Knowledge Spillovers from Clean Innovation. A Tradeoff between Growth and Climate?

Abstract

Abstract Allocating scarce public funds to clean R&D might mean forfeiting higher economic gains from supporting other sectors, creating a tradeoff between economic and environmental goals. Our analysis of knowledge spillovers – the primary pathway for growth via innovation policy – suggests no such tradeoff: subsidy return rates are higher in Clean than in most other fields. But designing clean innovation policy based on national interests alone is inefficient, with EU-wide coordination boosting EU returns by 25% and global coordination raising worldwide returns by over 60%. Our analysis of cross-border knowledge spillovers suggests the EU could significantly benefit from US clean-focused policies like the Inflation Reduction Act.