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CEP discussion paper
Carbon taxes, path dependency and directed technical change: evidence from the auto industry
Philippe Aghion, Antoine Dechezleprêtre, David Hemous, Ralf Martin and John Van Reenen November 2012
Paper No' CEPDP1178:
Full Paper (pdf)
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JEL Classification: O3; O13; L62

Tags: climate change; innovation; directed technical change; automobiles; growth

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 technologies to overtake dirty technologies.

Carbon Taxes, Path Dependency, and Directed Technical change: Evidence from the Auto Industry, Philippe Aghion, Antoine Dechezlepretre, David Hemous, Ralf Martin, John Van Reenen, Journal of Political Economy, Volume 124, Issue 1, January 2016