DP9267 Carbon Taxes, Path Dependency and Directed Technical Change: Evidence from the Auto Industry

Author(s): Philippe Aghion, Antoine Dechezleprêtre, David Hémous, Ralf Martin, John Van Reenen
Publication Date: December 2012
Keyword(s): automobiles, Climate Change, Directed Technical Change, Innovation
JEL(s): L62, O13, O3
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9267

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.