Presentation from OECD Expert Workshop on Environmental Policies: Social and Economic Outcomes 23-24 June 2022

1. The Economic Consequences of
Green Innovation
Damien Dussaux
OECD Environment Directorate
Environment and Economy Integration Division
ITEM 2. ENVIRONMENTAL POLICY, CLEAN INNOVATION AND PRODUCTIVITY

2. Lessons Learned and Key Policy Issues
Environmental
Performance
Economic
Performance
Green
innovation
?
Environmental
Policy
Stringency

3. Outline
3
Lessons learned and key policy issues
The Effect of Policy-induced Low carbon
Innovation on Firm Economic Performance
The Economic Benefits of Early Green
Innovation

4. Source: Dechezleprêtre, A. and T. Kruse (2022), "The effect of climate policy on innovation and economic
performance along the supply chain: A firm- and sector-level analysis", OECD Environment Working Papers, No.
189, OECD Publishing, Paris, https://doi.org/10.1787/3569283a-en.
4
The Effect of Policy-induced Low carbon
Innovation on Firm Economic Performance
Green innovation
(sector)
Environmental
Policy Stringency
(sector)
Environmental
Policy Stringency
(upstream)
Environmental
Policy Stringency
(downstream)
Supply
chain
insignificant
Economic
Performance
?
insignificant

5. 5
• Firm (i) × Country (c) × Sector (s) × Year (t)
– 7 145 manufacturing firms in 19 countries, 1990-2015
• 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 : Log of multifactor productivity (MFP), or log
of value added (VA)) [Orbis]
• MPSicst : Log of the low-carbon patent stock [Patstat – Y02
tagging system]
– Instrumented to get causal effect based on firm’s pre-sample green
innovation behaviour and sector x country level growth in green
innovation out of the firm’s control
• Controls: employees, avg. wage, capital intensity, firm, sector
× year and country × year fixed effects
The Effect of Policy-induced Low carbon
Innovation on Firm Economic Performance
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 = 𝜎𝜎 + 𝜷𝜷 �
𝑴𝑴𝑴𝑴𝑴𝑴𝒊𝒊𝒊𝒊𝒊𝒊𝒊𝒊−𝟏𝟏 + 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑖𝑖𝑖𝑖𝑖𝑖,𝑡𝑡−1 + 𝜇𝜇𝑖𝑖 + 𝜏𝜏𝑡𝑡 + 𝜀𝜀𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖

6. • No evidence that policy induced low-carbon innovation harms or
improves the economic performance of firms.
6
The Effect of Policy-induced Low carbon
Innovation on Firm Economic Performance

7. Outline
7
Lessons learned and key policy issues
The Effect of Policy-induced Low carbon
Innovation on Firm Economic Performance
The Economic Benefits of Early Green
Innovation

8. • An econometric analysis of the car manufacturing sector
– Passenger cars account for 10% of CO2 emissions worldwide (IEA, 2020)
– Significant clean innovation occurred: fuel saving and hybrid, electric cars
• Estimating impact of fuel prices on car manufacturers’ economic
performance as a function of
– Different kinds of innovation: dirty, clean (hybrid and EV), grey (fuel saving)
– Testing for different timings
8
The Economic Benefits of Early
Green Innovation (contribution)
Does past green innovation pay off when price
signals get stronger?
• Preliminary work from Alberto Agnelli, Hélia Costa and Damien Dussaux

9. • Panel data 2005 -2020: Manufacturer (i) × Country (c) × Year (t)
• Economic performance: market share (% of # cars sold)
– From national automobiles associations
– 19 manufacturers accounting for 95% of market shares in
– 8 countries: France, Germany, Italy, Japan, Poland, Portugal, Spain, United States
• Green innovation: share of the firms’ patent stocks (Patstat)
– Dirty car technologies
– Fuel saving (grey) car technologies
– Cleaner car technologies: hybrid and EV cars
• Fuel prices including fuel tax directly linked to
environmental policies (OECD)
9
The Economic Benefits of Early
Green Innovation (data)
Aghion et al. (2016)

10. 10
The Economic Benefits of Early
Green Innovation (model and results)
𝑚𝑚𝑚𝑚𝑚𝑚 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑖𝑖𝑖𝑖𝑖𝑖 = 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑐𝑐𝑐𝑐 × 𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝒊𝒊𝒊𝒊−𝒌𝒌 + 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑐𝑐𝑐𝑐 × 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝒊𝒊𝒊𝒊−𝒌𝒌 + 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑐𝑐𝑐𝑐 × 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝒊𝒊𝒊𝒊−𝒌𝒌
+𝜌𝜌𝑖𝑖𝑖𝑖 + 𝜎𝜎𝑐𝑐𝑐𝑐 + 𝜑𝜑𝑐𝑐𝑐𝑐 + 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑖𝑖𝑖𝑖𝑖𝑖 + 𝜀𝜀𝑖𝑖𝑖𝑖𝑖𝑖
• 𝝆𝝆𝒊𝒊𝒊𝒊, 𝝈𝝈𝒄𝒄𝒄𝒄, 𝝋𝝋𝒄𝒄𝒄𝒄 : firm-year, country-firm, and country-year fixed effects
• Controls: fuel price × with stock in all patents, time trends × firm size in
year 0

11. Thank you
For more information:
Damien.Dussaux@oecd.org