Transition to green technology along the supply chain

Philippe Aghion, Lint Barrage, Eric Donald, David Hemous and Ernest Liu

No 450, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: We analyze a model of green technological transition along a supply chain. The model generates a unique equilibrium for given initial conditions but multiple steadystates. We show that: (i) even in the presence of Pigouvian environmental taxation, targeted sectoral subsidies are generally necessary to implement the social optimum; (ii) small, targeted industrial policy may bring large welfare gains; (iii) a government which is unable to subsidize greenification in more than one sector or price carbon at its true social cost should primarily target downstream sectors; (iv) overinvesting in greenification in the wrong upstream branch may derail the overall transition towards greenification. Finally, we calibrate our model to decarbonization of heavy duty transportation (trucking, aviation, etc.) via hydrogen. We find that, absent industrial policy, the economy can get stuck in the “wrong” steady-state with CO2 emissions vastly above the social optimum even with a Pigouvian carbon price in place.

Date: 2024-09, Revised 2025-06
New Economics Papers: this item is included in nep-ene, nep-env, nep-ino, nep-ipr and nep-res
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Transition to green technology along the supply chain (2024)
Working Paper: Transition to green technology along the supply chain (2024)
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