Carbon taxes, path dependency and directed technical change: evidence from the auto industry

Produced as part of the Governments, markets and climate change mitigation CCCEP research programme theme

Working Paper 120


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 to overtake dirty technologies.

Philippe Aghion, Antoine Dechezleprêtre, David Hemous, Ralf Martin and John Van Reenen