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POID Research

Green Growth and Directed Technical Change

Team Leaders: Ralf Martin and Anna Valero

One of the greatest threats to humanity is catastrophic climate change. To address Climate Change we have to be mindful not only of the speed of economic growth but also its direction. The challenge is to find growth paths that minimize pollution while maximizing income and growth.

In our research we explore the characteristics of such growth paths and which policy leavers might be effective and efficient to make them a reality. For instance, we have documented that carbon pricing policies can be effective in reducing emissions and directing technological change in clean direction (e.g. see our study on the EU ETS, on the Climate Change Levy here and on Clean Innovation in the Automotive Industry).

We also look at potential pitfalls. A particular concern is that overly stringent climate policy might be counterproductive when it leads to so called Carbon Leakage where emitters simply shift emission intensive activities to un-regulated countries. However, our research so far suggests that such concerns are often overblown (see for instance our work based on in-depth interviews with managers in manufacturing firms across the EU or our study using unique emissions data for a large sample of multinational firms).

However, a successful transition to a clean economy requires policies beyond carbon pricing such as direct subsidies for clean R&D. This is because of the path dependency of firms who have strong incentives to keep innovating in dirty technologies as we have shown here and here. Another case for subsidizing clean R&D comes from substantially higher knowledge spillovers that clean technologies generate which we have documented on the basis of comprehensive global patent data. However, not all clean technologies generate high spillovers and technologies are also varying greatly in their localized spillover effects for different countries. This can provide a case for highly specific localized industrial strategies. Developing the evidence base for such localized clean strategies is an ongoing research programme at POID/CEP. Some of this work has already been documented here and here. Building on this we have recently outlined how clean technologies can form part of a Post Covid-19 recovery that can also help to level regional economic differences in the UK.

Other ongoing projects include:
  • Pro Environmental Values: In new research we find that shifts in pro social values have a powerful effect on the direction towards a cleaner economic equilibrium and can rival carbon pricing in its impact. Moreover, competition is a catalyst for this effect. In ongoing research, we explore drivers of shifts in pro environmental values using data scraped from social media interactions.
  • We are expanding our knowledge of firm characteristics and corporate culture linking business balance sheet data with information derived from social media interactions of companies. We use this to understand better which factors make firms productive, clean and resilient to climate change as well as negative shocks such as a pandemic.
  • We are studying how credit market frictions create barriers for the adoption of environmentally friendly technologies using detailed data for Eastern Europe (in joint work with the EBRD).
  • We are conducting field experiments to study how consumers interact with "smart devices" such as smart meters and internet connected appliances to align energy consumption with intermittent generation of renewable power plants and to help "fuel poor" energy customers to save money.
  • Developing policy with Lord Nick Stern following up the second LSE Growth Commission.
  • With Robin Burgess, we are investigating new models of economic development. The fact that many developing countries may skip the traditional manufacturing stage and move directly to a service-based economy (India rather than China) may imply a more optimistic, cleaner model of development.

For further details see also the CEP Growth Programme.