Aggregating capital, addressing climate change

By Frederick M. Abbott, March 13, 2015

In his second essay, Carlos Correa highlighted the steadfast resistance of developed countries and their industrial interests to discussing intellectual property and climate change technologies in multilateral fora. The reasons for the resistance seem fairly clear—these nations and industries seek to forestall highly contentious discussions such as those that have surrounded the relationship between intellectual property and access to medicines. Developed countries and their industries worry that negotiations will result in a weakening of patent (and other forms of intellectual property) protection, which would reduce future revenue streams.

When intellectual property and climate change first emerged as a topic of discussion, I among others emphasized that, before any dialogue intended to modify trade rules was initiated, it was important to gather empirical evidence about intellectual property's real and potential impact on clean-energy diffusion. To me the issue was, and remains, how time and energy could best be used in the search for solutions to the problems posed by climate change. In the abstract, Correa is correct that intellectual property can act as a barrier to developing countries' access to climate change technologies. But bearing in mind that the Agreement on Trade-Related Aspects of Intellectual Property Rights already provides developing countries with substantial flexibility regarding patents, when might negotiations regarding different rules become necessary or desirable?

An important issue to keep in mind when answering this question is that intellectual property rights bear on how capital will be aggregated to combat climate change. For example, government subsidies play an important role in promoting innovation—and when governments provide funding for research and development, the public should be assured of access to the benefits that result. But should research and development funded by the public in one country result in "free" access to technology's benefits in other countries, regardless of their location on the development spectrum? How should R&D costs be allocated fairly among nations?

The truth is that various fields of endeavor—from health products to smart phones, from high-definition televisions to alternative energy resources—compete with each other for investment capital. Capital may come from either public or private sources. In higher-income countries, large stocks of private capital are available, but they will be invested based on expectations of financial returns.

Patents serve the function of "securitizing," or allowing the purchase and sale, of technological developments. They provide a legal device through which investors can contribute capital either to the development of new technologies or to the diffusion of technologies already developed. In technological enterprises, patents promote the aggregation of capital.

Implementing large-scale projects in energy infrastructure, whether in developed or developing countries, is typically a capital-intensive activity. In nontechnical terms, it costs a lot. Most developing countries seeking to implement transitions to climate-friendly technologies for energy generation will, as a practical matter, have to import capital. These funds could either be public or private, and perhaps sufficient funds to accomplish such transitions will be available from the World Bank or some other entity. But history suggests a bit of skepticism regarding the idea that global public funding will adequately address climate change. Indeed, I am inclined to think that private-sector investment is essential. But the direction taken by private-sector investment depends on incentives. Patents allow above-market returns and thus are a means to attract investment to particular technologies or sectors.

In Round One, I advocated following "middle paths" that might "allow poorer countries to gain access to alternative energy resources and mitigation technologies without resorting to compulsory licenses." That is, the resources of enterprises in developed and developing countries should be combined. Government policies should facilitate joint ventures that would allow enterprises in developing nations to gain access to the capital stock—including technologies—of enterprises in developed countries. As the urgent problem of climate change is addressed, this might represent the best collective use of time and energy.

Patents are an instrument of industrial policy. Inherently, they are neither good nor bad. But patents aren't something whose use should go unregulated—the public interest must be defended. One of the patent system's main difficulties is that proponents of strong patent protection often portray patents as an untouchable property right. But property of all types is regulated. Patents, and the products or services that result from them, are no exception.

Topics: Climate Change