Induced innovation and international environmental agreements: evidence from the ozone regime
Produced as part of the Incentives for behaviour change CCCEP research programme theme
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.