title: The Environment and Directed Technical Change.
abstract: This paper introduces endogenous and directed technical change in a growth model with environmental constraints. The final good is produced from "dirty" and "clean" inputs. We show that: (i) when inputs are sufficiently substitutable, sustainable growth can be achieved with temporary taxes/subsidies that redirect innovation toward clean inputs; (ii) optimal policy involves both "carbon taxes" and research subsidies, avoiding excessive use of carbon taxes; (iii) delay in intervention is costly, as it later necessitates a longer transition phase with slow growth; and (iv) use of an exhaustible resource in dirty input production helps the switch to clean innovation under laissez-faire. (JEL O33, O44, Q30, Q54, Q56, Q58).
authors.affiliation: Massachusetts Institute of Technology, Department of Economics, 50 Memorial Drive, Cambridge MA 02142-1347 and Canadian Institute for Advanced Research.
authors.forename: Daron
authors.initials: D
authors.lastname: Acemoglu
authors.affiliation: Harvard University, Department of Economics, Littauer Center, 1805 Cambridge Street, Cambridge, MA 02138; Stockholm University (IIES); and Canadian Institute for Advanced Research.
authors.forename: Philippe
authors.initials: P
authors.lastname: Aghion
authors.affiliation: University of California Los Angeles, Anderson School of Management, 110 Westwood Plaza, C-513 Los Angeles, CA 90095-1481.
authors.forename: Leonardo
authors.initials: L
authors.lastname: Bursztyn
authors.affiliation: Harvard University, Department of Economics, Littauer Center, 1805 Cambridge Street, Cambridge, MA 02138.
authors.forename: David
authors.initials: D
authors.lastname: Hemous