Understanding heterogeneous green transitions: An evolutionary approach to policy, innovation, and technological change

Economies facing similar environmental challenges and broadly comparable policy interventions can nevertheless follow very different green-transition paths: some quickly adopt clean technologies, while others remain locked into carbon-intensive production. To account for this puzzle, we develop an evolutionary model in which market selection between clean and dirty technologies coevolves with environmental policy. A welfare-maximizing regulator taxes emissions and allocates the revenues between current pollution abatement and investments that progressively improve the environmental performance of clean production. This links short-run environmental policy with long-run technological change. We characterize the possible long-run technological regimes and study their evolutionary stability. We find that the same policy stance can support multiple stable long-run outcomes: economies facing identical policies may converge to different regimes depending on their initial technological composition, providing a theoretical basis for understanding the observed heterogeneity across countries. We show that policy can promote innovation even when only dirty producers are active, thereby paving the way for a green transition. We also show that even a predominantly green economy may remain vulnerable to the re-entry of dirty technologies. Finally, we analyze the ability of a regulator to dynamically adapt the policy mix, in order to redirect the transition path toward a predetermined long-run environmental target. Although adaptive policies can mitigate lock-in and path dependence, they cannot completely eliminate them. Finally, simulations show that more stringent environmental targets may even lead to outcomes opposite to those intended because of scale effects.