Non-Linear effects of diesel taxes on environmental innovation: Room for higher taxes

Abstract

This study investigates the diesel tax's impact on environmental innovation, addressing a gap in the current literature, which has typically considered environmental policies collectively and has overlooked specific analysis of this tax. It examines whether the relationship is linear, U-shaped, or N-shaped and consider its potential variations across contexts and time lags for the diesel tax. The analysis includes a panel of 1160 records from 40 countries (34 OECD and 6 BRIICS) over 29 years (1990–2018). The results indicate that the diesel tax's effect on environmental innovation follows an N-shaped curve (growth, decline, and revitalisation) in many of the analysed contexts: patents related to the energy and transport sectors, patents related solely to the energy sector, patents related solely to the transport sector, OECD countries, countries with low emissions, countries with high innovation capacity, and different time lags. Furthermore, of the 40 countries analysed, 35 are in the same phase across all models: 12 (6 OECD and 6 BRIICS) are in the growth phase; 20 OECD countries are in the decline phase; and 3 OECD countries are in revitalisation phase. These findings suggest that there is still substantial room to increase diesel taxes from the perspective of environmental innovation.