IMF Working Papers

This paper investigates how climate policies affect low-carbon innovation (as measured by patents) and assesses the link between such innovation and economic activity. Climate policies, including international cooperation, spur both specific and overall innovation, with regulations, emissions-trading systems, and expenditure measures such as R&D subsidies and feed-in tariffs being particularly impactful. In turn, low-carbon innovation raises economic activity as much as other types of innovation and past technological revolutions. However, the mechanisms are different: low-carbon innovation increases capital accumulation, while other types of innovation increase total factor productivity (TFP).