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Path dependence, innovation and the economics of climate change

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  • Philippe Aghion

    (Harvard University, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, Collège de France - Chaire Economie des institutions, de l'innovation et de la croissance - CdF (institution) - Collège de France)

  • Cameron Hepburn

    (New College - New College)

  • Alexander Teytelboym
  • Dimitri Zenghelis

Abstract

hifting our fossil-fuelled civilisation to clean modes of production and consumption requires deep transformations in our energy and economic systems. Innovation in physical technologies and social behaviours is key to this transformation. But innovation has not been at the heart of economic models of climate change. This chapter reviews the state of the art on the economics of innovation, applying recent insights to climate change. The core insight is that technological innovation is a path-dependent process in which history and expectations matter greatly in determining eventual outcomes. This insight has six important implications for climate policy design. First, efficient climate policy requires direct research subsidies for inducing and/or diffusing clean innovations, combined with carbon pricing (whether by taxes or trading). Second, both public and private sector involvement is required. Third, path dependence and system inertia imply that delaying policies that redirect innovation towards clean technologies significantly increases costs in the future. Fourth, more developed countries should act as leaders in clean technology and should subsidise access to such technologies for less developed countries. Fifth, if a transition from coal to clean energy is to be made via intermediates (for example, gas), the use of gas (without carbon capture) should be agreed to be on a time-limited basis. Finally, investment in coal should not be encouraged, as its continued use is only safe if we assume the cost-effectiveness of carbon capture and storage (CCS) technologies. While much greater efforts should be taken to reduce the costs of CCS, the speed that these technologies can be developed and deployed is uncertain.

Suggested Citation

  • Philippe Aghion & Cameron Hepburn & Alexander Teytelboym & Dimitri Zenghelis, 2019. "Path dependence, innovation and the economics of climate change," Post-Print halshs-02489451, HAL.
  • Handle: RePEc:hal:journl:halshs-02489451
    DOI: 10.4337/9781788110686.00011
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    Cited by:

    1. Ralf Martin & Sam Unsworth & Anna Valero & Dennis Verhoeven, 2020. "Innovation for a strong and sustainable recovery," CEP Covid-19 Analyses cepcovid-19-014, Centre for Economic Performance, LSE.
    2. Di Bartolomeo, Giovanni & Minooei Fard, Behnaz & Semmler, Willi, 2023. "Greenhouse gases mitigation: global externalities and short-termism," Environment and Development Economics, Cambridge University Press, vol. 28(3), pages 230-241, June.
    3. Zenghelis, Dimitri, 2021. "Why sustainable, inclusive, and resilient investment makes for efficacious post-COVID medicine," LSE Research Online Documents on Economics 110936, London School of Economics and Political Science, LSE Library.
    4. Tom Kemeny & Sergio Petralia & Michael Storper, 2022. "Disruptive innovation and spatial inequality," Papers in Evolutionary Economic Geography (PEEG) 2211, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jul 2022.
    5. Imke Rhoden & Christopher Stephen Ball & Stefan Vögele & Wilhelm Kuckshinrichs, 2023. "Minding the gap‐relating disclosure to contexts of sustainability reporting in the automotive industry," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(2), pages 846-857, March.
    6. Matos, Stelvia & Viardot, Eric & Sovacool, Benjamin K. & Geels, Frank W. & Xiong, Yu, 2022. "Innovation and climate change: A review and introduction to the special issue," Technovation, Elsevier, vol. 117(C).
    7. de Ridder, Kilian & Schultz, Felix Carl & Pies, Ingo, 2023. "Procedural climate justice: Conceptualizing a polycentric solution to a global problem," Ecological Economics, Elsevier, vol. 214(C).
    8. Yang, Gangqiang & Nie, Yiming & Li, Honggui & Wang, Haisen, 2023. "Digital transformation and low-carbon technology innovation in manufacturing firms: The mediating role of dynamic capabilities," International Journal of Production Economics, Elsevier, vol. 263(C).
    9. Michael Grubb & Rutger-Jan Lange & Nicolas Cerkez & Pablo Salas & Ida Sognnaes, 2020. "Interactions of time and technology as critical determinants of optimal climate change policy," Tinbergen Institute Discussion Papers 20-083/VI, Tinbergen Institute, revised 29 Dec 2022.
    10. Delanote, Julie & Rückert, Désirée, 2022. "How to foster climate innovation in the European Union: Insights from the EIB Online Survey on Climate Innovation," EIB Working Papers 2022/02, European Investment Bank (EIB).
    11. Simone Tagliapietra & Reinhilde Veugelers, 2021. "Fostering the Industrial Component of the European Green Deal: Key Principles and Policy Options," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 56(6), pages 305-310, November.
    12. Torben K. Mideksa, 2021. "Leadership and Climate Policy," CESifo Working Paper Series 9054, CESifo.

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