Financial Markets and Green Innovation

DATE: 2022-07-01

By Philippe Aghion, Lena Boneva, Johannes Breckenfelder, Luc Laeven, Conny Olovsson, Alexander A. Popov, Elena Rancoita

ECB Working Paper No. 2022/2686 (Jul 2022).

Date Published: Jul 1, 2022


Fulfilling the commitments embedded in the Paris Agreement requires a climate-technologyrevolution. Patented innovation of low-carbon technologies is lower in the EU than in selectedpeers, and very heterogeneous across member states. We motivate this fact with anendogenous model of directed technical change with government policy and financialmarkets. Variations in carbon taxes, R&D investment, and venture capital investment explaina large share of the variation in green patents per capita in the data. We discuss implicationsfor policy, concluding that governments can play a catalytic role in stimulating greeninnovation while the role of central banks is limited.


central banks, climate change, directed technical change, financial markets, public policy

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