Adopt or Innovate: Understanding Technological Responses to Cap-and-Trade
- (pp. 170-201)
Abstract
One important motivation for creating cap-and-trade programs for carbon emissions is the expectation that they will stimulate much-needed low-carbon innovation. I construct a new panel of British firms to investigate this hypothesis, finding that the European carbon market has encouraged greater low-carbon patenting and R&D spending among regulated firms without necessarily driving short-term reductions in carbon intensity of output. This stands in contrast to past cap-and-trade programs, which have primarily spurred adoption of existing pollution control technologies, with little effect on innovation. I discuss how to reconcile these contrasting findings and implications for the future of carbon markets.Citation
Calel, Raphael. 2020. "Adopt or Innovate: Understanding Technological Responses to Cap-and-Trade." American Economic Journal: Economic Policy, 12 (3): 170-201. DOI: 10.1257/pol.20180135Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- O32 Management of Technological Innovation and R&D
- O34 Intellectual Property and Intellectual Capital
- Q52 Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
- Q54 Climate; Natural Disasters and Their Management; Global Warming
- Q58 Environmental Economics: Government Policy
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