The role of green innovation in shaping future economies
Jul 2025
Enabling world-class research
In the intersection of green innovation, technological progress, and inequality, macroeconomist Hémous identifies pressing challenges that remain unresolved. From the uncertain impact of green industrial policies and the political difficulties of carbon taxation to the uncertain effects of AI on inequality, these issues demand deeper analysis. Hémous explores the complexity of these topics, stressing the need for both theoretical and empirical approaches to guide future policy and foster sustainable innovation.
Pressing challenges to address
- Can green industrial policies accelerate the green transition?
- Why is carbon taxation politically difficult to implement?
- How will AI impact labor market inequality and automation?
As a macroeconomist focusing on growth and innovation, I work primarily on two major research agendas: the role of green innovation in addressing climate change and the links between technological change and inequality. Within these fields, it is difficult to narrow down the challenges to just a few, as there are many important issues to consider. However, I can highlight three particularly pressing challenges that stand out.
The role of green industrial policy in the green transition
One significant challenge revolves around the ongoing “green industrial policy” initiatives in various countries, including China, the U. S. (with the Inflation Reduction Act), and Europe. The core question is whether these policies are truly accelerating the green transition, or if they are merely a pretext for protectionism. Alternatively, while they may benefit the global environment, are they ultimately too costly for the countries that implement them? These are questions that remain unresolved and need further analysis.
The political economy of carbon taxation
A second challenge is the political difficulty surrounding the implementation of carbon taxation, which has long been economists’ favored tool. Despite its potential effectiveness, carbon taxation has proven politically unfeasible in many contexts. Why is this the case? Is it because voters are indifferent to the issue, or because of the distributional outcomes, lobbying efforts, or cultural factors? Understanding which policies might be more easily accepted is crucial in overcoming these political hurdles.
The uncertainty of AI’s impact on inequality
Finally, the rapid development of Artificial Intelligence presents another significant challenge, particularly concerning its impact on inequality. Will AI continue to automate low- and middle-skill jobs, exacerbating inequality as we have seen over the past 50 years? Or could it potentially help reduce inequality? Alternatively, should we consider AI as a fundamentally new form of technological change that could alter the pace of innovation across various sectors? The uncertainty surrounding these potential outcomes makes this challenge particularly complex.
A need for theoretical frameworks and empirical data
These challenges remain unresolved because they are incredibly complex and often new. We lack sufficiently rich theoretical frameworks and enough empirical data to fully address them. For green industrial policy, a successful theoretical framework must integrate elements from modern trade theory, considering dynamic frameworks that account for strategic interactions between countries. Measuring the impact of these policies is also difficult, as they cannot be summarized by a single figure, such as a tax rate. Furthermore, since the implementation of these policies is still ongoing, their benefits may not materialize for many years, making evaluation a particularly challenging task.
The political economy of environmental policy adds another layer of complexity. It requires insights from both political economy and environmental economics, which traditionally has had a more normative focus.
As for AI, the technology is still in its early stages, and although there are various models analyzing its potential impact, adoption remains limited, and there is not enough data to assess its macroeconomic effects accurately. Furthermore, the technology itself is evolving rapidly, which adds to the uncertainty about its economic consequences.
These issues highlight one of the core challenges of economics: the difficulty in predicting the future. While we have a wealth of data about the past, our ability to forecast the future with the same level of certainty is limited. To make progress, we must combine theoretical work, which models potential future scenarios, with empirical work that helps us calibrate these models based on past policies and outcomes.
Curiosity and impact: my research motivation
I am deeply driven by curiosity about how the world works and its underlying mechanisms. One of the central questions that motivates me is understanding why some societies are rich and others poor – a fundamental issue in economics.
Additionally, I aim to tackle large questions where I hope my research can indirectly influence policy. I believe some of our work, particularly on technological change in the context of the environment, has contributed to supporting policies that promote green R & D. Another paper I worked on, addressing the “unraveling mechanism” for carbon taxation, has practical implications for the design of the European Carbon Border Adjustment Mechanism.
The role of the UBS Center in advancing my field
The UBS Center has played a pivotal role in advancing the field of economics at our department. It has been instrumental in transforming our department into one of the leading research centers in Europe. The center has helped attract top scholars to the department, both through the UBS Foundation Professorships and by creating an environment conducive to intellectual collaboration. In this environment, I have found excellent colleagues to work with, including coauthors like David Dorn and Ralph Ossa, and peers with shared interests, such as Florian Scheuer and Joachim Voth. Moreover, the UBS Center has enabled us to recruit talented PhD students and further develop our PhD program, which has been a rewarding experience for me. I believe our program now makes Zurich one of the leading hubs for environmental macroeconomics.
The center’s outreach efforts have also been impressive: Our discussion papers circulate widely, and we often receive feedback from colleagues in other universities. The success of our webinars and the ability to attract prominent speakers, like recent Nobel Laureate Daron Acemoğlu, further exemplify the center’s impact on advancing the field.
The evolution of knowledge in my field since 2012
The field of environmental macroeconomics has expanded dramatically since the founding of the UBS Center in 2012. At that time, climate change was mainly the focus of trained environmental economists, and the concept of “environmental macroeconomics” had not yet emerged. Today, many of the top economists in the world are publishing work on climate change, and top journals regularly feature studies in this area.
Similarly, the study of technological change and inequality has grown significantly, with new models (such as my work with Morten Olsen, and the work of Daron Acemoğlu and Pascual Restrepo) and a rich empirical literature led by scholars like my colleague, David Dorn. This growth in the field underscores the increasing recognition of the importance of understanding how technology, innovation, and inequality intersect.
In the intersection of green innovation, technological progress, and inequality, macroeconomist Hémous identifies pressing challenges that remain unresolved. From the uncertain impact of green industrial policies and the political difficulties of carbon taxation to the uncertain effects of AI on inequality, these issues demand deeper analysis. Hémous explores the complexity of these topics, stressing the need for both theoretical and empirical approaches to guide future policy and foster sustainable innovation.
Pressing challenges to address
- Can green industrial policies accelerate the green transition?
- Why is carbon taxation politically difficult to implement?
- How will AI impact labor market inequality and automation?
As a macroeconomist focusing on growth and innovation, I work primarily on two major research agendas: the role of green innovation in addressing climate change and the links between technological change and inequality. Within these fields, it is difficult to narrow down the challenges to just a few, as there are many important issues to consider. However, I can highlight three particularly pressing challenges that stand out.
The role of green industrial policy in the green transition
One significant challenge revolves around the ongoing “green industrial policy” initiatives in various countries, including China, the U. S. (with the Inflation Reduction Act), and Europe. The core question is whether these policies are truly accelerating the green transition, or if they are merely a pretext for protectionism. Alternatively, while they may benefit the global environment, are they ultimately too costly for the countries that implement them? These are questions that remain unresolved and need further analysis.
David Hémous is the UBS Foundation Associate Professor of Economics of Innovation and Entrepreneurship in the Department of Economics at the University of Zurich.
Quote
Our work on technological change in the environmental context provides support for policies that favor green R & D and carbon taxation mechanisms.
Economic challenges of our time
From rising inequality and global trade tensions to climate change and the impact of artificial intelligence on labor markets – economists today are grappling with fundamental questions that will shape our collective future. In this special edition of the Public Paper series, all affiliated professors of the UBS Center share their perspectives on these challenges. Their contributions highlight how cutting-edge research conducted at the Department of Economics at the University of Zurich can help us better understand – and potentially solve – some of the most urgent issues of our time.
It is precisely this ambition that defines the UBS Center for Economics in Society. Since its founding, the Center has served as a platform for dialogue between academia, business, and policymakers and as a catalyst for excellence in economic research. That vision goes back to Kaspar Villiger. As the founding Chairman of the Foundation Council, he played a pivotal role in establishing and shaping the UBS Center.
With this fifteenth edition of the Public Paper series, we honor Kaspar Villiger’s extraordinary contributions and legacy. By strengthening research capacity at the University of Zurich and fostering public dialogue around key societal questions, his vision continues to inspire the Center’s mission: bridging knowledge and society to build a better future.
From rising inequality and global trade tensions to climate change and the impact of artificial intelligence on labor markets – economists today are grappling with fundamental questions that will shape our collective future. In this special edition of the Public Paper series, all affiliated professors of the UBS Center share their perspectives on these challenges. Their contributions highlight how cutting-edge research conducted at the Department of Economics at the University of Zurich can help us better understand – and potentially solve – some of the most urgent issues of our time.
It is precisely this ambition that defines the UBS Center for Economics in Society. Since its founding, the Center has served as a platform for dialogue between academia, business, and policymakers and as a catalyst for excellence in economic research. That vision goes back to Kaspar Villiger. As the founding Chairman of the Foundation Council, he played a pivotal role in establishing and shaping the UBS Center.
David Hémous on Google Scholarbrowse
Green innovation policies
Author
UBS Foundation Associate Professor of Economics of Innovation and Entrepreneurship
David Hémous received his PhD from Harvard University in 2012. He is a macroeconomist working on economic growth, climate change and inequality. His work highlights that innovation responds to economic incentives and that public policies should be designed taking this dependence into account. In particular, he has shown in the context of climate change policy that innovations in the car industry respond to gas prices and that global and regional climate policies should support clean innovation to efficiently reduce CO2 emissions. His work on technological change and income distribution shows that higher labor costs lead to more automation, and that the recent increase in labor income inequality and in the capital share can be explained by a secular increase in automation. He has also shown that innovation affects top income shares. He was awarded an ERC Starting Grant on 'Automation and Income Distribution – a Quantitative Assessment' and he received the 2022 'European Award for Researchers in Environmental Economics under the Age of Forty'.
UBS Foundation Associate Professor of Economics of Innovation and Entrepreneurship
David Hémous received his PhD from Harvard University in 2012. He is a macroeconomist working on economic growth, climate change and inequality. His work highlights that innovation responds to economic incentives and that public policies should be designed taking this dependence into account. In particular, he has shown in the context of climate change policy that innovations in the car industry respond to gas prices and that global and regional climate policies should support clean innovation to efficiently reduce CO2 emissions. His work on technological change and income distribution shows that higher labor costs lead to more automation, and that the recent increase in labor income inequality and in the capital share can be explained by a secular increase in automation. He has also shown that innovation affects top income shares. He was awarded an ERC Starting Grant on 'Automation and Income Distribution – a Quantitative Assessment' and he received the 2022 'European Award for Researchers in Environmental Economics under the Age of Forty'.