---
type: source
title: "Induced Innovation and International Environmental Agreements: Evidence from the Ozone Regime"
author: "Eugenie Dugoua (LSE Grantham Research Institute)"
url: https://www.lse.ac.uk/granthaminstitute/publication/induced-innovation-and-international-environmental-agreements-evidence-from-the-ozone-regime/
date: 2021-01-01
domain: grand-strategy
secondary_domains: [energy]
format: academic-paper
status: processed
processed_by: leo
processed_date: 2026-04-21
priority: high
tags: [montreal-protocol, induced-innovation, governance-mechanisms, prisoner-dilemma, CFC-substitutes, DuPont, binding-agreements]
extraction_model: "anthropic/claude-sonnet-4.5"
---

## Content

LSE Grantham Research Institute working paper (No. 363) by Eugenie Dugoua. Key empirical findings:

- Prior to the Montreal Protocol (1987), the trend in CFC-substitute patents was flat
- From 1988 to 1992, an additional ~294 patents per year in aggregate were filed on CFC substitutes
- This represents approximately a 400% increase in substitute patent activity post-agreement
- Scientific articles on CFC substitutes increased approximately 500% post-1987
- The innovation was largely INDUCED by the agreement, not present before it

The paper's analytical contribution: binding international agreements can trigger innovation cascades in substitute technologies, even when those substitutes are not commercially ready at the time of agreement. The key enabling condition was that a small number of foundational substitute patents existed before the agreement (DuPont's HCFC/HFC portfolio from the 1970s-1980s), which was sufficient to make the dominant producer's strategic pivot viable without requiring commercial readiness.

Context: DuPont held ~25% of global CFC output. CFCs were 3% of DuPont's revenues. DuPont's HCFC/HFC substitutes were newly patent-protected. A global CFC ban would force the market to DuPont's patent-protected substitutes at higher margins. DuPont reversed its opposition to regulation in 1986 after foundational substitute patents were secured.

## Agent Notes
**Why this matters:** The Montreal Protocol is the canonical model for arresting "mutually assured deregulation" races. The standard reading emphasizes political will. This paper establishes the ECONOMIC MECHANISM: binding agreements induce substitute innovation, and substitute innovation enables the strategic pivot of leading industry players from opponents to supporters. This is the key mechanism for replication. For AI governance, the question becomes: what combination of compute-restriction enforcement + industry positioning could replicate DuPont's calculation?

**What surprised me:** The innovation was mostly INDUCED by the agreement, not prior to it. The common assumption is that substitute technology must exist before governance is possible. This paper challenges that — you need only a credible innovation pathway and one major player who can monetize the compliance regime.

**What I expected but didn't find:** Direct evidence that DuPont lobbied FOR the protocol (vs. just stopped lobbying against it). The paper shows the economic mechanism but doesn't fully characterize the active role.

**KB connections:**
- [[binding-international-governance-requires-commercial-migration-path-at-signing-not-low-competitive-stakes-at-inception]] — this paper nuances that claim: the migration path doesn't need to be fully ready, just credible
- [[technology-governance-coordination-gaps-close-when-four-enabling-conditions-are-present]] — ozone as the canonical case
- [[mandatory-legislative-governance-closes-technology-coordination-gap-while-voluntary-governance-widens-it]]
- [[governance-coordination-speed-scales-with-number-of-enabling-conditions-present]]

**Extraction hints:** Main claim candidate: "Binding international governance agreements induce innovation in compliant substitute technologies — the Montreal Protocol produced a 400% increase in CFC-substitute patent activity AFTER the agreement, demonstrating that commercial readiness of substitutes is not required for governance, only a credible innovation pathway and one major industry player able to monetize compliance." Secondary: "The Montreal Protocol broke a prisoner's dilemma via trade sanctions (transforming PD into coordination game per Barrett 2003) rather than via voluntary cooperation — this is the structural mechanism absent from current AI governance frameworks."

**Context:** This paper is the empirical complement to Scott Barrett's *Environment and Statecraft* (OUP 2003), which provides the game-theoretic framework. Barrett's central claim: Montreal worked because trade sanctions converted defection from dominant strategy to dominated strategy. Dugoua's paper adds: and then the agreement itself produced the innovation that made compliance economically attractive.

## Curator Notes (structured handoff for extractor)
PRIMARY CONNECTION: [[binding-international-governance-requires-commercial-migration-path-at-signing-not-low-competitive-stakes-at-inception]]
WHY ARCHIVED: Direct empirical evidence for the economic mechanism behind Montreal Protocol's success — relevant to the active "mutually assured deregulation" thread and whether MAD races can be arrested
EXTRACTION HINT: Extract two claims: (1) binding agreements induce substitute innovation (Montreal Protocol as evidence); (2) Barrett's trade-sanction mechanism as the game-theoretic transformation (PD → coordination game)
