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

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, hybrid, and hydrogen) patents across 80 countries over several decades. We show...

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Bibliographic Details
Published in:The Journal of political economy 2016-02, Vol.124 (1), p.1-51
Main Authors: Aghion, Philippe, Dechezleprêtre, Antoine, Hémous, David, Martin, Ralf, Van Reenen, John
Format: Article
Language:English
Subjects:
Automobile industry
Clean technology
Climate change
Economic theory
Economics and Finance
Environmental tax
Humanities and Social Sciences
Political economy
Studies
Technological change
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Summary: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, hybrid, and hydrogen) patents across 80 countries over several decades. We show that firms tend to innovate more in clean (and less in dirty) technologies when they face higher tax-inclusive fuel prices. Furthermore, there is path dependence in the type of innovation (clean/dirty) both from aggregate spillovers and from the firm’s own innovation history. We simulate the increases in carbon taxes needed to allow clean technologies to overtake dirty technologies.
ISSN:0022-3808
1537-534X
DOI:10.1086/684581