Environmental Policy and the Direction of Technical Change

Abstract

Should governments direct research and development (R&D) away from “dirty” technologies towards “clean” ones? How important is this compared to carbon pricing? We address these questions with the introduction of two model features to the literature on directed technological change and the environment. We introduce decreasing returns to R&D, and allow future carbon taxes to influence current R&D decisions. Our results suggest that governments should prioritize clean R&D. Dealing with major environmental problems requires an R&D shift towards clean technology. However, in the case where most researchers are working with clean technology, both productivity spillovers and the risks of future replacement increase. Consequently, the gap between the private and social values of an innovation is greatest for clean technologies.

Green Transitions and the Prevention of Environmental Disasters: Market-Based vs. Command-and-Control Policies

“…These works have inspired a good deal of recent contributions on environmental policy impact in presence of directed technical change. For instance, Mattauch et al (2015) add learning by doing effects and explore the role of substitution effects between clean and dirty inputs, showing that the policy proposed in Acemoglu et al (2012) might be excessively limited in scope; Durmaz and Schroyen (2016) include the effects of an abatement (carbon capture and storage) technology; Greaker et al (2018) introduce decreasing returns to R&D and allow future carbon taxes influencing current R&D decisions. Even more recently, Kruse-Andersen (2017) develops a variant of the model accounting for population growth effects, while Bezin (2017) enriches it to study the effects of cultural transmission mechanisms.…”

Directed Technical Change, Environmental Sustainability, and Population Growth

“…20 Greaker et al (2018) introduce stepping-on-toes effects in a AABH-style model which eliminate the lockin equilibrium. However, the stepping-on-toes effects considered by Greaker et al (2018) are very strong such that the marginal research productivity approaches infinite as the research input approaches zero. The stepping-on-toes effects considered here are less potent.…”

“…As in the present study, Daubanes et al (2016) relax the spillover assumptions in research to ensure simultaneous development of both polluting and non-polluting technologies. Greaker et al (2018) eliminate the lock-in equilibrium by introducing strong stepping-on-toes effects in research. Yet both studies assume a constant population size which eliminates the scale effects investigated in the present study.…”

“…These studies includeSaint-Paul (2002),Hart (2004),Ricci (2007),Grimaud and Rougé (2008),Acemoglu et al (2012),André and Smulders (2014),Hemous (2016), Kruse-Andersen (2016),Daubanes et al (2016),Hassler et al (2016),Van den Bijgaart (2017),Fried (2018),Greaker et al (2018), andHart (2019).…”

A Comment on Innovation in 'The Environment and Directed Technical Change'

“…For example,Greaker and Heggedal (2012),Greaker, Heggedal, and Rosendahl (2018) , Pottier, Hourcade, and Espagne (2014) , Acemoglu, Aghion, and Hémous (2014), Wiskich (2019),Durmaz and Schroyen (2013), Van den Bijgaart (2017) andLemoine (2017).…”