Working Paper: CEPR ID: DP8919
Authors: Carlo Carraro; Enrica De Cian; Massimo Tavoni
Abstract: This paper looks at the interplay between human capital and innovation in the presence of climate and educational policies. Using recent empirical estimates, human capital and general purpose R&D are introduced in an integrated assessment model that has been extensively applied to study the climate change mitigation. Our results suggest that climate policy stimulates general purpose as well as clean energy R&D but reduces the incentive to invest in human capital formation. Human capital increases the productivity of labour and the complementarity between labour and energy drives its pollution-using effect (direct effect). When human capital is an essential input in the production of generic and energy dedicated knowledge, the crowding out induced by climate policy is mitigated, thought not completely offset (indirect effect). The pollution-using implications of the direct effect prevail over the indirect contribution of human capital to the creation of new and cleaner knowledge. A policy mix that combines educational as well as climate objectives offsets the human capital crowding-out with a moderate, short-term consumption loss. Human capital is complement to all forms of innovation and an educational policy stimulates both energy and general purpose innovation. This result has important policy implications considering the growing concern that effective climate policy is conditional on solid economic development and therefore it needs to be supplemented by other policy targets.
Keywords: climate policy; human capital; innovation; sustainable development
JEL Codes: O33; O41; Q43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| climate policy (Q58) | investments in energy R&D (Q40) |
| climate policy (Q58) | general-purpose innovation (O35) |
| climate policy (Q58) | education expenditure (H52) |
| education expenditure (H52) | human capital formation (J24) |
| human capital (J24) | innovation activity (O35) |
| education contributes to technology absorption (I25) | crowding out of education expenditure (H52) |
| policy mix (educational + climate objectives) (H52) | crowding out of human capital investments (D29) |
| human capital (J24) | cleaner knowledge creation (O36) |