Adopt or Innovate: Understanding the technological responses to cap-and-trade | Raphael Calel

Raphael Calel will be discussing his paper Adopt or Innovate: Understanding the technological responses to cap-and-trade.

Abstract

Environmental regulations have consistently been found to spur innovation in `clean’ technologies, with one significant exception. Past cap-and-trade programs have encouraged adoption of existing pollution control technologies but had little effect on innovation of new technologies. Yet one important motivation for new cap-and-trade programs for carbon emissions is that they will stimulate much needed low-carbon innovation. I investigate firms’ responses to the European carbon market—the world’s largest cap-and-trade program. Using a newly constructed panel of British companies I show that, contrary to past cap-and-trade programs, European carbon trading appears to have encouraged innovation rather than adoption. I discuss how to reconcile these contrasting findings and implications for the future of carbon markets.