Induced innovation and international environmental agreements: evidence from the ozone regime
Global environmental problems are some of the most pressing issues that humanity is facing. There are few examples of success at resolving them; the fight to protect the ozone layer is one of them.
This paper provides evidence that the Montreal Protocol’s restrictions on chlorofluorocarbons (CFCs) triggered a substantial increase in research and innovation on alternatives to ozone-depleting molecules.
By showing that a low-ambition but binding agreement such as the Montreal Protocol did encourage the development of technological solutions, the paper suggests such agreements are potent tools that dynamically improve the benefit-cost equation of environmental protection and may therefore also be useful to dealing with current problems such as climate change.
Key points for decision-makers
- The Montreal Protocol was negotiated in 1987 by high-income countries to phase-out CFCs from industrial activities. CFCs had been identified as destroying ozone molecules in the stratosphere, reducing the extent to which humans were protected from solar radiation.
- Following the signing of the Protocol technological change unrolled rapidly, and within a decade the production and consumption of CFCs decreased by more than 80%.
- This paper offers the first quantitative study of whether the Montreal Protocol induced science and innovation on CFC substitutes.
- The author compares CFC substitute molecules with molecules that have similar uses but are unrelated to ozone depletion. After the Agreement was signed, patents on CFC substitutes increased by 400% and scientific articles by 500% compared with the control group.
- The author’s primary hypothesis is that the Montreal Protocol provided a clear signal and powerful incentives for firms and scientists to increase work on CFC substitutes, which led to an increase in patents and scientific articles mentioning these molecules.
- The presented empirical evidence that the Montreal Protocol led to the development of CFC substitutes goes against the often-heard narrative that alternative technologies were readily available before the treaty. In fact, the author’s research tells a story where almost all of the science and innovation on CFC substitutes was triggered by the post-Montreal regime.
- The paper shows that the ozone layer’s success story is better summarised as a series of agreements where innovation plays a critical role to lower abatement costs, enabling ambitions to ratchet up.
- The implication is that agreements are potent tools that dynamically improve the benefit-cost equation of environmental protection and may therefore also be useful to deal with current problems such as climate change.