Innovation in green tech decks bizcon—uncertainty makes expectations, employment and production impossible to predict
Matteo Ciccarelli & Fulvia Marotta 21. Ciccarelli is a Ph.D. in Economics at Pompeu Fabra University, Assistant Professor of Econometrics at University of Alicante, consultant at the Research Department of the World Bank, and works in European Central Bank; Marotta is a postdoctoral research associate at the University of Oxford, with a PhD in Economics and a background in Statistics. Her research interests lie at the intersection of time series climate econometrics, applied macroeconomics, and environmental economics; “Demand or supply? An empirical exploration of the effects of climate change on the macroeconomy”; European Central Bank; 10/2021; https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2608~2058b5dc8f.en.pdf; // nooodless
While overall for environmental policy (and policy-induced innovation) we don’t find substantial disruptive effects on the real economy with a combination of demand-side shocks resulting in investment crowding-out and negative supply-side shock in the energy sector, results are more clear-cut for a shock to environmental technology. This shock is interpreted as an exogenous increase in environmental technology that is not induced (or supported) by environmental policies or public investments.15 Figure (8) shows that a sudden increase in the number of patents for climate related technologies, while being very effective in curbing emissions and the damage costs, has a depressing effect on business expectations, somewhat on employment, and definitely on industrial production. At the same time, all prices are positively and significantly affected which suggest that the technological transition to low-carbon emission come at the cost of diverting resources from productive activities to mitigation investments. With a shock to technology, only households’ investments are now crowded out, whereas new investment opportunities are taken up immediately by the private sector and subsequently also by the government (perhaps as a consequence of the endogenous increase in policy mitigation). The negative effect on business confidence (after an initial and short-lived positive response) is most likely related to the possible uncertainty about the rate of innovation and the adoption of clean energy technologies that follows the increase of the newly patented inventions (Batten et al. (2020), Batten (2018)). Overall these results provide preliminary evidence that a shock to policy (and policy-induced innovation), even though acts as a supply type of shock on the energy sector (increasing prices and reducing output), does mitigate the effect of climate change and has the potential to boost the economic activity. On the other end, however, the results of a shock to technology suggest that, if innovation is not supported from the supply- and demand-side by the right policy mix, then the weight of the transition to a low-carbon economy would be carried by businesses and private investments, resulting in market failures that have the potential to slow down the economy.