Climate Policy and Innovation: A Quantitative Macroeconomic Analysis
- (pp. 90-118)
(Complimentary)
Abstract
A 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.Citation
Fried, Stephie. 2018. "Climate Policy and Innovation: A Quantitative Macroeconomic Analysis." American Economic Journal: Macroeconomics, 10 (1): 90-118. DOI: 10.1257/mac.20150289Additional Materials
JEL Classification
- H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- O31 Innovation and Invention: Processes and Incentives
- Q41 Energy: Demand and Supply; Prices
- Q48 Energy: Government Policy
- Q54 Climate; Natural Disasters and Their Management; Global Warming
- Q55 Environmental Economics: Technological Innovation
- Q58 Environmental Economics: Government Policy
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