Innovation, growth, and environmental challenges: schumpeterian insights into climate change and green technologies

Abstract

I examine how innovation-driven economic growth can be reconciled with urgent environmental challenges through the lens of Schumpeterian economics. I explore the dynamics of creative destruction—the process by which new firms and technologies relentlessly replace old ones—as the engine of growth and consider its implications for decarbonizing the economy.1 Turning to climate change, we confront the debate over “degrowth” and argue that halting growth is neither a necessary nor an effective solution to environmental crises. Instead, we advocate directed green innovation—deliberately steering technological change toward low-carbon solutions—as the sustainable path forward. I review evidence of path dependence in technology and show how smart policies can redirect inventive effort. I conclude that achieving the green transition requires multiple policy instruments: pricing carbon to internalize environmental costs and green industrial policies (e.g., R&D subsidies, clean technology support) to overcome innovation market failures.