Carbon taxes, path dependency and directed technical change: evidence from the auto industry

Can directed technical change be used to combat climate change? This paper construct new firm-level panel data on auto industry innovation distinguishing between “dirty” and “clean” (e.g. electric and hybrid) patents across 80 countries over several decades. It show that firms tend to innovate relatively more in clean technologies when they face higher tax-inclusive fuel prices. Furthermore, there is path dependence in the type of innovation both from aggregate spillovers and from the firm’s own innovation history.