Research Projects
Research Projects
This paper sheds new light on the potential effects of tax reform policy (including fossil fuel taxes and clean energy tax incentives) and R&D subsidies on the transition from fossil fuels to renewable energy. We develop a theoretical framework inspired by the Directed Technical Change literature, emphasizing the interplay between taxation and R&D subsidies in the clean energy transition. This framework allows us to predict the effects and relative strength of these policies. We uniquely apply the Directed Technical Change framework to U.S. electricity generation, often overlooked in past relevant research. We use data for electricity generation categorized by producer types across states between 2000 and 2015. Our empirical analysis employs System GMM and fixed effects to address potential endogeneity and unobserved heterogeneity. Results align with our theoretical predictions regarding both policy instruments' effects and relative intensities.
The results suggest that tax reforms (fossil fuel taxes and green tax incentives) make renewables more price-competitive with fossil fuels. The evident substitutability of renewable and fossil fuels enables this tax adjustment to be superior to R&D subsidies in accelerating the green transition, as it motivates demand-side participants to shift to these green alternatives. We recommend policymakers prioritize tax adjustments over R&D subsidies if the goal is to reduce emissions and accelerate the green transition within a shorter timeframe. We also emphasize that a careful reallocation of R&D subsidies, favouring clean energy, while assessing their genuine impact on productivity, remains crucial.
You can read the paper here
This paper evaluates the effects of various environmental policy instruments—carbon taxes, R&D subsidies, dirty investment taxes, and clean investment tax credits—within a dynamic general equilibrium model inspired by the Directed Technical Change (DTC) framework. The model integrates a savings mechanism into the DTC framework, extending the analysis to capture investment behavior and its role in the transition to clean technology.
This paper also extends the scope of policies examined to include, for instance, clean investment tax credits (ITCs), which have received considerable attention in recent policy debates. The findings show that policies targeting the dirty sector, such as carbon and dirty investment taxes, are particularly effective in reducing emissions. This is due to the sector’s large market size. However, restricting this sector can impede economic prosperity, indicating the need for complementary measures.
In our analysis, we also distinguish between supply- and demand-side policies. Demand-side measures, such as carbon taxes and clean input tax credits, facilitate substitution between clean and dirty goods, encouraging cleaner alternatives. By targeting both the clean sector and the demand side, such as through clean input tax credits, we can accelerate the transition to cleaner technologies and achieve emission reduction targets. The trade-off may include higher taxes, such as household lump-sum taxes, for financing such policies.
Finally, we explore a clean ‘double dividend’ approach, where revenue from dirty-sector taxes funds clean-sector incentives. This provides a more balanced path toward emissions reduction and sustainable growth. Based on these findings, we recommend a policy mix that prioritizes dirty-sector initiatives, improves demand-side measures, and, most importantly, adopts clean double-dividend strategies to support both environmental and economic objectives.
You can read this paper here.
As climate change risks escalate, central banks are increasingly called upon to address this global challenge. Yet, estimates of the environmental impact of monetary policy are limited, leaving a significant gap in understanding how monetary policy interacts with climate change. In this paper, we aim to fill this gap by providing new evidence based on U.S. data. We identify monetary policy shocks using the recursiveness assumption and estimate their effects on domestic carbon dioxide emissions.
Three key findings emerge from our analysis. First, an unexpected monetary policy tightening produces a persistent yet transitory negative effect on total CO2 emissions. This finding holds consistently across different model specifications, periods, and monetary policy indicators, underscoring its robustness. Second, the effects of monetary policy vary significantly across major polluter types. Emissions in the industrial sector, closely tied to production activities, show the strongest response. In contrast, emissions in the residential and commercial sectors are weakly affected, likely due to the essential nature of energy services. Finally, the contribution of U.S. monetary policy shocks to explaining domestic CO2 emissions fluctuations has been modest. Since central banks have limited capacity to directly influence environmental outcomes, monetary policy should be viewed as complementary to fiscal policy and environmental regulation in addressing climate change.
This research is a working paper at the Economics Department, University of Ottawa. You can read this working paper here.