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Environmental Policy and the Direction of Technical Change

Author

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  • Mads Greaker
  • Tom‐Reiel Heggedal
  • Knut Einar Rosendahl

Abstract

Should governments direct research and development (R&D) away from “dirty” technologies towards “clean” ones? How important is this compared to carbon pricing? We address these questions with the introduction of two model features to the literature on directed technological change and the environment. We introduce decreasing returns to R&D, and allow future carbon taxes to influence current R&D decisions. Our results suggest that governments should prioritize clean R&D. Dealing with major environmental problems requires an R&D shift towards clean technology. However, in the case where most researchers are working with clean technology, both productivity spillovers and the risks of future replacement increase. Consequently, the gap between the private and social values of an innovation is greatest for clean technologies.

Suggested Citation

  • Mads Greaker & Tom‐Reiel Heggedal & Knut Einar Rosendahl, 2018. "Environmental Policy and the Direction of Technical Change," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(4), pages 1100-1138, October.
    • Handle: RePEc:bla:scandj:v:120:y:2018:i:4:p:1100-1138
    DOI: 10.1111/sjoe.12254
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    Cited by:

    1. Lennox, James A. & Witajewski-Baltvilks, Jan, 2017. "Directed technical change with capital-embodied technologies: Implications for climate policy," Energy Economics, Elsevier, vol. 67(C), pages 400-409.
    2. Florian Böser & Chiara Colesanti Senni, 2020. "Emission-based Interest Rates and the Transition to a Low-carbon Economy," CER-ETH Economics working paper series 20/337, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    3. Ares de Parga-Regalado, A.M. & Valencia-Ortega, G. & Barranco-Jiménez, M.A., 2023. "Thermo-economic optimization of irreversible Novikov power plant models including a proposal of dissipation cost," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 613(C).
    4. Lamperti, Francesco & Napoletano, Mauro & Roventini, Andrea, 2020. "Green Transitions And The Prevention Of Environmental Disasters: Market-Based Vs. Command-And-Control Policies," Macroeconomic Dynamics, Cambridge University Press, vol. 24(7), pages 1861-1880, October.
    5. Xiao Yu & Yingdong Xu & Meng Sun & Yanzhe Zhang, 2021. "The Green-Innovation-Inducing Effect of a Unit Progressive Carbon Tax," Sustainability, MDPI, vol. 13(21), pages 1-18, October.
    6. Fabian Stöckl, 2020. "Is Substitutability the New Efficiency? Endogenous Investment in the Elasticity of Substitution between Clean and Dirty Energy," Discussion Papers of DIW Berlin 1886, DIW Berlin, German Institute for Economic Research.
    7. Brandt, Urs Steiner & Svendsen, Gert Tinggaard, 2022. "Is the annual UNFCCC COP the only game in town?," Technological Forecasting and Social Change, Elsevier, vol. 183(C).
    8. Robert J. R. Elliott & Ingmar Schumacher & Cees Withagen, 2020. "Suggestions for a Covid-19 Post-Pandemic Research Agenda in Environmental Economics," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(4), pages 1187-1213, August.
    9. Ara Jo & Christos Karydas, 2023. "Firm Heterogeneity, Industry Dynamics and Climate Policy," CER-ETH Economics working paper series 23/378, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    10. repec:hal:spmain:info:hdl:2441/14g286e42n8bl9is6h16b18kes is not listed on IDEAS
    11. Fabian Stöckl & Alexander Zerrahn, 2023. "Substituting Clean for Dirty Energy: A Bottom-Up Analysis," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(3), pages 819-863.
    12. Lassi Ahlvik & Inge van den Bijgaart, 2022. "Screening Green Innovation through Carbon Pricing," CESifo Working Paper Series 9931, CESifo.
    13. Ara Jo, 2020. "The Elasticity of Substitution between Clean and Dirty Energy with Technological Bias," CER-ETH Economics working paper series 20/344, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    14. Maria Alejandra Torres León, 2022. "Go green or go home? Energy transition, directed technical change and wage inequalit," Documentos CEDE 20104, Universidad de los Andes, Facultad de Economía, CEDE.
    15. Tunç Durmaz & Fred Schroyen, 2020. "Evaluating Carbon Capture And Storage In A Climate Model With Endogenous Technical Change," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 1-47, February.
    16. Ara Jo & Alena Miftakhova, 2022. "How Constant is Constant Elasticity of Substitution? Endogenous Substitution between Clean and Dirty Energy," CER-ETH Economics working paper series 22/369, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    17. Bellelli, Francesco S. & Xu, Ankai, 2022. "How do environmental policies affect green innovation and trade? Evidence from the WTO Environmental Database (EDB)," WTO Staff Working Papers ERSD-2022-3, World Trade Organization (WTO), Economic Research and Statistics Division.
    18. Wiskich, Anthony, 2021. "A comment on innovation with multiple equilibria and "The environment and directed technical change"," Energy Economics, Elsevier, vol. 94(C).
    19. Emanuele Campiglio & Alessandro Spiganti & Anthony Wiskich, 2023. "Clean innovation and heterogeneous financing costs," Working Papers 2023: 07, Department of Economics, University of Venice "Ca' Foscari".
    20. Guy Meunier & Jean-Pierre Ponssard, 2021. "Designing Conditional Schemes for Green Industrial Policy under Different Information Structures," CESifo Working Paper Series 8881, CESifo.
    21. Florian B¨oser & Chiara Colesanti Senni, 2021. "CAROs: Climate Risk-Adjusted Refinancing Operations," CER-ETH Economics working paper series 21/354, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    22. Daniel Nachtigall, 2019. "Dynamic Climate Policy Under Firm Relocation: The Implications of Phasing Out Free Allowances," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(1), pages 473-503, September.
    23. Laura Nowzohour, 2021. "Can Adjustments Costs in Research Derail the Transition to Green Growth ?," CIES Research Paper series 67-2021, Centre for International Environmental Studies, The Graduate Institute.
    24. Minye Rao & László Vasa & Yudan Xu & Pinghua Chen, 2023. "Spatial and Heterogeneity Analysis of Environmental Taxes’ Impact on China’s Green Economy Development: A Sustainable Development Perspective," Sustainability, MDPI, vol. 15(12), pages 1-16, June.

    More about this item

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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