Aidan Hollis is a professor of economics at the University of Calgary and the president of Incentives for Global Health.
The U.S. patent system is one of the greatest inventions of all time. No bureaucrat could possibly determine how much to reward creators of society’s most valued advances; the patent system does it automatically by granting the inventor exclusive use of the invention for 20 years. That means that if I come up with a new and improved solar panel, I alone can profit from my invention for two decades — you either have to buy it from me or pay a licensing fee to replicate my design. As economist Adam Smith noted in 1762, “If the invention be good and such as is profitable to mankind, he will probably make a fortune by it; but if it be of no value he also will reap no benefit.” Patents are so important that the Founders mentioned them in the Constitution as one of the essential powers of Congress.
That window of exclusivity is somewhat arbitrary but has become standard throughout the world. Although the patent system has served inventors well, it risks being an obstacle to the widespread adoption of technologies that could reduce greenhouse gas emissions. Many of the people and places that would benefit most from these innovations cannot afford the licensing fees, and so the tools that could lead to a low-carbon, or even carbon-negative, future remain out of reach to them.
Consider the case of Elysis, a joint venture between Alcoa and Rio Tinto, two of the world’s largest aluminum producers, which has invented a process for smelting aluminum that eliminates direct CO₂ pollution. This could be a significant win for the climate, because making this ubiquitous metal generates about 1 percent of global carbon dioxide emissions. The technology can be installed in new mills or retrofitted to existing ones — but only if the owners of such places can afford it. The company has patented its system and is selling low-carbon aluminum to high-end buyers like Apple. It also plans to license the process to other aluminum producers.
Although aluminum producers that supply high-income countries can afford to make the switch, smelting operations in India, Brazil, or South Africa probably cannot. They will have to wait 20 years for the technology to enter the public domain. But the world can’t wait that long to access breakthroughs that could help to save our planet.
Figuring out how to sustain the incentive to innovate without the patent monopoly is a quandary. If Elysis made its process available to everyone without a licensing fee, the company could lose a tremendous commercial opportunity, undermining the incentive to invest in such innovation. To ensure the technologies that could help mitigate climate change spread around the world without stripping their inventors of the rewards they’re due, we must offer them something at least as attractive as their monopoly on profits.
Incentives for Global Health — of which I’m a cofounder and president — and Yale University Global Justice program recently proposed a solution: the Green Impact Fund for Technology (GIFT). The core idea behind the fund is that it would reward innovators who make low-carbon tech freely available to low- and lower-middle-income countries — GIFT is targeting those with per capita income below $10,000 — by agreeing to royalty-free licenses or shunning patents entirely in the designated countries.
The fund will offer an annual pool of reward money. Innovators will earn a share of that money based upon their assessed contribution to the greenhouse gas reductions achieved by all of that year’s participants. For example, if the fund has $100 million to disburse and a company’s invention achieves 10 percent of the emissions reduction, it would earn $10 million. To encourage innovation, an invention would be eligible for rewards only for six years. While we plan to start small, our ultimate goal is to raise more than $2 billion per year — enough to drive the change we need.
GIFT is designed to work for the climate. It is strictly “pay for performance.” The rewards flow only if the technology actually reduces emissions, so firms are rewarded not for the invention but for delivering a climate benefit. That would create strong incentives for participating innovators to help firms or consumers adopt and use their inventions. Rather than focusing on patent enforcement, innovative firms would promote the use of their low-carbon technologies: They would, in effect, compete against each other to maximize their protection of the climate.
We’re not the first to recognize the patent as an impediment to dissemination of technology in resource-poor countries. But calls for companies to simply give away their technology by releasing their patents altruistically have never worked. However, innovative financing has worked in the health field, for example, to deliver a pneumococcal vaccine to low-income countries. Companies must make a profit to stay in business. Our idea is to consolidate funds from rich countries, which have already committed to $100 billion in annual climate financing for developing countries.
Rich countries, after all, have made massive contributions to global warming, and in doing so, have benefited and become wealthy. For example, the U.S., with 5 percent of the global population, is responsible for approximately one-quarter of cumulative CO₂ emissions to date, while all of Africa, with 17 percent of the global population, is responsible for just 3 percent. Justice is served when countries that became wealthy in part through the use of fossil fuels pay to enable poorer countries not to use them.
Urgent calls to save the planet are in contrast with the languorous pace of the patent system, which has led some developing countries to call for the weakening of patents in technologies relevant to the climate to allow for speedier adoption. Wealthy countries have fought against such proposals, pointing to the importance of patents for supporting innovation. Of course, we need innovation and rapid adoption. We hope that the GIFT can help us achieve both.
The views expressed here reflect those of the author.
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