Climate policy and innovation: A quantitative macroeconomic analysis

Stephanie Fried

Research output: Contribution to journalArticlepeer-review

50 Scopus citations


A carbon tax can induce innovation in green technologies. I evaluate the quantitative impact of this channel in a dynamic, general equilibrium model with endogenous innovation in fossil, green, and nonenergy inputs. I discipline the parameters using evidence from historical oil shocks, after which both energy prices and energy innovation increased substantially. I find that a carbon tax induces large changes in innovation. This innovation response increases the effectiveness of the policy at reducing emissions, resulting in a 19.2 percent decrease in the size of the carbon tax required to reduce emissions by 30 percent in 20 years.

Original languageEnglish (US)
Pages (from-to)90-118
Number of pages29
JournalAmerican Economic Journal: Macroeconomics
Issue number1
StatePublished - Jan 1 2018

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)


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