By Shaun Larcom

What relevance does intellectual property have to greenhouse policy? The Australian Government recently announced its intention to price carbon emissions from 1 July 2012. This announcement has brought climate change policy back to the forefront of the Australian policy debate, making it timely to review a recent article by Russell Thomson and Elizabeth Webster in the WIPO Journal. Their paper looks at intellectual property in relation to climate change and agriculture, and asks: Are formal IP rights an effective means to promote the development and diffusion of abatement technologies? Or do they simply act as a barrier to the uptake of new technologies?

Agriculture contributes around 12 percent of total anthropogenic greenhouse gas emissions. Most emissions are generated by fertilizer use, methane from livestock and wet rice cultivation. As a sector, it has been identified by scientists and policy makers as having the potential to deliver significant reductions in greenhouse emissions at relatively low cost, compared to other sectors of the economy.

The authors suggest an optimal innovation policy toward climate change and agriculture should be a mix of pricing greenhouse gas emissions, public funding of R & D and IP rights. Despite calls by others, they conclude there should be no weakening of IP in this area, given its role in encouraging investment in greenhouse gas abatement technologies.

The authors survey potential technologies that are IP relevant and those which are not, based on ease of technology transfer, ability to monitor use, and whether the technology is embodied in tangible material. Based on survey data they identify IP rights as being particularly relevant for computer software to aid more efficient fertiliser use, chemical additives to improve the longevity of fertilizer, and pharmaceuticals and plant varieties that reduce methane emissions in livestock. However, they argue that IP rights are not particularly suited to low-tech land management practices and animal husbandry.

Much of their analysis discusses fundamental tensions associated with IP for economists. Strong IP induces investment as it gives businesses the confidence to conduct research, and develop and commercialise abatement technologies. Strong IP combined with a carbon price should generate more R & D in abatement, as farmers will face a higher price for their carbon emissions and will therefore be willing to pay more for new technologies that can reduce their costs. However, IP rights also allow the holder to charge a price above cost, or restrict access to certain markets, as they may  generate monopoly power. Therefore, some farmers may be unable to use products, due to price or limitations on access. Some argue this second effect is a significant barrier to using greenhouse abatement technology, particularly for the developing world. It would seem, setting aside questions of justice or fairness, these tensions are real in achieving significant emissions reductions in agriculture; new technologies need to be developed and be widely adopted.

However, after closely looking into IP relevant technologies for agriculture the authors conclude that the fundamental tension of IP may be more illusory than real. They suggest that the need for adaptive research, such as local data input, and demonstration of complementary assets represent a more immediate barrier to uptake of these technologies than price. Counter-intuitively, they conclude that IP rights may actually increase the diffusion of technologies by providing a financial incentive for firms to adapt the technologies to local conditions. This incentive would be absent without strong IP rights.

The article provides a coherent economic analysis of innovation policy in relation to climate change and agriculture, and will no doubt be of considerable benefit to policy makers. It also highlights the importance of looking deeply into the particular circumstances of a sector when designing innovation policy. The article shows how relying on ‘first principles’ analysis may lead policy makers astray. However, one potential shortcoming of the paper is its treatment of publically funded research, particularly given the current policy environment toward agriculture both in Australia and many other countries.

As noted by the authors, an alternative to using IP as an incentive for private sector generation of new technologies is direct government investment in R & D. Publically funded research has the benefit of being disbursed at cost, or even no cost, to users therefore maximising uptake. However, for the most part, the authors accept the received wisdom that businesses are often better able to identify R & D investment opportunities due to their understanding of market demand and the benefits of decentralised decision making in promoting diversity.

While this may be true for many sectors, agriculture is different. For reasons of food security, the viability of rural societies, cultural heritage, and other less apparent reasons, agriculture is often subsidised by governments in a variety of ways, and greenhouse policy is no different. The Australian Government’s recent announcement of its intention to price carbon emissions suggests the agricultural sector will be excluded, as it is under the European Union emissions trading scheme. Without a price on carbon emissions, the incentives for private R & D in agriculture created by strong IP rights are likely to be lower than in other sectors of the economy because of lower cost pressure on farmers compared to other industries.

In this policy environment, the authors’ analysis can be seen in two ways. One highlights the importance of publically funded research to produce new abatement technologies in the agricultural sector, given the likelihood of an inadequate price signal. The second underscores the importance of agriculture having a price placed on its emissions. While it seems unlikely the agricultural sector will have to pay a tax on its emissions in Australia, another approach being mooted in policy circles is for farmers to be able to gain credit for emissions reductions against a baseline. While this approach would see farmers getting paid for their emissions reductions, rather than being taxed for their carbon production, it would still create a financial incentive to reduce emissions. This incentive, as long as emissions reductions can be measured, combined with strong IP, will create an incentive for the research, development and dissemination of new abatement technologies in the agriculture sector.

Russell Thomson and Elizabeth Webster, The Role of Intellectual Property Rights in Addressing Climate Change: the Case for Agriculture, The WIPO Journal, 2010, Volume 2 Issue 1, 133-141

Shaun Larcom is a PhD candidate in Law at University College London’s Centre for Law and Economics

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