Kerstin Hötte

The time window for effective climate change mitigation is closing. Technological change needs to beaccelerated to limit global warming to a manageable level. Path dependence of technological change isone explanation for sluggish diffusion of green technologies. Firms acquire capital that differs by tech-nology type and build up type-specific technological know-how needed to use capital efficiently. Pathdependence emerges from cumulative knowledge stocks manifested in the productivity of supplied cap-ital and firms’ capabilities. Increasing returns arise from induced innovation feedbacks and learning bydoing. Relatively lower endowments with technological knowledge are a barrier to diffusion for newtechnologies. This paper shows how the evolution of relative stocks of technological knowledge explainsdifferent shapes of diffusion curves. Using an eco-technology extension of the macroeconomic agent-based model Eurace@unibi, it is shown how the effectiveness of different climate policies depends onthe type and strength of diffusion barriers. Environmental taxes can outweigh lower productivity andsubsidies perform better if lacking capabilities hinder firms to adopt a sufficiently mature technology.