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

November 2012

Authors :

Philippe Aghion, Antoine Dechezlepretre, David Hemous, Ralf Martin, John Van Reenen

Organisation:

Centre for Climate Change Economics and Policy (CCCEP), University of Leeds, Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science (LSE)

Can directed technical change be used to combat climate change? This paper constructs 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. It 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 this model this paper simultaes the increases in carbon taxes needed to allow clean to overtake dirty technologies.

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Sectors :

Transport