Threshold Policy Effects and Directed Technical Change in Energy Innovation

48 Pages Posted: 20 Mar 2018

See all articles by Lionel Nesta

Lionel Nesta

University of Sussex

Elena Verdolini

Fondazione Eni Enrico Mattei (FEEM), CMCC - Euro Mediterranean Centre for Climate Change

Francesco Vona

Observatoire Fran├žais des Conjonctures Economiques (OFCE) - Department for Research on Innovation and Competition

Date Written: March 19, 2018

Abstract

This paper analyzes the effect of environmental policies on the direction of energy innovation across countries over the period 1990-2012. Our novelty is to use threshold regression models to allow for discontinuities in policy effectiveness depending on a country's relative competencies in renewable and fossil fuel technologies. We show that the dynamic incentives of environmental policies become effective just above the median level of relative competencies. In this critical second regime, market-based policies are moderately effective in promoting renewable innovation, while command-and-control policies depress fossil based innovation. Finally, market-based policies are more effective to consolidate a green comparative advantage in the last regime. We illustrate how our approach can be used for policy design in laggard countries.

Keywords: Directed Technical Change, Threshold Models, Environmental Policies, Policy Mix

JEL Classification: Q58, Q55, Q42, Q48, O34

Suggested Citation

Nesta, Lionel and Verdolini, Elena and Vona, Francesco, Threshold Policy Effects and Directed Technical Change in Energy Innovation (March 19, 2018). FEEM Working Paper No. 04.2018. Available at SSRN: https://ssrn.com/abstract=3143467 or http://dx.doi.org/10.2139/ssrn.3143467

Lionel Nesta

University of Sussex ( email )

Sussex House
Falmer
Brighton, Sussex BNI 9RH
United Kingdom

Elena Verdolini (Contact Author)

Fondazione Eni Enrico Mattei (FEEM), CMCC - Euro Mediterranean Centre for Climate Change ( email )

C.so Magenta 63
Milano, 20123
Italy

Francesco Vona

Observatoire Fran├žais des Conjonctures Economiques (OFCE) - Department for Research on Innovation and Competition ( email )

250 rue Albert Einstein
Valbonne, 06560
France

HOME PAGE: http://www.ofce.sciences-po.fr/ofce/dric.htm

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