The European Union has implemented demand push and technology pull policies to foster innovation on the energy and resource
efficiency of capital goods. The state of the art of general equilibrium modelling applied to environmental policy rarely
treats product and process innovation separately and product quality is, in the best case, exogenous. We develop a dynamic
multi-sector CGE model that distinguishes between R&D-based process innovation for all firms, endogenous product innovation
in the capital goods sector and adoption decisions with respect to the installation of new capital vintages in the rest of
the economy. Our results support the previous literature in finding that aggregate innovation declines following an energy
tax but whereas process innovation is reduced, product innovation actually rises. We find that demand pull policies are less
effective than product-related R&D subsidies to reduce aggregate energy intensity.
Forschungsbereich:Klima-, Umwelt- und Ressourcenökonomie