The global diffusion of clean technology: China and the solar energy boom

Adopting clean energy technology is crucial for reducing emissions and achieving global climate goals. In this Kühne Impact Series, we shed light on the importance of global diffusion of clean technology through international trade. In particular, we highlight China’s expansion in the solar energy sector and its role in bringing down the cost of solar energy worldwide. Our main result is that international trade and globally integrated value chains have dramatically reduced the global average cost of renewable technologies. Keeping markets open to trade is essential for enabling a low-carbon energy transition as it ensures that all countries benefit from the lower cost of clean energy technologies. Moreover, we highlight three potential challenges that represent considerable vulnerabilities for the global diffusion of clean technology: (i) the current geographical concentration in global supply chains, (ii) the US-China and EU-China “Solar Trade War,” and (iii) the global slowdown in high-quality solar energy inventions

Climate change, directed innovation, and energy transition: the long-run consequences of the shale gas revolution

We investigate the short- and long-term effects of a shale gas boom in an economy where energy can be produced with coal, natural gas, or clean energy sources. In the short run, cheaper natural gas has counteracting effects on CO2 emissions: on the one hand it allows substitution away from coal which reduces CO2 emissions, ceteris paribus; on the other hand the shale gas boom may increase pollution as it increases the scale of aggregate production. We then empirically document another potentially important effect, namely that the shale boom was associated with a decline in innovation in green relative to fossil fuels-based electricity generation technologies. Introducing directed technical change dynamics in our model, we derive conditions under which a shale gas boom reduces emissions in the short-run but increases emissions in the long-run by inducing firms to direct innovation away from clean towards fossil fuels innovation. We further show the possibility of an infinitely delayed switch from fossil fuels to clean energy as a result of the boom. Finally, we present a quantitative version of the model calibrated to the U.S. economy, and analyze the implications of the shale boom for optimal climate policy

Trade, innovation and optimal patent protection

This paper provides a first comprehensive quantitative analysis of optimal patent policy in the global economy. We introduce a new framework, which combines trade and growth theory into a tractable tool for quantitative research. Our application delivers three main results. First, the potential gains from international cooperation over patent policies are large. Second, only a small share of these gains has been realized so far. And third, the WTO’s TRIPS agreement has been counterproductive, slightly reducing welfare in the Global South and for the world. Overall, there is substantial scope for policy reform

Trade, innovation and optimal patent protection

This paper provides a first comprehensive quantitative analysis of optimal patent policy in the global economy. We introduce a new framework, which combines trade and growth theory into a tractable tool for quantitative research. Our application delivers three main results. First, the potential gains from international cooperation over patent policies are large. Second, only a small share of these gains has been realized so far. And third, the WTO's TRIPS agreement has been counterproductive, slightly reducing welfare in the Global South and for the world. Overall, there is substantial scope for policy reform

Automation: a gradual process

Contrary to popular belief, the automation of work and everyday tasks will not happen overnight. It will be a gradual process over time. It is important to channel this change

Long-term relationships: static gains and dynamic inefficiencies

In the 1980s the Japanese “keiretsu” system of interconnected business groups was praised as a model to emulate, but since then Japan has often been criticized for being less innovative than the United States. In this paper we connect the two views and argue that tight business relationships can create dynamic inefficiencies and reduce broad innovations. In particular, we consider the repeated interaction between final good producers and intermediate input suppliers, where the provision of the intermediate input is noncontractible. We build a cooperative equilibrium where producers can switch suppliers and start cooperation immediately with new suppliers. We first consider broad innovations: every period, one supplier has the opportunity to create a higher quality input that can be used by all producers. Since relationships are harder to break in the cooperative equilibrium the market size for potential innovators is smaller and the rate of innovation might be lower than in the noncooperative equilibrium. We contrast this with a setting with relationship-specific innovations that we show are encouraged by the establishment of relational contracts. We illustrate the predictions of the model using the recent business history of the United States and Japan and further use patent data to show that U.S. patents are more general than Japanese and even more so in sectors using more differentiated inputs.

Essays on International Trade, Economic Growth and the Environment

This dissertation consists of three essays on Economic Growth. The first essay introduces directed technical change in a growth model with environmental constraints. The final good is produced from ”dirty” and ”clean” inputs. We show that when inputs are sufficiently substitutable, sustainable growth can be achieved with temporary taxes/subsidies that redirect innovation towards clean inputs; and that delay in intervention is costly as it later necessitates a longer transition phase with slow growth. The second essay explains how unilateral environmental policies undertaken by a group of committed countries can ensure sustainable growth in the presence of directed technical change. There are two countries and two tradeable goods: a nonpolluting good and a polluting one, which, itself, is produced with a clean and a dirty input. Innovation can be targeted at the non-polluting sector, at clean or at dirty technologies. I show that sustainable growth can generally not be achieved by unilateral carbon taxes but can be achieved by a temporary unilateral combination of clean research subsidies and a tariff. I characterize the first best policy, the world optimal policy under the constraint that one country must be in laissez-faire, and the optimal policy from the viewpoint of a single country. The third essay shows that long-term relationships, which reduce the static costs associated with low contractibility, create dynamic inefficiencies. We consider the repeated interaction between final good producers and intermediate input suppliers, where the provision of the intermediate input is non contractible. Producer/supplier pairs can be good matches or bad matches (featuring lower productivity). We build a ”cooperative” equilibrium that features cooperation in good matches without any collusion amongst suppliers. We contrast this set-up with the Nash equilibrium where cooperation is precluded and a contractible setting. Every period one supplier has the opportunity to innovate. We show that innovations need to be larger to break up existing relationships in the cooperative case than in the contractible and Nash cases. The rate of innovation in the cooperative case is lower than in the contractible case, and can be lower than in the Nash case.Economic

The dynamic impact of unilateral environmental policies

This paper builds a two-country, two-sector (polluting, nonpolluting) trade model with directed technical change, examining whether unilateral environmental policies can ensure sustainable growth. The emission rate of the polluting sector depends on its relative use of a clean and a dirty input. A unilateral policy combining clean research subsidies and a trade tax can ensure sustainable growth, while unilateral carbon taxes alone increase innovation in the polluting sector abroad and generally cannot ensure sustainable growth. Relative to autarky and exogenous technical change respectively, trade and directed technical change accelerate environmental degradation either under laissez-faire or with unilateral carbon taxes, yet both help reduce environmental degradation under the appropriate unilateral policy. I characterize the optimal unilateral policy analytically and numerically using calibrated simulations. Knowledge spillovers have the potential to reduce the otherwise large welfare costs of restricting policy to onecountry

Green innovation policies: economics and climate change

Climate change already has a negative impact on the environment and our societies, and this impact will get worse over the course of this century. How much worse? This will depend on our ability to reduce greenhouse gas emissions. Achieving the necessary reduction in emissions, while maintaining (and improving) worldwide living standards can only be achieved through innovation. Fortunately, innovation is not manna from heaven; it is conducted by scientists and firms and it reacts to market and policy incentives. It is therefore up to governments to steer it toward clean technologies. In this public paper, I will review recent economic research on the role of innovation in the design of climate policy. After a quick introduction to the challenges posed by climate change, I will show that current technological trends – though promising – are unlikely to be sufficient to limit warming to 2°C. Can policy then effectively boost green innovation? Recent evidence shows that this is definitely the case. How should global climate policy be designed to leverage this innovation response? What about unilateral policies? Some innovations are “grey”: they permit the replacement of particularly dirty technologies with less dirty but still polluting ones. The shale gas revolution is an example. Can these “grey” innovations backfire