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Title Climate Policy and Innovation: A Quantitative Macroeconomic Analysis
ID_Doc 35618
Authors Fried, S
Title Climate Policy and Innovation: A Quantitative Macroeconomic Analysis
Year 2018
Published American Economic Journal-Macroeconomics, 10, 1
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.
PDF https://www.aeaweb.org/articles/pdf/doi/10.1257/mac.20150289

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