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Do Fossil fuel Taxes Promote Innovation in Renewable Electricity Generation?

Listed author(s):
  • Lazkano, Itziar

    ()

    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Pham, Linh

    ()

    (University of Wisconsin-Milwaukee)

We evaluate the role of a fossil fuel tax and research subsidy in directing innovation from fossil fuel toward renewable energy technologies in the electricity sector. Using a global firm-level electricity patent database from 1978 to 2011, we find that the impact of fossil fuel taxes on renewable energy innovation varies with the type of fossil fuel. Specifically, a tax on coal reduces innovation in both fossil fuel and renewable energy technologies while a tax on natural gas has no statistically significant impact on renewable energy innovation. The reason is that easily dispatchable energy sources like coal-fired power plants need to complement renewable energy Technologies in the grid because renewables generate electricity intermittently. Our results suggest that a tax on natural gas, combined with research subsidies for renewable energy, may effectively shift innovation in the electricity sector towards renewable energy. In contrast, coal taxation or a carbon tax that increases coal prices has unintended negative consequences for renewable energy innovation.

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File URL: https://brage.bibsys.no/xmlui/handle/11250/2423519
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Paper provided by Department of Economics, Norwegian School of Economics in its series Discussion Paper Series in Economics with number 16/2016.

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Length: 74 pages
Date of creation: 16 Nov 2016
Handle: RePEc:hhs:nhheco:2016_016
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NHH, Department of Economics, Helleveien 30, N-5045 Bergen, Norway

Phone: +47 55 959 277
Fax: 5595 9100
Web page: http://www.nhh.no/sam/
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