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 technologies to overtake dirty technologies.

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30 November 2012     Paper Number CEPDP1178

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This CEP discussion paper is published under the centre's Growth programme, Green Transition programme.

This publication comes under the following theme: Clean growth