Clean innovation, heterogeneous financing costs, and the optimal climate policy mix

Emanuele Campiglio, Alessandro Spiganti and Anthony Wiskich

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Access to finance is a major barrier to clean innovation. We incorporate a financial sector in a directed technological change model, where research firms working on different technologies raise funding from financial intermediaries at potentially different costs. We show that, in addition to a rising carbon tax and a generous but short-lived clean research subsidy, optimal climate policies include a clean finance subsidy directly aimed at reducing the financing cost differential across technologies. The presence of an endogenous financing experience effect induces stronger mitigation efforts in the short-term to accelerate the convergence of heterogeneous financing costs. This is achieved primarily through a carbon price premium of 39% in 2025, relative to a case with no financing costs.

Keywords: carbon tax; endogenous growth; green financial policy; innovation policy; low-carbon transition; optimal climate policy; sustainable finance (search for similar items in EconPapers)
JEL-codes: G18 H23 O31 Q55 Q58 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2024-11-30
New Economics Papers: this item is included in nep-cfn, nep-ene, nep-env, nep-ino, nep-sbm and nep-tid
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Published in Journal of Environmental Economics and Management, 30, November, 2024, 128. ISSN: 0095-0696

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Related works:
Journal Article: Clean innovation, heterogeneous financing costs, and the optimal climate policy mix (2024)
Working Paper: Clean Innovation, Heterogeneous Financing Costs, and the Optimal Climate Policy Mix (2024)
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