The impact of environmental taxation on innovation: Evidence from Canada

In recent years, many governments have implemented environmental regulations to combat climate change. In particular, carbon taxes have shown to be an important policy tool to reduce emissions. However, there is little clarity about what drives this relationship. Based on the Porter hypothesis, we f...

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Bibliographic Details
Published inEnergy policy Vol. 187; p. 114054
Main Authors Matterne, Ilias, Roggeman, Annelies, Verleyen, Isabelle
Format Journal Article
LanguageEnglish
Published Elsevier Ltd 01.04.2024
Subjects
Carbon tax
Environmental tax
Innovation
R&D
Q55
R&D
Patents
Innovation
H71
R11
H32
H23
Carbon tax
Environmental tax
O32
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Summary:In recent years, many governments have implemented environmental regulations to combat climate change. In particular, carbon taxes have shown to be an important policy tool to reduce emissions. However, there is little clarity about what drives this relationship. Based on the Porter hypothesis, we find evidence of innovation as a mediator between carbon taxes and CO2 emissions. Using Canadian province-level data from the period 1997–2015, we exploit the implementation of the 2008 British Columbian carbon tax to conduct a difference-in-differences analysis. Our results suggest a statistically and economically significant switch from product innovation to process innovation for British Columbia compared to other Canadian provinces not subject to the carbon tax. So, the stimulating impact of carbon taxes on process innovation appears to be an important explanation for the reduction of emissions. •Implementing a carbon tax spurs R&D investment, but suppresses patent applications.•R&D mediates the reduction in CO2 emissions following a carbon tax’ implementation.•Evidence suggests a post-carbon tax shift from product to process innovation.
ISSN:0301-4215
1873-6777
DOI:10.1016/j.enpol.2024.114054