and longterm environmental effectiveness.
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Appendix A: Summary of Technology Cooperation Proposals and Analyses
Citation
Barrett
(2003)
Benedick
(2001)
Justus and
Philibert
(2005)
Edmonds
and Wise
(1998)
Victor
(2004)
Schelling
(2002)
Grubb
(2005)
Proposals and Analyses
Based on a game-theoretic analysis of international
environmental agreements, he proposes combining
international R&D fund and technology standards.
He proposes portfolio of various cooperative actions from
basic R&D to technology transfer through coordinated
policy and measures among a limited number of
countries.
Rather than making a specific proposal, they provide
information and analysis on various cooperative actions
and suggest combinations of carbon pricing and
technology cooperation.
They model mandatory installation of CCS‡ to new
fossil-fuel power capacity and new synthetic fuels
capacity as a “backstop” to failure of economically
efficient approach.
Rather than proposing a specific idea, he raises key issues
associated with technology policy and cooperation and
mentions the necessity for technology cooperation.
Discussion centers on the nature of commitments and the
inability of enforcement at an international level. Also
emphasizes deep emissions cuts by innovative
technologies in the long run and argues a financial
mechanism for deploying low-carbonized technologies in
developing countries is necessary.
Refers to innovation policy literature; mentions various
options including Clean Energy R&D Fund, strategic
deployment agreements, and technology transfer
agreements. Emphasizes a combination of carbon pricing
and technology cooperation.
*CGIAR: Consultative Group on International Agricultural Research
†ITER: International Thermonuclear Experimental Reactor
‡CCS: carbon capture and storage
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Reference Cases
CGIAR,* CERN, MARPOL,
catalytic converters for
automobiles
Montreal Protocol
IEA, ITER,† CGIAR, clean
coal technologies (including
CSLF), Energy Star bilateral
agreements, among others
No specific case mentioned
CERN, ITER, IEA
Marshall Plan and NATO
mentioned as precedents of
“reciprocal scrutiny” as an
alternative to an enforcement
scheme
No specific case mentioned
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Appendix B: Cases of International Technology Cooperation for Energy and the
Environment
In this appendix, I provide conceptual discussion and case descriptions. First, I define
international technology cooperation, based on literature review. Next, I describe the details of
each case (refer to Table 1 in the body of the text and to Appendix A). The descriptions are
derived from Ueno and Sugiyama (2006).
Definition of International Technology Cooperation
Technologies are developed through four stages: R&D, demonstration, initial adoption,
and diffusion. R&D includes both fundamental research and application research, but the
outcomes are far from full commercialization. Demonstration tests the technical and commercial
feasibility of technologies by constructing and operating actual plants and equipment. Initial
adoption means initial market penetration. This stage is necessary for reducing production cost
and price through technology learning and by removing various barriers that hinders diffusion.
When cost is sufficiently reduced and other types of barriers (e.g., social acceptance) are
removed, these technologies are competitive and widely diffused.
These four stages collectively constitute an innovation chain. The definition of
innovation in this context is not restricted to R&D, but includes a set of stages described above.
Gallagher et al. (2006) defines energy-technology innovation as
[P]rocesses by which improvements in energy technology, which may take the
form of refinements of previously existing technologies or their replacement by
substantially different ones, are conceived; studied; built, demonstrated, and
refined in environments from the laboratory to the commercial marketplace; and
propagated into widespread use.
Although the chain view is widely held, actual innovation processes go forward and
backward among these stages. Further, stages overlap each other (Gallagher et al. 2006; Taylor
et al. 2006).
The innovation chain’s duration differs among technologies. Several technologies diffuse
very quickly within 10 years, but others take longer, sometimes as many as 50 years, to diffuse.
Grübler et al. (1999) point out four factors that delay diffusion—relative disadvantage against
conventional technologies, scale, infrastructure needs, and interdependence with other
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technologies. The higher these barriers, the longer the transition from initial adoption to
widespread diffusion.
Energy and Environmental Innovation Policy
Public policy is necessary for boosting energy and environmental technological
innovation, because of several types of market failures (e.g., knowledge spillover and adoption
externality) (Jaffe et al. 2005). Policy instruments necessary at each stage of the innovation chain
differ. At RD&D stages, governments can establish national research laboratories for implanting
RD&D projects. Tax credits and subsidies can be granted to private companies that engage in
development and demonstration activities. Protection of intellectual property rights is another
powerful policy tool that harnesses private investment in R&D. At an initial adoption stage,
governments can furnish economic incentives for technology adoption, employing subsidies, tax
credits, public procurement, and quantitative adoption targets for specific technologies. At a
diffusion stage, governments can adopt regulatory measures, such as standards and labeling, that
make specific technologies commercially viable. Either or both of two kinds of standards are
commonly adopted: technology standards and performance standards. Technology standards
request companies to adopt specific technologies. Performance standards set a required level of
technology performance and do not mandate adoption of specific technologies. Forming
networks and instituting an educational system are necessary for several stages. To bring about
large technological changes that require long-term consistent and coordinated actions,
technology visions and planning can help to coordinate various actors involved and to develop a
consistent policy (Alic et al. 2003; Sandén and Azar 2005; Taylor et al. 2006).
There is no consensus on whether or not regulatory measures should be included in the
category of energy and environmental innovation policy. For instance, Alic et al. (2003) draw a
line between technology policies and regulatory policies, although they see the latter important
for innovation and technology adoption.
This paper includes them, as long as they primarily intend to stimulate energy and
environmental technological innovations rather than other compliance measures, such as buying
permits and fuel switching. Technology standards are apparently included in this definition.
Performance standards are also included when a limited set of technologies are conceived as
compliance technologies. On the other hand, ambient air quality standards are not included, since
such standards focus on environmental outcomes and do not specify the requirements
technologies should satisfy. A cap-and-trade program for sulfur dioxide is not included either,
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since the program let the market choose compliance measures including not only installation of
flue gas desulphurization, but also fuel switching and purchase of emissions permits.
Figure B1. Policy Instruments for Energy and Environmental Technological Innovation
Source: Sandén and Azar (2005)
International Cooperation
According to international relations (IR) literature, international cooperation “takes place
when the policies actually followed by one government are regarded by its partners as facilitating
of their own objectives, as the results of a process of policy coordination” (Keohane 1984).
Following this, I define international cooperation as situation where countries are satisfied with
each other’s actions through policy coordination among them.21
21
I do not include the situation where national policies are coordinated automatically without explicit arrangements
among countries. This type of coordination does not need an international political process and is considered to be a
different class of phenomena. Keohane (1984) names it harmony and makes distinction between cooperation and
harmony.
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International Technology Cooperation
Considering definitions of energy and environmental innovation policy and international
cooperation, I define international technology cooperation as energy and environmental
innovation policy coordination among countries. Sometimes, international technology
cooperation is considered solely as collaborative projects for RD&D. However, in addition to
these projects, I include coordination of programs or policies and cooperation at initial adoption
and diffusion stages, because, as explained in the definition of energy and environmental
innovation, various policy and measures are called for at different development stages.
When such a wide definition is adopted, it is important to ask what is included and what
is not. It is especially critical to consider whether to include cooperative actions that indirectly
spur energy and environmental innovation. Examples are the targets and timetables of the Kyoto
Protocol and the Montreal Protocol.
As I did in defining energy and environmental innovation policy, I include these actions,
as long as they stimulate adoption of a limited set of technologies and exclude other compliance
measures such as buying permits and fuel switching, even if they do not explicitly direct specific
technologies. Following this criterion, the Montreal Protocol is included. Although the Montreal
Protocol set caps only on consumption and production of ozone-depleting substances without
specifying technologies, it was designed to diffuse limited classes of chlorofluorocarbon (CFC)
substitutes such as hydrochlorofluorocarbons (HCFCs), hydrofluorocarbons (HFCs) and
hydrocarbons (HCs). On the other hand, I have not included the Kyoto Protocol, because it
allows countries to take a wide range of measures to achieve their targets including energy
efficiency, fuel switching, forestation, carbon trading, and reduction of gases other than carbon
dioxide (CO2).
Cases
I selected eight cases to allow us to collectively cover all the stages of a technology
development chain (see Table 1 in the body of the text). In addition to the eight cases, I included
two supplemental cases of domestic policies that affected international technology adoption. The
supplemental cases did not embrace international cooperation nor did they have a minor
cooperation component; instead, they were referred to as models of international aspects of
technology development.
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Case 1—Cooperation under IEA
In 1974, the IEA was established among OECD countries in response to the 1973 oilprice surge. From the beginning, IEA incorporated technology cooperation into its missions, in
addition to the stabilization of the crude-oil market. Of course, major focuses of technology
cooperation are alternative energy sources for oil and energy conservation.
Originally, the IEA had two tiers of technology cooperation: energy R&D policy review
and joint activities under technology-specific implementing agreements (IAs). In setting up the
national policy reviews, IEA officials had expected that national polices would become
consistent with IEA’s long-term strategy and that R&D policies of each country could become
mutually supporting and supplemental (Keohane 1978). This expectation was not realized
because R&D policy did not attract attention after the oil market was stabilized and the perceived
need for R&D diminished in the 1980s. As a result, the IEA merged energy R&D policy review
into another national policy review (Scott 1995).
Before abandoning the concept, the IEA did review national energy R&D policies of
member countries several times. The first review, conducted in 1978, found that connections
between energy policy and R&D policy were weak in many countries and that policy objectives
were not defined appropriately (Scott 1995).
The IEA does continue to host IAs. These agreements focus on and promote energy R&D
and RD&D among IEA members. Recently, developing countries and private companies became
eligible to join IAs, and the agreements have begun to embrace activities for initial adoption and
diffusion stages.
The role of the IEA is to provide a framework for collaboration, not to direct activities
under IAs. Member countries decide what to do on their own. Each IA has a leading country, and
it designates an operating agent (OA) that operates the IA and coordinates member countries.
Typically, a governmental organization of a leading country serves as an OA (Scott 1995). IAs
are issued in a technology-by-technology manner. Participation in IAs is voluntary, and countries
do not necessarily join all IAs.
The major activity under IAs is information sharing about research outcomes in member
countries. Countries also implement demonstration projects jointly and develop common
standards through joint research projects (e.g., test procedures for technologies).
IAs offer two ways to collaborate: task sharing and cost sharing. Under a task-shared
scheme, each participating country implements and finances its own project in parallel with other
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countries, and no money goes beyond a border. When cost sharing is chosen, participants
establish a common fund to cover the costs of joint activities (Scott 1995; see Figure B2). The
fund is usually administered by the OA.
Member
State A
$
Member
State B
$
Member
State C
$
Common Fund
$
Operating Agent
Member
State A
$
Member
State B
$
Member
State C
$
Laboratory
in State A
Laboratory
in State B
Laboratory
in State C
Coordination of
program
Operating Agent
Cost sharing
Task sharing
Figure B2. Cost and Task Sharing
All IAs adopt task sharing, and some of them incorporate cost sharing at the same time.
And yet, in many cases where cost sharing is included, money from the common funds is spent
on central administration and information-sharing activities only, and actual projects are
implemented through task sharing. In a few cases, participants have financed joint R&D or
demonstration projects in a cost-shared scheme (Scott 1995; OECD/IEA 1996).
These facts imply that countries prefer task sharing and do not want their R&D money to
go abroad. Considering the nature of task sharing, we can assume that most projects are parts of
domestic R&D programs.
Nevertheless, under a task-shared scheme, fruitful collaboration is possible, as
demonstrated by the IEA Wind Agreement. To harmonize national test procedures for windturbine performance, member country laboratories tested the turbines in parallel and jointly
developed testing procedures reflecting the results of those tests. The International
Electrotechnical Commission (IEC) designated the testing procedures as an international
standard, which was adopted by many countries (OECD/IEA 1996; IEA Wind 2003).
Case 2—CERN
CERN began in 1954 with 12 member countries. In the 1950s, European countries
collaboratively implemented several large science projects. Their policymakers believed that
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international cooperation in scientific research would strengthen unity among European countries
and produce political momentum for integration. It seems that one of the motivations behind
establishment of CERN was political aspiration for integration (U.S. Congress OTA 1995).
Today, CERN has grown to include 20 European countries that conduct research on
particle physics. Such research calls for particle accelerators, but their construction cost is so
high that a single country cannot easily afford to construct an accelerator by itself. Over the
years, then, European countries cooperated to construct and operate them jointly. In 1959, the
CERN built the Proton Synchrotron, then the world largest accelerator, in Geneva, Switzerland.
In 1965, Intersecting Storage Rings (ISR), the world’s first proton collider, was built. In 1987,
the CERN council approved construction of the Large Electron-Positron (LEP) Collider, with a
diameter of approximately 27 km. In 1994, construction of the Large Hadron Collider (LHC)
was approved. The United States and Japan supplied funding for the LHC, and then gained
observer status in CERN (CERN 2006).
Even though countries have been successfully cooperating for more than 50 years,
agreement has sometimes been difficult to achieve, especially on siting, procurement, and burden
sharing. For instance, host countries France and Switzerland disagreed with Germany and the
United Kingdom about burden sharing, and they failed to reach an agreement (U.S. Congress
OTA 1995).
Case 3—CSLF
In 2003, the CSLF was established at the initiative of the United States for promoting
CCS technologies. Its activities are sharing information, searching for joint projects, developing
a technology road map, and considering legal issues. The CSLF charter explicitly states that it is
nonbinding.
One of the activities under the CSLF is endorsement of RD&D projects by member
states. The CSLF has endorsed projects with aspects of international collaboration. Member
countries nominated candidate projects at the second meeting of the forum in January 2004, and
10 projects were endorsed at the third meeting held in September 2004 (CSLF 2004). To date,
the forum has not launched a joint project.
Since this initiative is quite new, the impacts of endorsement and other activities remain
to be seen. Endorsement could make it easier for national governments to overcome domestic
resistance for funding projects, or it could merely be an expression of support.
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Case 4—SRC-II
The SRC-II was a planned coal-liquefaction demonstration project in the early 1980s.
The U.S. Department of Energy (DOE) originally planned it, inviting Japan and Germany to join
and co-fund the project. Although both countries agreed, the United States suddenly canceled the
project.
In response to the oil-price surge in 1973, DOE built several small-scale pilot plants to
test various ideas for coal liquefaction. After the pilot-plant tests, DOE picked up promising
liquefaction ideas and implemented large-scale demonstration projects between 1978 and 1982.
Private companies shared the burden of the projects with the government (NAS 2001).
Solvent-refined coal (SRC) was one of these ideas. At the pilot test stage, two plants were
built to test two types of SRC, and one type was supposed to be chosen for a large-scale
demonstration. Nonetheless, DOE decided to build two demonstration plants, one for each idea.
To offset this cost increase, the DOE invited Japan and Germany to join SRC-II, and the
three governments made an agreement for co-funding the project in July 1980. The total cost was
approximately $1.5 billion (1981$). The burden was planned to be shared—50 percent by DOE,
25 percent by Japan, and 25 percent by Germany.
Soon after the Reagan administration came into power, however, the administration cut
government expenditures radically to restore fiscal discipline, and SRC-II was one of the
programs cut. Furthermore, oil prices stabilized at a reasonable level in 1981, making it difficult
to justify coal liquefaction as a response to oil-price shocks.
As a consequence, the three countries agreed to terminate the SRC-II project in June
1981. This case has been frequently cited as an example of the lack of respect the United States
confers on international jointly funded projects. Especially within the international scientific
research community for particle science, fusion, and space, the SRC-II case has taken on the
status of a “legend” (U.S. Congress OTA 1995).
Case 5—EU-RD
In September 2001, the EU adopted the Renewables Directive to expand its share of
renewable energy sources for mitigating climate change, ensuring energy security, and creating
new employment. The directive set the Europe-wide target share of renewable electricity at 22
percent by 2010 as well as the national targets for each member country. These targets, called
indicative targets, are not legally binding.
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During the negotiation process, the German government strongly opposed a draft
directive prepared by the European Commission because the draft potentially meant that
Germany’s support scheme would be denied. The draft proposed a harmonized, renewableelectricity, certificate-trading scheme among the EU countries. In contrast, Germany supported
wind power through a feed-in-tariff scheme and suspected that the draft would threaten that
scheme. As a result of the opposition, the European Commission dropped the proposal
(NEDO/CRIEPI 2004; Rowlands 2005).
After realizing that its scheme would not be threatened, Germany joined Denmark in
pushing mandatory targets. Other countries, however, opposed binding targets, and in the end,
the targets remained nonbinding. Furthermore, some countries sought to and succeeded in
reducing their targets. Other countries were able to qualify the meaning of their targets by adding
“notes” to the EU-RD (NEDO/CRIEPI 2004; Rowlands 2005).
European countries then tried to extend their target-setting effort to a global level. At the
World Summit on Sustainable Development (WSSD) in 2002, the EU, along with East European
countries, proposed setting a global target that renewable energy constitute 8 percent of the
world’s energy in 2015. While the proposal was rejected, the European countries set up the
Johannesburg Renewable Energy Coalition (JREC) with 51 developing countries and continued
to raise awareness about renewable energy at a global level. Moreover, Germany hosted
Renewables 2004, a global conference attended by representatives of 154 countries.
Supplemental Case A
While the EU-RD has promoted renewables in Europe, especially wind energy, other
clean energy technologies (hybrid vehicles and photovoltaics [PV]) have been nurtured by
domestic initial adoption policies.
With regard to hybrid vehicles, Japan supports its market viability through a subsidy, a
tax reduction or exemption, and government procurement. California allows hybrid cars to run in
high-occupancy lanes, and some other U.S. states also give favorable treatments. At the federal
level, tax credits are provided to owners of hybrid cars. London City imposes road-pricing fees
on cars entering the central area of London, but the city government allows hybrid cars to run
without paying these fees.
The Japanese government also subsidizes residential PV, and power companies
voluntarily buy excess electricity from households. The German government has an electricity
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purchase program favorable for PV and offers low-interest loans for PV owners (NEDO/CRIEPI
2004).
The United States also played a major role in promoting wind power in the late 1970s and
1980s. Favorable tax treatments in California, along with the federal Public Utilities Regulatory
Policy Act (PURPA) of 1978, brought about the California wind power and supported the initial
market introduction of wind turbines (Norberg-Bohm 2000).
While these unilateral actions have been motivated mainly by domestic concerns such as
energy security, employment, and industrial promotion, they have had international spillover
effects. First, they have induced manufacturers around the globe to develop advanced
technologies. Favorable treatments for hybrid cars by the United States and Europe benefit
Japanese auto manufacturers. The Japanese PV support program provided incentives for
technology development to manufacturers based in the United States, where such supports
schemes were weak (Jacob et al. 2005). And the current German PV support program boosts
export by Japanese PV manufacturers. The initial market for wind power created by California
and PURPA motivated Danish wind manufacturers (Norberg-Bohm 2000). Second, these
domestic programs reduced technology cost and demonstrated the feasibility of policy schemes,
which made it easier for other countries to use these technologies and adopt similar policy
instruments.
Case 6—MARPOL22
MARPOL was adopted to prevent marine oil pollution and required oil tankers to use
specific technologies. All tankers were major sources of this pollution, emitting oil in two ways.
First, the tankers emitted ballast water in which oil residues mixed with seawater, because
tankers returning to export countries filled empty tanks with seawater to keep stable balance.
Second, oil tankers cleaned up tanks with seawater and emitted the resulting oil-water mixture at
sea.
In the 1960s, three technologies were developed to prevent these emissions: segregated
ballast tanks (SBTs); crude oil washing (COW) systems; and load on top (LOT) mechanisms.
The first two technologies were not widely adopted until MARPOL mandated their installation.
22
Descriptions in this section are based on Mitchell (1994) and Barrett (2003).
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Originally, the international community approached this problem by regulating emissions
of oil–water mixtures, as adopted in the 1954 International Convention for the Prevention of
Pollution of the Sea by Oil (OILPOL). OILPOL required shipmasters to record all ballasting,
cleaning, and discharge operations. Port states could inspect these records and report evidence of
violations to flag states (i.e., states of ship registry). Flag states were expected to penalize or
punish violators. The reason flag states assumed an enforcement role was that, under customary
international law, flag states had exclusive enforcement jurisdiction over ships. Port and coastal
states had difficulty enforcing emissions regulations on tankers.
This mechanism did not work. Since flag states did not suffer from oil pollution caused
by their registered tankers, they did not have any incentive to prosecute or punish violators. And
even if some flag states did punish violators, tanker owners could simply change their states of
registry, which made flag states hesitant to enforce OILPOL rules.23 For these reasons, the
OILPOL mechanism failed
In 1972, reflecting on this failure, the United States enacted domestic law that prescribed
unilateral equipment standards for tankers, which were planned to take effect in 1976. In case
other countries did not take a similar approach, the U.S. coastal authority would have the right to
reject entry of tankers without the required equipment. Backed by the domestic law, the United
States asked other countries to agree to an international treaty that would take a technologystandard approach. After negotiations, MARPOL was adopted in 1973. This treaty required
newly built large tankers to have SBTs. Equipment-standard compliance was planned to be
confirmed through inspection by port countries and flag states, in addition to a reporting and
certificate system. Port states were given the right to detain ships violating the standard and deny
such tankers entry to ports.
Since countries delayed in ratifying MARPOL, the United States took a further action,
threatening that it would adopt unilateral equipment standards requiring SBT on more tankers
unless countries agreed to stricter commitments. As a result, in 1978, countries agreed to
strengthen regulations on tankers and mandate installation of SBTs and COW systems on new
tankers weighing more than 20,000 tons and on existing tankers weighing more than 40,000 tons.
23According
to Murphy (2004), with regard to ships other than oil tankers, deregulation competition and loose
enforcement occurred among flag states.
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At that point, ratification by countries sped up and MARPOL entered into force. Once
major countries had adopted harmonized technology standards, ships sailing internationally had
difficulty escaping from them, because it was not easy for them to find ports where they could
stay. According to a game-theoretic guess by Barrett (2003), once the number of ratifying
countries reached a certain “threshold” point, the number of tankers using the specified
technologies would grow rapidly. Nonetheless, according to Tan (2006), while technology
standards were apparently superior to discharge standards in this case, even the technology
standards were not perfect, allowing many substandard ships to operate in many parts of the
world.
Case 7—Montreal Protocol24
The stratospheric ozone layer absorbs harmful ultraviolet rays, protecting living
organisms on the surface of the earth. According to various observation records, the ozone layer
has been partially destroyed by artificial chemicals, including CFCs. At one time, CFCs were
regarded as ideal substances because they were nontoxic, chemically stable, not easy to burn, and
lacked any color or smell. As a result, they were widely used as refrigerants, solvents, foaming
agents, and aerosol propellants.
In 1974, however, a chemist pointed out the possibility of damage on the ozone layer by
CFCs. The number of observations was small at that time and some insisted that the phenomenon
was not empirically demonstrated, but the United States banned nonessential uses of CFCs in
1978. They have not been used for aerosol in the United States since then. Many other
industrialized countries, though, did not follow U.S. regulations and continued to use CFCs as
aerosol propellants.
While regulations on CFCs were first implemented unilaterally, the United States
continued its efforts to gain international limitations on CFC use. As a consequence, the Vienna
Convention for the Protection of the Ozone Layer and the Montreal Protocol on Substances that
Deplete the Ozone Layer were adopted, respectively, in 1985 and 1987. Since 1987, amendments
to the Montreal Protocol have strengthened international regulations on ozone-depleting
substances (ODS).
24
Descriptions in this section are based on Benedick (1998).
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Development of substitutes was essential for replacing CFCs. Chemical manufacturers
producing CFCs were developing their substitutes at the same time, but they had opposed any
limits on CFC production and consumption since the 1970s.
However, once international awareness for ozone protection was raised in the late 1980s,
manufacturers accelerated development of substitutes such as HCFCs and HFCs. DuPont, a U.S.based manufacturer, was the leader of development of such substances, and the company
changed its original position and supported an international limit on CFCs. In parallel with the
Montreal Protocol negotiations, the U.S. Congress considered a unilateral regulation in case of
nonagreement. To U.S.-based manufacturers, further regulations seemed inevitable anyway, and
they considered international limitations to be preferable to a unilateral action. Such limitations,
after all, would create a larger market for alternative substances, and the manufacturers could
foresee gaining a large share of the new market (DeSombre 2000). Consequently, U.S.
manufacturers joined with several environmental nongovernmental organizations (NGOs) to
advocate an international limit.
Negotiations on the Montreal Protocol were difficult. There was a large position gap
between the United States and Europe on the scope of restricted substances, the selection of an
indicator (consumption or production), the stringency of the limits, and the timetable.
Nonetheless, countries finally agreed to reduce CFCs by half by 1998.
Pressure from the U.S. Congress was one reason for the agreement.25 Congress
considered several bills for trade restrictions on ODS and products containing or made with
ODS. These bills worked as strong incentives for countries exporting refrigerators, air
conditioners, computers, and semiconductors to the United States. According to DeSombre
(2000), negotiators from the exporting countries understood well what the bills could mean to
them. Japan, for example, was concerned about the proposed trade restrictions as another form of
automobile export limitation (Brack 1996).
Moreover, the adopted protocol included a trade-restriction clause that gave signatories
the right to ban importation of ODS and products made with ODS from nonsignatories. Brack
25Other
reasons included increased scientific knowledge, enhanced environmental awareness, and recognition that
benefits exceeded costs.
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(1996) pointed out that this clause induced Korea, Taiwan, and Southeast Asian countries to
participate in the protocol.26
After the protocol was adopted, CFC replacement was accelerated. In 1988, DuPont
announced its willingness to phase out CFC production. European manufacturers also sped up
substitute development. Next, countries agreed to phase out CFCs totally at the Second Meeting
of the Parties in 1990 by adding an amendment to the protocol. Since then, countries have
expanded the range of restricted substances and moved up phase-out schedules for these
substances.
The original protocol set only a 50 percent reduction target, but according to the chief
negotiator of the United States at the time (Benedick 1998), the U.S. negotiators assumed that if
substitutes occupied 50 percent of market share, the market for CFCs could not be sustained.
Actually, makers of CFCs, faced with losing their markets, were motivated to speed up substitute
development. This, in turn, accelerated the regulation and led to total phase-out of CFCs.
Case 8—Energy Star Bilateral Agreements
In 1992, the USEPA initiated the Energy Star program, a voluntary labeling scheme for
energy-efficient products. In principle, the most efficient 25 percent of products in a given
product category are allowed to have an Energy Star label, allowing consumers to easily choose
energy-efficient products over less-efficient options. At the beginning, Energy Star dealt with
standby power of computers, but the program has gradually expanded the scope of product
categories, and it currently has 40 categories including houses and buildings. As a result, Energy
Star is so popular that half the people in the United States recognize it (USEPA 2003). Since
products with Energy Star certification are preferentially procured by federal, state, and local
governments, the number of participating companies has increased since the program began.
In addition to its domestic popularity, Energy Star has also gained international
recognition through the international computer trade. Many personal computer manufacturers are
multinational companies that sell their products into various markets, including the United
States. Since their product specifications do not usually differ among markets, these companies
sell products that satisfy the program’s requirements and are marked with an Energy Star logo to
26Trade
restrictions coupled with a funding mechanism gave developing countries incentives to join the Montreal
Protocol. Many researchers point out that both positive and negative incentives worked effectively.
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other countries. As a result, Energy Star is well recognized internationally and said to be a de
facto standard of energy-efficiency labeling for office appliances (Meier 2003; OECD/IEA
2003).
As Energy Star came to be recognized internationally, other countries adopted it as their
official labeling system through bilateral agreements with the United States. Currently, Japan,
the EU, Canada, Australia, New Zealand, Mexico, and Taiwan participate in the program
through these agreements.
Product categories that bear the Energy Star designation differ among these countries (see
Table B1) because some of the countries already had other energy-performance test procedures
in place. To merit an Energy Star label, the USEPA’s official test procedure must be used to
measure the energy performance of products.
Table B1. Differences in Product Categories to which Energy Star Is Applied
Product Category and Representative
Examples
Office equipment (PCs and displays)
Consumer electronics (televisions and
video recorders/players)
White goods (refrigerators and
dishwashers)
Heating and cooling equipment (airconditioners and furnaces)
Building materials (insulation)
Homes
Commercial buildings
United Canada
States and
Mexico
×
×
Australia and
New Zealand
Japan, EU,
and Taiwan
×
×
×
×
×
×
×
×
×
×
×
×
Source: Meier (2003).
Many of these countries, however, did not have energy-efficiency standards, test
procedures, and labeling conventions in place for their computers and other office appliances.
These countries adopted the U.S. system and harmonized their labeling system with Energy Star.
However, with regard to home appliances, many countries had already developed their
own test procedures and did not adopt Energy Star. Only Canada and Mexico, which harmonized
the procedures for a free-trade purpose anyway, adopted Energy Star (Meier 2003). Product
specifications of refrigerators and air conditioners differ among markets, because climate
conditions and consumer tastes vary. Since it was difficult to incorporate these differences into a
single procedure, harmonization of test procedures was more difficult.
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Supplemental Case B
To restore the air quality of urban areas, the 1970 Clean Air Act (CAA) required auto
manufacturers to cut emissions of HCs, carbon monoxide (CO), and nitrogen oxide (NOx) by 90
percent within five or six years.
Soon after the CAA was enacted, the Japanese government decided to adopt the same
emissions standards, motivated not only by the reduction of air pollution but also by the export
of automobiles. Japanese auto manufacturers had expanded their exports to the United States at
that time, and following the U.S. standards was a natural course of action in terms of industrial
policy.
After the CAA was enacted, the United States postponed implementation of the standards
and relaxed the requirements because of the oil-price surge and a delay in technology
development. Even after the United States relaxed the regulations, though, Japan was able to
implement its regulations almost on the original schedule because of new technology
development by Japanese auto manufacturers (Oye and Maxwell 1995; Shu 2002).27
Various technologies for emissions reduction were developed. At first, they included
compound vortex controlled combustion (CVCC) and the rotary engine. Next, three-way
catalytic converters, which clean exhaust gases with catalysts, were developed. Although this
was a so-called “end-of-pipe” technology, it did not work when it was attached to cars without
engine modifications. For it to work well, a fuel-to-air ratio in an engine had to be controlled
exactly with a fuel-injection system and an oxygen sensor. These control fuel combustion
electronically and are more exact than mechanical control. In addition to reducing emissions,
they also reduce fuel consumption and improve drivability. Because of these improvements in
engine performance, the three-way catalytic converter became the dominant emissions-reduction
technology and was subsequently diffused in the United States.
In response to U.S. and Japanese regulations, some European countries, especially
Germany, sought to strengthen emissions standards at a regional level. The U.N. Economic
Commission for Europe (UNECE) prepared Europe-level regulations, which were implemented
beginning in 1970. Each country, however, could choose whether to adopt these regulations, and
the stringency of emissions standards differed among countries. Among European countries,
Germany was the most supportive of regulating automotive emissions, because German auto
27Full
implementation of the NOx standard was delayed for two years.
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manufacturers exported their products to the United States and Japan. In 1983, the German
government requested regional emissions standards and pressured other countries by announcing
that, if they did not agree, it would unilaterally impose U.S.-level standards on all cars sold in
Germany. As a consequence, European countries agreed to common standards with
differentiation by cylinder capacity (Vogel 1995; Wallace 1995).28
In sum, at first, the United States decided to adopt automotive emissions standards in
1970. Motivated by a trade concern, Japan followed it. Then, while the United States postponed
and relaxed, Japan implemented the original United States standards almost on the original
schedule. As a result, three-way catalysts diffused first in Japan in the late 1970s and then in the
United States in the early 1980s. In Europe, Germany, which exported cars to the United States
and Japan, was eager to set regional standards and succeeded. Thus, regulations and technologies
adopted in one country diffused to other countries through international trade.29
28
The Europe-level agreement is an international cooperation component. However, this is a minor part of the
overall story of regulatory interactions among the three economies (the United States, Japan, and German).
Therefore, I treat the case as a supplemental case instead of a cooperation case.
29Recently,
a global process for harmonizing various technical standards among major economies was established
under the UNECE.
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