Driving Innovation? Carbon Tax Effects in the Swedish Transport Sector
This paper examines the impact of a carbon tax on innovation in clean technologies in the transport sector. Rapid advances in clean technologies are critical to reaching the ambitious sector climate targets. We contribute to the understanding of the link between carbon pricing and clean innovation by providing the first empirical estimate in the transport sector using patent data and applying the synthetic control method (SCM). We estimate the local effect on clean innovation of the Swedish tax reform in 1990/91 which introduced a carbon tax and expanded the VAT on the sale of motor fuels. Across various specifications and multiple robustness checks, we consistently find positive and economically significant effects of the tax reform on the invention of clean transport technologies between 1990 and 1999. By disentangling the two components of the tax reform package, we provide indicative evidence that the salience of the carbon price in terms of innovation effects is larger than that of the pure fuel price, and thereby find that the carbon tax induced the majority of the overall effect. These results suggest that a salient carbon price can be an effective instrument to foster the transition to a decarbonized transport sector by inducing clean innovation. In particular, a carbon tax may be more effective in regard to its innovation effects than previous estimates using fuel price elasticities have suggested.
United States Association for Energy Economics (USAEE)
JEL-Klassifikation: H93, L91, Q54, Q55, Q58
DOI: 10.2139/ssrn.3995632