Facilitating induced green innovation in Finland: An evaluation of the effectiveness of carbon pricing and subsidies.

Abstract

This thesis addresses climate change by discussing how policy interventions can foster green innovation in Finland. Moreover, this literature review will discuss the effectiveness of carbon pricing and subsidies to incentivize innovation. The findings suggest that the key in environmental policy is the dual externality structure of the market, with a negative externality from carbon emissions and a positive externality from innovation. Furthermore, the optimal policy portfolio to incentivize green innovation includes both carbon pricing and R&D subsidies, because the two externalities need to be addressed separately. More specifically, with R&D subsidies are dominant in the short-term and carbon pricing in the long-term. First, I will delve into the policies and their effectiveness on a global scale, after which the focus will be narrowed down to Finland.