This dissertation consists of three chapters on the economics of climate change, innovation, and market structure. A central theme is that standard climate-economy models miss important channels through which the economy responds to environmental shocks. Each chapter uncovers a distinct force—mitigation, amplification, or misallocation—that sharpens our understanding of climate damages and policies. The first chapter, Extreme Heat and Directed Innovation, focuses on the role of endogenous innovation as a mitigating force of climate shocks. Using ORBIS firm data, European patent records, and high-resolution weather data across nine EU countries, I establish that extreme heat operates as a labor-biased productivity shock and that firms respond by shifting both production techniques and patenting toward automation. Firms with recent labor-saving patents are not merely insulated from heat but realize net productivity gains under extreme temperatures. A counterfactual quantification indicates that directed innovation offset approximately 26 percent of aggregate heat-related productivity losses over 2000–2020. These findings provide the first systematic evidence that adaptation through directed innovation extends beyond agriculture, establishing endogenous technical change as a mitigating force against climate damages. In the second chapter, Climate Change and Market Power, my coauthors and I establish market power as an amplifying force of climate shocks. We document that extreme heat disproportionately harms small firms, reallocating market share toward large, high-markup incumbents. We develop a heterogeneous firm model with variable elasticity of substitution (VES) demand that allows markups to respond endogenously to this reallocation. The welfare loss operates through two channels: direct productivity reduction and markup increases from market share reallocation. The constant elasticity of substitution (CES) framework commonly used in the literature captures only the former and underestimates the welfare cost of observed temperature changes by as much as 42 percent. Our findings highlight the importance of incorporating firm-level heterogeneity and market power into climate impact assessment. The third chapter, Misallocation of Climate Innovation: Adaptation vs. Mitigation, examines the optimality of the direction of climate innovation and asks whether the world invests too little in adaptation technology relative to mitigation, given that near-term warming of at least 1.5 degrees Celsius is already locked in. Using 374,558 climate patents from OECD REGPAT over 1976–2022, I document that adaptation accounts for only 8.5 percent of climate-related patents globally, a share that has declined over four decades even as climate damages have accelerated. I develop a theoretical framework in which an appropriability gap—the returns to adaptation are local and context-specific and therefore harder for inventors to capture, while mitigation generates globally deployable rents—produces systematic underinvestment. Within-applicant patent-level tests support the mechanism: the same firm's non-health adaptation patents are 7.1 percentage points less likely to receive triadic protection, with the gap largest for spatially local subcategories and absent for globally deployable health technologies. The model delivers a simple sufficient statistic for the misallocation wedge, combining the appropriability gap with the curvature of relative returns. Under plausible calibrations, the optimal adaptation share lies in the 11–30 percent range, larger than the observed level. The climate innovation portfolio is misallocated, and corrective policy must target the composition of climate R&D, not merely its level.