Essays on technological change and environmental policy

In this thesis, we provide three essays that explore technological change and environmental policy based on the directed technical change model. We integrate theoretical and empirical analyses to examine how fossil energy cost, cross-industry technology spillovers and environmental policy shape innovation dynamics in clean and dirty technologies. The first chapter provides a detailed review of the directed technical change model, emphasizing its application to environmental economics. It highlights the importance of technology spillovers in influencing innovation dynamics, thus setting the theoretical foundation for the subsequent analyses. The second chapter develops a model of directed technical change that incorporates endogenous energy use, exogenous energy costs, and cross-industry spillovers. The model identifies conditions under which clean technologies can overcome the dominance of dirty technologies, offering insights into the role of substitutability and exogenous fossil energy costs in driving this transition. The third chapter investigates the factors that influence the distribution of innovations between clean and dirty energy technologies in 16 European countries. Our findings indicate that rising energy prices and research subsidies for clean technologies significantly support the development of clean energy innovation in European countries. Some of our findings suggest that tax policy contributes to dirty energy innovation. Given the challenges of transitioning directly to clean technologies, firms in fossil-based industries likely focus on downstream innovations to offset costs from environmental policies like energy taxes.