This paper examines the impact of government intervention, specifically carbon taxes, on the direction of technological change in the automotive industry. The authors construct a firm-level panel dataset on auto industry innovations, distinguishing between "dirty" (internal combustion engine) and "clean" (electric, hybrid, and hydrogen) patents across 80 countries. They find that higher fuel prices induce firms to redirect their technical change away from dirty innovation and toward clean innovation. Additionally, firms' propensity to innovate in clean technologies is influenced by their past history of clean or dirty innovations, indicating path dependence in technical change. The study also reveals that local knowledge spillovers play a significant role, with firms being more likely to innovate in clean technologies if their inventors are located in countries where other firms have been actively innovating in clean technologies. The paper contributes to the literature on climate change and directed technical change, providing empirical evidence on how carbon prices can influence the direction of innovation in the auto industry.This paper examines the impact of government intervention, specifically carbon taxes, on the direction of technological change in the automotive industry. The authors construct a firm-level panel dataset on auto industry innovations, distinguishing between "dirty" (internal combustion engine) and "clean" (electric, hybrid, and hydrogen) patents across 80 countries. They find that higher fuel prices induce firms to redirect their technical change away from dirty innovation and toward clean innovation. Additionally, firms' propensity to innovate in clean technologies is influenced by their past history of clean or dirty innovations, indicating path dependence in technical change. The study also reveals that local knowledge spillovers play a significant role, with firms being more likely to innovate in clean technologies if their inventors are located in countries where other firms have been actively innovating in clean technologies. The paper contributes to the literature on climate change and directed technical change, providing empirical evidence on how carbon prices can influence the direction of innovation in the auto industry.