The impact of environmental taxation on innovation: Evidence from Canada

Ilias Matterne, Annelies Roggeman and Isabelle Verleyen

Energy Policy, 2024, vol. 187, issue C

Abstract: In recent years, many governments have implemented environmental regulations to combat climate change. In particular, carbon taxes have shown to be an important policy tool to reduce emissions. However, there is little clarity about what drives this relationship. Based on the Porter hypothesis, we find evidence of innovation as a mediator between carbon taxes and CO2 emissions. Using Canadian province-level data from the period 1997–2015, we exploit the implementation of the 2008 British Columbian carbon tax to conduct a difference-in-differences analysis. Our results suggest a statistically and economically significant switch from product innovation to process innovation for British Columbia compared to other Canadian provinces not subject to the carbon tax. So, the stimulating impact of carbon taxes on process innovation appears to be an important explanation for the reduction of emissions.

Keywords: Carbon tax; Innovation; R&D; Patents; Environmental tax (search for similar items in EconPapers)
JEL-codes: H23 H32 H71 O32 Q55 R11 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:187:y:2024:i:c:s0301421524000740

DOI: 10.1016/j.enpol.2024.114054

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