Path Dependence, Innovation and the Economics of Climate Change

Authors :
Philippe Aghion, Cameron Hepburn, Alexander Teytelboym, Dimitri Zenghelis
Organisation:
New Climate Economy (NCE), Centre for Climate Change Economics and Policy (CCCEP), Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science (LSE), University of Leeds

Shifting our fossil-fuelled civilisation to clean modes of production and consumption requires deep  transformations in our energy and economic systems. Innovation in physical technologies and social behaviours is key to this transformation. But innovation has not been at the heart of economic  models of climate change. This paper reviews the state of the art on the economics of innovation, applies recent insights to climate change. The core insight is that technological innovation is a path-dependent process in which history and expectations matter greatly in determining eventual outcomes.

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