Calel, Raphael (2020) Adopt or innovate: understanding technological responses to cap-and-trade. American Economic Journal: Economic Policy, 12 (3). pp. 170-201. ISSN 1945-7731
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Text (Adopt or Innovate: Understanding Technological Responses to Cap-and-Trade)
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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.
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