Most people would agree that it makes sense to tax a company that pollutes in a way that directly reflects the amount of environmental and social damage it has done. Yet in practice, such taxes are fraught with difficulty and have far-reaching implications. A company facing a new tax may lay off...

This paper addresses two basic issues related to technological innovation and climate stabilization objectives: can innovation policies be effective in stabilizing climate? To what extent can innovation policies complement carbon pricing (taxes or permit trading) and improve the economic...