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Directed technical change and economic growth effects of environmental policy

Author

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  • Kruse-Andersen, Peter K.

Abstract

A Schumpeterian growth model is developed to investigate how environmental policy affects economic growth, when environmental policy also affects the direction of technical change. The model is designed to match several stylized facts to ensure its empirical relevance. It is shown analytically that a tightening of the environmental policy directs research efforts toward pollution abatement technologies and away from production technologies. Hence, economic growth is reduced unambiguously. However, the effect is highly non-linear. At first, a tighter environmental policy has a small impact on economic growth. Yet, the growth effects become substantial if the environmental policy is tightened sufficiently. Nonetheless, the economic growth rate is barely affected by a realistic tightening of the environmental policy. These model predictions are consistent with empirical observations for the OECD.

Suggested Citation

  • Kruse-Andersen, Peter K., 2025. "Directed technical change and economic growth effects of environmental policy," Energy Economics, Elsevier, vol. 147(C).
    • Handle: RePEc:eee:eneeco:v:147:y:2025:i:c:s0140988325003366
    DOI: 10.1016/j.eneco.2025.108512
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    More about this item

    Keywords

    Directed technical change; Endogenous growth; Pollution; Environmental policy; Schumpeterian growth model;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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