Carbon taxes, path dependency and directed technical

Carbon taxes, path dependency and directed technical
Document type
Discussion paper
Aghion, Philippe Dechezleprêtre, Antoine Hemous, David Martin, Ralf Reenen, John Van
Imperial College Business School
Date of publication
5 December 2012
Trends: economic, social and technology trends affecting business
Business and management
Material type

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Can directed technical change be used to combat climate change? We construct new rm-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 rms 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 rm's own innovation history. Using our model we simulate the increases in carbon taxes needed to allow clean to overtake dirty technologies.

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