This paper introduces endogenous and directed technical change in a growth model with environmental constraints. The final good is produced from "dirty" and "clean" inputs. The key findings are: 1. **Sustainable Growth with Temporary Taxes/Subsidies**: When inputs are sufficiently substitutable, sustainable growth can be achieved through temporary taxes or subsidies that redirect innovation towards clean inputs. 2. **Optimal Policy**: The optimal policy involves both "carbon taxes" and research subsidies, avoiding excessive use of carbon taxes. 3. **Delay in Intervention**: Delaying intervention is costly, as it necessitates a longer transition phase with slow growth. 4. **Exhaustible Resources**: Using an exhaustible resource in dirty input production helps the switch to clean innovation under laissez-faire. The model highlights the roles of market size and price effects on the direction of technical change. The laissez-faire equilibrium often leads to an environmental disaster, but simple policy interventions can prevent this. The optimal policy should use both carbon taxes and research subsidies, and delay in implementing these policies can have significant costs. The analysis also shows that when inputs are strong substitutes, a temporary subsidy to clean research can prevent an environmental disaster without sacrificing long-run growth. However, when inputs are weak substitutes, a temporary subsidy is insufficient to avoid a disaster, and permanent regulation may be necessary.This paper introduces endogenous and directed technical change in a growth model with environmental constraints. The final good is produced from "dirty" and "clean" inputs. The key findings are: 1. **Sustainable Growth with Temporary Taxes/Subsidies**: When inputs are sufficiently substitutable, sustainable growth can be achieved through temporary taxes or subsidies that redirect innovation towards clean inputs. 2. **Optimal Policy**: The optimal policy involves both "carbon taxes" and research subsidies, avoiding excessive use of carbon taxes. 3. **Delay in Intervention**: Delaying intervention is costly, as it necessitates a longer transition phase with slow growth. 4. **Exhaustible Resources**: Using an exhaustible resource in dirty input production helps the switch to clean innovation under laissez-faire. The model highlights the roles of market size and price effects on the direction of technical change. The laissez-faire equilibrium often leads to an environmental disaster, but simple policy interventions can prevent this. The optimal policy should use both carbon taxes and research subsidies, and delay in implementing these policies can have significant costs. The analysis also shows that when inputs are strong substitutes, a temporary subsidy to clean research can prevent an environmental disaster without sacrificing long-run growth. However, when inputs are weak substitutes, a temporary subsidy is insufficient to avoid a disaster, and permanent regulation may be necessary.