Investment-specific vs process innovation in a CGE model of environmental policy

authors: Claudio Baccianti, Andreas Löschel

The European Union has implemented demand push and technology pull policies to foster innovation on the energy and resource efficiency of capital goods. The state of the art of general equilibrium modelling applied to environmental policy rarely treats product and process innovation separately and product quality is, in the best case, exogenous. We develop a dynamic multi-sector CGE model that distinguishes between R&D-based process innovation for all firms, endogenous product innovation in the capital good sector and adoption decisions with respect to the installation of new capital vintages in the rest of the economy. Our results support the previous literature in finding that aggregate innovation declines following an energy tax but whereas process innovation is reduced, product innovation actually rises. We find that demand pull policies are less effective than product-related R&D subsidies to reduce aggregate energy intensity.

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Year of publication:	2015
Authors:	Baccianti, Claudio ; Löschel, Andreas
Publisher:	Vienna : WWWforEurope
Subject:	Ecological innovation \| Economic growth path \| Industrial policy \| Innovation \| Innovation policy \| Intangible assets \| New technologies \| Sustainable growth \| Wirtschaftswachstum \| Economic growth \| Nachhaltige Entwicklung \| Sustainable development \| Technologiepolitik \| Technology policy \| Technischer Fortschritt \| Technological change \| Umweltpolitik \| Environmental policy \| Endogenes Wachstumsmodell \| Endogenous growth model \| Industriepolitik \| Theorie \| Theory \| Immaterielle Werte \| Allgemeines Gleichgewicht \| General equilibrium