Can Directed Innovation Mitigate Climate Damage? Evidence from US Agriculture

Abstract

This paper studies how innovation reacts to climate change and shapes its economic impacts, focusing on US agriculture. We show in a model that directed innovation can either mitigate or exacerbate climate change's economic damage depending on whether new technology is on average a substitute for or complement to favorable climatic conditions. To empirically investigate the technological response to climate change, we combine data on the geography of agricultural production, shifting temperature distributions, and crop-specific temperature tolerance to estimate crop-specific exposure to damaging extreme temperatures; we then use a database of crop-specific biotechnology releases and patent grants to measure technology development. We first find that innovation has re-directed toward crops with increasing extreme-temperature exposure and show that this effect is driven by types of agricultural technology most related to environmental adaptation. We next find that US counties' exposure to climate-induced innovation significantly dampens the local economic damage from extreme temperatures, and estimate that directed innovation has offset 20% of the agricultural sector's climate damage since 1960 and could offset 15% of projected damage in 2100. These findings highlight the vital importance, but incomplete effectiveness, of endogenous technological change as a systemic adaptive response to climate change.