Aghion, Philippe Dechezleprêtre, Antoine Hemous, David Martin, Ralf Van Reenen, John
Year of Publication:
Nota di Lavoro, Fondazione Eni Enrico Mattei 99.2012
Can directed technical change be used to combat climate change? We 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. We show 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 to overtake dirty technologies.