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Investment-specific versus Process Innovation in a CGE Model of Environmental Policy. WWWforEurope Working Paper No. 85

Author

Listed:
  • Claudio Baccianti
  • Andreas Löschel

    (Centre for European Economic Research)

Abstract

The European Union has implemented demand push and technology pull policies to foster innovation on the energy and resource efficiency of capital goods. The state of the art of general equilibrium modelling applied to environmental policy rarely treats product and process innovation separately and product quality is, in the best case, exogenous. We develop a dynamic multi-sector CGE model that distinguishes between R&D-based process innovation for all firms, endogenous product innovation in the capital goods sector and adoption decisions with respect to the installation of new capital vintages in the rest of the economy. Our results support the previous literature in finding that aggregate innovation declines following an energy tax but whereas process innovation is reduced, product innovation actually rises. We find that demand pull policies are less effective than product-related R&D subsidies to reduce aggregate energy intensity.

Suggested Citation

  • Claudio Baccianti & Andreas Löschel, 2015. "Investment-specific versus Process Innovation in a CGE Model of Environmental Policy. WWWforEurope Working Paper No. 85," WIFO Studies, WIFO, number 57893.
    • Handle: RePEc:wfo:wstudy:57893
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    References listed on IDEAS

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    Cited by:

    1. Karl Aiginger, 2016. "New Dynamics for Europe: Reaping the Benefits of Socio-ecological Transition – Part I: Synthesis. WWWforEurope Deliverable No. 11," WIFO Studies, WIFO, number 58791, August.
    2. Marco Guerrazzi & Giuseppe Candido, 2025. "The determination of the price of capital goods: A differential game approach," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 46(1), pages 222-234, January.
    3. David Bailey & Lisa de Propris & Jürgen Janger, 2015. "Industrial and Innovation Policy as Drivers of Change. WWWforEurope Deliverable No. 9," WIFO Studies, WIFO, number 58412, August.

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