New study: green innovation can boost economies and curb emissions

Innovation in green technologies is key to reaching a net zero world, but that requires businesses to shift from non-green to green investments – and such a switch, traditionally, is thought to come at a cost to profits and economic growth in the short to medium term. However, a new working paper shows that investing in green technologies, measured by green patent filings (those that are low-carbon oriented), has a positive impact on economic activity, especially in the medium term, that is not statistically distinguishable from investment in non-green innovation.

The paper co-authored by Kamiar Mohaddes, Associate Professor in Economics and Policy at Cambridge Judge Business School and researchers at the International Monetary Fund, focuses on patent filings over the years 1990-2019 for a sample of countries from the Organisation for Economic Cooperation and Development and some other large countries. It finds that the positive impact of green patents on gross domestic product (GDP) appears to be driven primarily by a boost in investment, with muted impact on productivity initially.

“The negligible initial response of productivity to green innovation, a relatively new technological development, is consistent with the experience seen for past technological breakthroughs, notably the advent of ICTs (information and communication technologies),” say the paper’s authors.

The new paper mirrors findings of previous research by Kamiar on green patents, which found that, contrary to some conventional wisdom, the innovation and investment behind green patent filings leads to both better environmental and societal outcomes. The new paper’s findings suggest “that green innovation can help alleviate potential short-term economic costs from implementing climate change mitigation policies. We also find that the pro-growth effect of green innovation materialises via higher investment initially, however, it will take time for productivity benefits to accrue.”

New technologies are essential for meeting net zero targets by 2050

The new research with the IMF emphasises the importance of new technologies to meet global targets of carbon dioxide emissions, adding that major innovation efforts must occur this decade in order to bring new technologies to market in time to meet net zero targets by 2050. “A key question facing policymakers is whether policies designed to nudge firms into investing in low-carbon (green) technologies will boost economic performance or hamper it,” says the paper. “The long-term benefits of green innovation for economic activity, as a result of a reduction in damages from climate change, are well understood. However, what is also critical for the public debate is whether the green transition entails short-to-medium term economic benefits.”