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Do Fossil fuel Taxes Promote Innovation in Renewable Electricity Generation?

Lazkano, Itziar; Pham, Linh
Working paper
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DP16.pdf (1.093Mb)
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http://hdl.handle.net/11250/2423519
Utgivelsesdato
2016-11-29
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  • Discussion papers (SAM) [607]
Sammendrag
We evaluate the role of a fossil fuel tax and research subsidy in directing innovation

from fossil fuel toward renewable energy technologies in the electricity sector.

Using a global firm-level electricity patent database from 1978 to 2011, we find that

the impact of fossil fuel taxes on renewable energy innovation varies with the type of

fossil fuel. Specifically, a tax on coal reduces innovation in both fossil fuel and renewable

energy technologies while a tax on natural gas has no statistically significant

impact on renewable energy innovation. The reason is that easily dispatchable energy

sources like coal-fired power plants need to complement renewable energy technologies in the grid because renewables generate electricity intermittently. Our results suggest that a tax on natural gas, combined with research subsidies for renewable energy, may effectively shift innovation in the electricity sector towards renewable energy. In contrast, coal taxation or a carbon tax that increases coal prices has unintended negative consequences for renewable energy innovation.
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DP SAM;16/2016

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