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Carbon taxes, path dependency and directed technical change: evidence from the auto industry

  • Philippe Aghion
  • Antoine Dechezlepretre
  • 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 to overtake dirty technologies.

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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 48936.

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Length: 74 pages
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:ehl:lserod:48936
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