Policy brief on clean innovation and growth
Are climate policies good or bad for growth? Many policy makers who are trying to implement such policies are promising positive growth effects not only in the long run of 50 to 100 years, when effective climate policies will help to mitigate the potentially catastrophic economic consequences of climate change, but also in the short run when such policies are primarily perceived as a cost burden on businesses. Sustained growth of per capita income can only be achieved by continued innovation; i.e. by continuously coming up with ever more sophisticated ways to transform a limited set of resources into economic value. It is now well established that effective climate policies induce innovation in clean technologies that help to reduce greenhouse gas emissions (GHG). However, by making polluting activities less profitable, climate policies also reduce innovation activity in polluting technologies. For example, our previous research on the automotive industry has documented that an increase in fuel prices – which would also happen as a consequence of the introduction of carbon pricing – increases innovation related to electric, hybrid and hydrogen vehicles but depresses innovation related to the internal combustion engine. Therefore, the overall consequences of climate policies in terms of economic growth will be determined by the net effect of the increase in clean and the reduction in dirty innovation. Should we expect this effect to be positive? Clean technologies comprise of a range of new and relatively unexplored technology fields. This could imply that there are opportunities for large economic gains similar to the emergence of Information & Communications Technologies over the last 40 years. However, this does not necessarily mean that climate policies will have a positive effect on growth. What matters for growth are not the overall economic gains between clean and dirty technologies but if there is a significant difference in the non-private economic returns. These non-private economic returns are what we refer to as innovation spillovers. An obvious example of such a spillover is Android-based smart phones. It was Apple that first launched the now dominant design of smart phones. However, other companies such as Google were also able to benefit from the original R&D investments undertaken by Apple by copying or improving the original design.
Authors: | Dechezleprêtre, Antoine ; Martin, Ralf ; Mohnen, Myra |
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Institutions: | Bruegel |
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