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

77 Pages Posted: 5 Dec 2012

See all articles by Philippe Aghion

Philippe Aghion

College de France and London School of Economics and Political Science, Fellow; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Antoine Dechezleprêtre

London School of Economics & Political Science (LSE)

David Hémous

University of Zürich

Ralf Martin

Imperial College London

John Van Reenen

London School of Economics - Centre for Economic Performance (CEP); Stanford Graduate School of Business; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 4 versions of this paper

Date Written: December 4, 2012

Abstract

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.

Keywords: Climate Change, Innovation, Directed Technical Change, Automobiles

JEL Classification: O3, O13, L62

Suggested Citation

Aghion, Philippe and Dechezleprêtre, Antoine and Hemous, David and Martin, Ralf and Van Reenen, John Michael, Carbon Taxes, Path Dependency and Directed Technical Change: Evidence from the Auto Industry (December 4, 2012). INSEAD Working Paper No. 2012/124/EPS. Available at SSRN: https://ssrn.com/abstract=2184830 or http://dx.doi.org/10.2139/ssrn.2184830

Philippe Aghion

College de France and London School of Economics and Political Science, Fellow ( email )

London
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Antoine Dechezleprêtre

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

David Hemous (Contact Author)

University of Zürich ( email )

Zürich
Switzerland

Ralf Martin

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

John Michael Van Reenen

London School of Economics - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 6976 (Phone)
+44 20 7955 6848 (Fax)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom
+44 20 7240 6740 (Phone)
+44 20 7240 6136 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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