Path Dependence, Innovation and the Economics of Climate Change

Date: 01 November 2014

Shifting our fossil-fuelled civilisation to clean modes of production and consumption requires deep transformations in our energy and economic systems. Innovation in physical technologies and social behaviours is key to this transformation. But innovation has not been at the heart of economic models of climate change. This paper reviews the state of the art on the economics of innovation, applies recent insights to climate change. The core insight is that technological innovation is a path-dependent process in which history and expectations matter greatly in determining eventual outcomes This insight has six important implications for climate policy design. First, efficient climate policy requires direct research subsidies for inducing and/or diffusing clean innovations, combined with carbon pricing (whether by taxes or trading). Second, both public and private sector involvement is required — private market forces ...

Cameron Hepburn Alexander Teytelboym Phillipe Aghion Dimitri Zenghelis

Economics of Sustainability

Path Dependence, Innovation and the Economics of Climate Change

Type: paper

Aghion, P., Hepburn, C., Teytelboym, A. & Zenghelis, D. (2014). ‘Path dependence, innovation and the economics of climate change'. CCCEP Policy Paper, November.

View Document