• In the short run, market power means a decrease in production, which in theory leads to lower pollution.
• Lower pollution can also be driven not only by lower production but also by the development of technologies that decrease environmental harm associated with one unit of production. The relationship between market power and innovation incentives is not straightforward. A certain degree of market power can lead to firms to appropriate the gains in total welfare and therefore incentivize innovation. Too much market power, on the other hand, reduces the incentives to innovate in the first place since the current monopoly profits may be enough to dissuade the firm to incur in risks of R&D activities.
• On the other hand, the implementation of cleaner technologies will in some occasions increase production costs and, therefore, reduce the profitability of a given product. Firms with market power will tend to spend resources to avoid regulatory measures that oblige them to internalize the costs of the pollution caused by their production processes – for example, the need to install more expensive filters in a car’s exhaustion outlet. In this scenario, a higher degree of market power increases the resources of firms to spend on political influence activities, such as lobbying and campaign donations, which in turn decrease the likelihood of success of regulatory measures aimed at decreasing pollution.
• Finally it is possible to think about causality in a different direction, i.e. not monopolies leading to more pollution but inversely, lower environmental standards being used by enterprises to monopolize. In this scenario, that could be called environmental free riding, vertically integrated firms operating in different countries through long supply chains, choose to locate their production or choose their suppliers in places or regions with lower environmental enforcement.

Inspired in this background, the workshop discussed the design of an empirical research project that addresses these hypothesis. The discussion centered on data availability, possible methodologies and variables that should be included in the estimation. One possibility discussed was to focus the study on Brazil, given that it is by far the largest emitter (on the production side) in the region and number 4 in the world, ahead of countries like Japan and Germany. Preliminarily, it can be said that information on campaign donations by firm, their amount, and the recipient candidate exist in Brazil. The availability of market and environmental data in Brazil needs to be explored. If adequate data could not be found, other alternatives were discussed such as a case-study methodology based on environmental disasters by large companies in the region to examine how market power and competition, or the lack thereof, might have played a role.

Another alternative discussed was the design of a legal framework for open access of technologies that are needed to reduce greenhouse gas emissions or help to abate the effects of climate change on local agriculture. Such a framework could draw from elements of similar initiatives in other development areas such as pharmaceutical patent pools.

Participants:

Ginette Lozano Maturana – Universidad Externado de Colombia

Carolina Veas – Pontificia Universidad Católica de Chile/ CMS Carey & Allende, Chile

Calixto Salomão Filho – Universidade de São Paulo, Brazil

Vitor Henrique Pinto Ido – South Centre, Geneva, Switzerland

Juan David Gutiérrez – Universidad de los Andes, Colombia

Reto M. Hilty – Max Planck Institute for Innovation and Competition, Munich, Germany

Matthias Lamping – Max Planck Institute for Innovation and Competition, Munich, Germany

Pedro Batista – Max Planck Institute for Innovation and Competition, Munich, Germany

Roxana Blasetti – Observatorio Smart IP for Latin America, Buenos Aires, Argentina

Juan Ignacio Correa – Observatorio Smart IP for Latin America, Buenos Aires, Argentina

Nicolás Hermida – Observatorio Smart IP for Latin America, Buenos Aires, Argentina

Gabriel S. Venco Teixeira da Cunha – Observatorio Smart IP for Latin America, Buenos Aires, Argentina

Manuel Guerrero Gaitán – Observatorio Smart IP for Latin America, Bogotá, Colombia

Moderador: Francisco E. Beneke Avila – Max Planck Institute for Innovation and Competition, Munich, Germany