Conference Agenda

Are technology improvements contractionary? We reexamine this central question vis-a-vis the case of natural resource abundance. A simple, two-sector model of economic growth indicates that capital-augmenting technological improvements are contemporaneously contractionary in resource rich economies, and are non-contractionary (or even expansionary) elsewhere, due to differences in the elasticity of substitution between capital and labor. In addition, such improvements yield steeper expansionary patterns in resource rich economies in the longer run. We test the model’s predictions using a long panel of U.S. states and counties. Our identification strategy rests on geographically-entrenched differences in resource endowments, and the adoption of national-level, plausibly exogenous technology shocks. Our findings corroborate the predictions of the model. Namely, TFP shocks induce a, statistically and economically meaningful, divergent contemporaneous impact, across the natural resources dimension. The results shed light on the ongoing debate over the short-term effects of technological improvements.

Ambitious climate goals require large-scale carbon dioxide removal (CDR) from the atmosphere. Removed carbon dioxide (CO2) is stored in non-atmospheric reservoirs such as forests, the ocean, or in geological reservoirs. While the former are readily available but can only provide temporary storage - a fraction of the CO2 leaks back into the atmosphere - the latter can safely store carbon, albeit at a higher cost. The question arises as to the value of temporary storage in an optimal mitigation scenario in a dynamic profile. While this question has been addressed quantitatively by complex integrated assessment models, a qualitative and more general discussion is still lacking. Accordingly, we use a dynamic optimization approach with two carbon stocks: 1) the atmospheric carbon stock and 2) the carbon sink, to analyze the effect of a temporary CDR with a renewable atmosphere in the presence of a backstop technology. We find that the steady state emission levels are equal to the decayed emissions from the atmospheric carbon storage, while the removal levels are equal to the leaked emissions from the sink under both the renewable and partially renewable atmosphere. This implies that the decision to use CDR requires a long-term commitment with no backing down in the future. We show that removal levels during the transition are higher when we have high marginal abatement costs, and thus CDR will play an important role when it comes to hard-to-abate emissions.

We study the heterogeneous pass-through of carbon pricing on investment across firms. Us- ing balance sheet data of 1.2 million European firms and identified carbon policy shocks, we find that higher carbon prices reduce investment, on average. However, less carbon-intensive firms and sectors reduce their investment relatively more compared to otherwise similar firms after a carbon price tightening shock. Following carbon price tightening, firms in demand-sensitive industries see a relative decrease not only in investment but also in sales, employment and cashflow. Moreover, we find no evidence that higher carbon prices incentivise carbon-intensive firms to produce less emission-intensively. Overall, our results are consistent with theories of the growth-hampering features of carbon price increases and suggest that carbon pricing policy operates as a demand shock.

Do the macroeconomic effect of a carbon tax differ between countries, according to the primary energy source? I answer this question with a theoretical model of directed technical change and test empirically the main results. I find four main results: (i) In the absence of subsidies, carbon taxes have a negative effect on economic growth, (ii) this negative effect is a decreasing function of the proportion of clean energy sources. (iii) subsidies for clean inputs have a positive effect on economic growth, and (iv) the magnitude of this effect grows with the proportion of clean energy sources. The empirical results are consistent with the predictions of the theoretical model and suggest that policymakers could consider this relationship between the energy mix and the economic effect of a carbon tax when creating environmental regulations.