Trade, Climate Change and the Press

Eduardo Porter had an interesting column in the Washington Post last week in which he argued that trade will be important in slowing climate change. The basic point is that we could do a lot to reduce emissions by encouraging people to buy items where they are produced with the least emissions. The point is well-taken even if Porter’s preferred mechanism, a carbon tax, is a political impossibility for the foreseeable future.

However, what is striking in Porter’s piece, and others making similar arguments, is the refusal to talk about trade in intellectual products, which is arguably a far more important issue in addressing climate change. If that claim sounds strange, it’s probably because of the taboo on even raising the issue in polite discussions.

The basic point is that the United States and other countries are developing a wide range of technologies in areas like wind and solar energy, electric cars, and energy storage, which will be essential for reducing greenhouse gas emissions. If we want these technologies to be as widely adopted as quickly as possible, we should want them to be freely available to everyone at the point they are developed.

In fact, our laws on intellectual property are explicitly designed to prevent technology from being freely available. Patent monopolies prevent anyone from using technologies without the permission of the patent holder.

These monopolies are an extreme form of protection. While modern tariffs rarely exceed 25 or 30 percent, a patent monopoly can make the price of a protected item two or three times its free market price, the equivalent of a tariff of 200 or 300 percent. If we want people to quickly switch to wind or solar power we should want wind turbines and solar panels selling at prices as close to their production cost as possible, not patent monopoly protected prices.

There is the obvious point that we need to provide people with an incentive to innovate in these areas, and the patent monopoly does that. This is true, but there are other ways to provide incentives, most notably we can just pay them upfront for the research.

This is what we did with Moderna when it contracted with Operation Warp Speed to develop a Covid vaccine. The government paid Moderna almost a billion dollars to develop and test the vaccine. Since it was paid upfront, the risk was entirely on the government’s hands. If it turned out that it didn’t work, the government would have been out a billion and Moderna would have still made a decent profit on its work.

Thankfully, the vaccine did work so the government’s money was well spent. Incredibly, we also gave Moderna control over the vaccine, enabling it to make tens of billions of dollars on government-funded research and creating at least five Moderna billionaires.

We can take the first half of the Moderna model and apply it to climate change technologies. We can pay money for the research and then let the resulting innovations sell in a free market. Ideally, we would arrange for other countries to also fund research, making its output freely available as well.

Going this route would also have the advantage that we could require that all funded research be fully open, with results posted on the web as quickly as practical. This would allow researchers everywhere to benefit quickly from the latest findings of other researchers anywhere in the world. They could then build on successes and avoid dead ends.

Unfortunately, the Washington Post and other leading media outlets won’t even allow this sort of discussion of free trade. Needless to say, patent monopolies contribute enormously to inequality in the distribution of income, and those who own and control major media outlets would rather not have questions about patent protection and other forms of intellectual property raised in polite company.

That was the story with the pandemic. The obvious route to have taken at the start of the pandemic, if saving lives was the issue, was to have complete sharing of technology among all countries. We could sort out later who should be compensated and how much.

At the end of the day, some companies or individuals may walk away thinking they didn’t get what they deserved, but so what? We could have spread vaccines, tests, and treatments far more quickly, likely saving millions of lives.

Anyhow, the moral of this story is that as much as trade will be important to dealing with climate change, in polite circles we can only talk about some types of trade. If we start raising questions about the protections that provide the basis for the income of many of the rich, then discussions of trade are not on the agenda.

This first appeared on Dean Baker’s Beat the Press blog.