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

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  • Philippe Aghion
  • Antoine Dechezleprêtre
  • David Hémous
  • Ralf Martin
  • John Van Reenen

Abstract

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.

Suggested Citation

  • Philippe Aghion & Antoine Dechezleprêtre & David Hémous & Ralf Martin & John Van Reenen, 2016. "Carbon Taxes, Path Dependency, and Directed Technical Change: Evidence from the Auto Industry," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 1-51.
  • Handle: RePEc:ucp:jpolec:doi:10.1086/684581
    DOI: 10.1086/684581
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    JEL classification:

    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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