Can carbon taxes stimulate clean innovation? Evidence from the Swedish experience

Sammanfattning: This thesis investigates the impact of national carbon taxes on clean innovation. We employ the novel synthetic control method to estimate the effect of the Swedish carbon tax, introduced in 1991, on climate change mitigating technology patents. We estimate that the Swedish carbon tax increased clean technology patents by 14.1 percent in an average year in the post-treatment period, 1991-2005, compared to synthetic Sweden. Aggregating over the population, this corresponds to an increase of 249.88 clean patents in Sweden, compared to counterfactual case, had Sweden not implemented a carbon tax. These results are economically significant and prove robust to a number of placebo tests. Furthermore, we also conduct panel data regressions using cross-country data from 17 countries that implemented a carbon tax during 1990-2016. With this method, however, we find no detectable effect on innovation. We discuss potential explanations to these different outcomes and conclude that the discrepancies in our results might have to do with limited data on carbon taxes and differences in carbon tax levels of most countries compared with the uniquely high carbon tax level of Sweden. In terms of policy implications, our findings suggest that carbon taxes consistent with the targets of the 2015 Paris agreement stimulate clean innovation.