Clean innovation, heterogeneous financing costs, and the optimal climate policy mix

Campiglio, Emanuele, Spiganti, Alessandro and Wiskich, Anthony (2024) Clean innovation, heterogeneous financing costs, and the optimal climate policy mix. Journal of Environmental Economics and Management, 128. ISSN 0095-0696

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Abstract

Access to finance is a major barrier to clean innovation. We incorporate a financial sector in a directed technological change model, where research firms working on different technologies raise funding from financial intermediaries at potentially different costs. We show that, in addition to a rising carbon tax and a generous but short-lived clean research subsidy, optimal climate policies include a clean finance subsidy directly aimed at reducing the financing cost differential across technologies. The presence of an endogenous financing experience effect induces stronger mitigation efforts in the short-term to accelerate the convergence of heterogeneous financing costs. This is achieved primarily through a carbon price premium of 39% in 2025, relative to a case with no financing costs.

Item Type:	Article
Additional Information:	© 2024 The Authors
Divisions:	Grantham Research Institute
Subjects:	H Social Sciences > HJ Public Finance G Geography. Anthropology. Recreation > GE Environmental Sciences
JEL classification:	H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities; Redistributive Effects; Environmental Taxes and Subsidies O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O31 - Innovation and Invention: Processes and Incentives Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q55 - Technological Innovation Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation
Date Deposited:	13 Nov 2024 16:00
Last Modified:	13 Nov 2024 17:03
URI:	http://eprints.lse.ac.uk/id/eprint/126063

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