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

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

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 and hybrid) patents across 80 countries over several decades. We show that firms tend to innovate relatively more in clean technologies when they face higher tax-inclusive fuel prices. Furthermore, there is path dependence in the type of innovation both from aggregate spillovers and from the firm's own innovation history. Using our model we simulate the increases in carbon taxes needed to allow clean technologies to overtake dirty technologies.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1178.

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Date of creation: Nov 2012
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Handle: RePEc:cep:cepdps:dp1178
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