Environmental Policy and the Direction of Technical Change

39 Pages Posted: 4 Oct 2018

See all articles by Mads Greaker

Mads Greaker

Statistics Norway

Tom-Reiel Heggedal

BI Norwegian Business School

Knut Einar Rosendahl

Norwegian University of Life Sciences; Statistics Norway - Research Department

Date Written: October 2018

Abstract

Should governments direct research and development (R&D) away from “dirty” technologies towards “clean” ones? How important is this compared to carbon pricing? We address these questions with the introduction of two model features to the literature on directed technological change and the environment. We introduce decreasing returns to R&D, and allow future carbon taxes to influence current R&D decisions. Our results suggest that governments should prioritize clean R&D. Dealing with major environmental problems requires an R&D shift towards clean technology. However, in the case where most researchers are working with clean technology, both productivity spillovers and the risks of future replacement increase. Consequently, the gap between the private and social values of an innovation is greatest for clean technologies.

Keywords: Directed technological change, environment, innovation policy

Suggested Citation

Greaker, Mads and Heggedal, Tom-Reiel and Rosendahl, Knut Einar, Environmental Policy and the Direction of Technical Change (October 2018). The Scandinavian Journal of Economics, Vol. 120, Issue 4, pp. 1100-1138, 2018. Available at SSRN: https://ssrn.com/abstract=3260121 or http://dx.doi.org/10.1111/sjoe.12254

Mads Greaker (Contact Author)

Statistics Norway

Tom-Reiel Heggedal

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Knut Einar Rosendahl

Norwegian University of Life Sciences ( email )

PO Box 5033
NO-1432 Aas
Norway
+47 64966117 (Phone)

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
Norway
+47 21094954 (Phone)
+47 21094963 (Fax)

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