Climate Policy and Innovation: A Quantitative Macroeconomic Analysis†

Climate Policy and Innovation: A Quantitative Macroeconomic Analysis† AbstractA carbon tax can induce innovation in green technologies. I evaluate the quantitative impact of this channel in a dynamic, general equilibrium model with endogenous innovation in fossil, green, and nonenergy inputs. I discipline the parameters using evidence from historical oil shocks, after which both energy prices and energy innovation increased substantially. I find that a carbon tax induces large changes in innovation. This innovation response increases the effectiveness of the policy at reducing emissions, resulting in a 19.2 percent decrease in the size of the carbon tax required to reduce emissions by 30 percent in 20 years. (JEL H23, O31, Q41, Q48, Q54, Q55, Q58) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

Climate Policy and Innovation: A Quantitative Macroeconomic Analysis†

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Publisher
American Economic Association
Copyright
Copyright © 2018 © American Economic Association
ISSN
1945-7715
D.O.I.
10.1257/mac.20150289
Publisher site
See Article on Publisher Site

Abstract

AbstractA carbon tax can induce innovation in green technologies. I evaluate the quantitative impact of this channel in a dynamic, general equilibrium model with endogenous innovation in fossil, green, and nonenergy inputs. I discipline the parameters using evidence from historical oil shocks, after which both energy prices and energy innovation increased substantially. I find that a carbon tax induces large changes in innovation. This innovation response increases the effectiveness of the policy at reducing emissions, resulting in a 19.2 percent decrease in the size of the carbon tax required to reduce emissions by 30 percent in 20 years. (JEL H23, O31, Q41, Q48, Q54, Q55, Q58)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Jan 1, 2018

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