What is the Growth Potential of Green Innovation? An Assessment of EU Climate Policy Options

European Economy Economic Paper No. 413

45 Pages Posted: 20 Dec 2010

See all articles by Ziga Zarnic

Ziga Zarnic

Organization for Economic Co-Operation and Development (OECD)

Janos Varga

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN)

Ariane Labat

European Union - Directorate General for Climate Action (DG CLIMA)

Andrea Conte

European Commission - Joint Research Centre (DG JRC)

Date Written: June 1, 2010

Abstract

This paper provides a model-based analysis of the cost-efficiency of different EU climate policy options that could direct innovation in the private sector towards an environmentally sustainable growth path. Our objective is to assess different policy options in order to identify an appropriate policy-mix of environmental and innovation market instruments in terms of their cost-effectiveness. For this purpose, we develop a fully-dynamic, multisectoral DSGE model with endogenous technological change where we specifically identify its environmental content and we calibrate the model for the EU and the rest of the world. Our results suggest that an appropriate policy mix should intensively stimulate R&D in the green sectors in the short-run and phase-it out by spreading the R&D support to all sectors of the economy in the medium-term. Although intuitive, the orders of magnitude presented in this paper should be interpreted with caution by taking into account the underlying assumptions of the model and identification of green innovation data.

Keywords: Carbon revenue recycling, climate change, directed technical change, double dividend, dynamic general equilibrium model, endogenous growth, green growth, innovation, R&D

JEL Classification: C63, H23, O30, O41

Suggested Citation

Zarnic, Ziga and Varga, Janos and Labat, Ariane and Conte, Andrea, What is the Growth Potential of Green Innovation? An Assessment of EU Climate Policy Options (June 1, 2010). European Economy Economic Paper No. 413, Available at SSRN: https://ssrn.com/abstract=1728703 or http://dx.doi.org/10.2139/ssrn.1728703

Ziga Zarnic (Contact Author)

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Janos Varga

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN) ( email )

BU-1 05/190
Brussels, Bruxelles B-1049
Belgium

Ariane Labat

European Union - Directorate General for Climate Action (DG CLIMA) ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

HOME PAGE: http://ec.europa.eu/climateaction/

Andrea Conte

European Commission - Joint Research Centre (DG JRC) ( email )

Edificio Expo
Calle Inca Garcilaso, s/n
Sevilla, E-41092
Spain

HOME PAGE: http://ipts.jrc.ec.europa.eu/

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