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Shifting Gears: Environmental Regulation in the Car Industry and Technological Change Among Suppliers

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  • Johannes Gessner

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  • Johannes Gessner, 2025. "Shifting Gears: Environmental Regulation in the Car Industry and Technological Change Among Suppliers," CRC TR 224 Discussion Paper Series crctr224_2025_654, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2025_654
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp654
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    Keywords

    environmental regulation; global value chains; innovation; fuel economy standards; directed technological change Decarbonizing industries to mitigate climate change requires technological change. Innovation by suppliers can play a crucial role in the technological transition; particularly when suppliers have expertise in zero-emission technologies. In this paper; I study the effect of environmental regulation in a downstream industry on the innovation outcomes of suppliers in the context of the European CO2 emission standard for passenger cars. I construct a novel data set that links administrative data on car manufacturer compliance to supplier patent data using information on automotive supply chains. To identify the causal effect of changes in the stringency of the emission standard; I leverage the heterogeneous exposure of automotive suppliers to changes in the composition of the European car market in the aftermath of the 2015 Volkswagen diesel scandal. Exposure to more stringent environmental regulation increases innovation for zero-emission vehicle technologies among existing suppliers. In addition; the likelihood that car manufacturers form new supply chain links to firms with expertise in technologies to reduce vehicle emissions increases in response to more stringent environmental regulation. These results suggest that environmental regulation induces economically significant technology spillovers to the regulated firms.;
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    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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