Green technology adoption and skill reallocation

The green transition towards a carbon neutral economy constitutes a technological transformation, in which firms need to invest in new, clean technologies. In order to be operated, these new technologies often require a set of technology-specific skills that differ from those that were relevant for dirtier predecessors. We model the green technology investment decision of firms in a labour market with search frictions and two-sided heterogeneity. We find that the presence of skill mismatch negatively affects the expected productivity of the new, green technologies, delaying their adoption and resulting in higher emission intensity in production compared to a counterfactual with no labour market frictions. The induced effect is of first-order, making it policy-relevant. This slower diffusion of green technologies in the presence of skill heterogeneity results in workers with green skills being locked in brown jobs. We also find that an accelerated greening of the economy leads to larger labour market transitions. More specialised new technologies further reinforce these effects, and so does a slower pace of technological progress. Finally, our model results suggests that retraining policies are a useful policy tool both in the absence as well as the presence of a carbon tax or investment subsidies.