Thursday, February 4, 2016

Carbon Taxes, Path Dependency and Directed Technical Change : Evidence from the Auto Industry

AGHION Philippe, DECHEZLEPRETRE Antoine, HEMOUS David, MARTIN Ralf, VAN REENEN John
Access the publisher's website Journal of Political Economy 124, 1 (2016) 1-51


Can directed technical change be used to combat climate change? The authors construct new firm-level panel data on auto industry innovation distinguishing between "dirty" (internal combustion engine) and "clean" (e.g. electric and hybrid) patents across 80 countries over several decades. 

This study shows that firms tend to innovate relatively more in clean technologies when they face higher tax-inclusive fuel prices. Furthermore, there is path dependence in the type of innovation both from aggregate spillovers and from the firm's own innovation history. Using our model we simulate the increases in carbon taxes needed to allow clean technologies to overtake dirty technologies.