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The impact of environmental taxation on innovation: Evidence from Canada

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  • Matterne, Ilias
  • Roggeman, Annelies
  • Verleyen, Isabelle

Abstract

In recent years, many governments have implemented environmental regulations to combat climate change. In particular, carbon taxes have shown to be an important policy tool to reduce emissions. However, there is little clarity about what drives this relationship. Based on the Porter hypothesis, we find evidence of innovation as a mediator between carbon taxes and CO2 emissions. Using Canadian province-level data from the period 1997–2015, we exploit the implementation of the 2008 British Columbian carbon tax to conduct a difference-in-differences analysis. Our results suggest a statistically and economically significant switch from product innovation to process innovation for British Columbia compared to other Canadian provinces not subject to the carbon tax. So, the stimulating impact of carbon taxes on process innovation appears to be an important explanation for the reduction of emissions.

Suggested Citation

  • Matterne, Ilias & Roggeman, Annelies & Verleyen, Isabelle, 2024. "The impact of environmental taxation on innovation: Evidence from Canada," Energy Policy, Elsevier, vol. 187(C).
    • Handle: RePEc:eee:enepol:v:187:y:2024:i:c:s0301421524000740
    DOI: 10.1016/j.enpol.2024.114054
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    More about this item

    Keywords

    Carbon tax; Innovation; R&D; Patents; Environmental tax;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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