Shock therapy for clean innovation: within-firm reallocation of R&D investments

Bøler, Esther Ann, Holtsmark, Katinka and Ulltveit-Moe, Karen Helene (2024) Shock therapy for clean innovation: within-firm reallocation of R&D investments. CEP Discussion Papers (CEPDP2064). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

We analyze how a major negative shock to the producers of fossil fuels may lead to a shift from dirty to clean R&D along the supply chain. First, we develop a theoretical framework of directed technical change, showing that adjustment costs in R&D activity can lead fossil energy sector suppliers to shift their R&D activity towards clean innovation more than other firms, as a consequence of a negative oil price shock. Second, we investigate the impact of a major drop in the oil price in 2014 on clean R&D. Relying on rich firm level trade data, we propose a novel method of identifying firms' exposure to the price shock. We find that more exposed firms increased their clean R&D investments more than less exposed firms. Our findings contribute to the understanding of the drivers of clean technological change, which is vital to assess the effectiveness of different climate policy measures, including carbon pricing.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information:	© 2024 The Author(s)
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HC Economic History and Conditions
JEL classification:	F - International Economics > F1 - Trade > F18 - Trade and Environment 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
Date Deposited:	13 Feb 2025 14:30
Last Modified:	13 Feb 2025 14:30
URI:	http://eprints.lse.ac.uk/id/eprint/126766

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