Environmental policy, Innovation, Patents, Renewable energy, Technological change, Q55, Q58, O34, O38,
This paper uses U.S. patent data from 1970 to 1994 to study the impact of energy prices on energy-efficient innovations. Theories of technological change have focused both on demand-side factors, which spur innovative activity by increasing the value of new innovations, and supply-side factors, such as scientific advancements that make new innovations possible. Data on demand-side factors are easily obtained, but data on supply-side factors that influence innovation are not readily available. This paper uses patent citations as a measure of the usefulness of the existing base of scientific knowledge. Citations to previous patents are used to construct productivity estimates, which measure the usefulness of the existing stock of knowledge to inventors in a given energy field for any given year. These estimates are then combined with data on demand-side factors to estimate a model of induced innovation in energy technologies. The results indicate that both energy prices and the supply of knowledge have strongly significant positive effects on innovation. The paper concludes with a discussion of the implication of this work for environmental policy.The author would like to thank William Nordhaus, Joel Waldfogel, Robert Evenson, Ariel Pakes, Deitrich Earnhart, Paul Willen and two anonymous referees for helpful comments. Despite their useful suggestions, however, all mistakes are solely the responsibility of the author. In addition, the assistance of Adam Jaffe, who provided the programming code for the patent citation regressions, is gratefully acknowledged. Finally, thanks to Robert Evenson, Jon Putnam, and Samuel Kortum for their help in obtaining patent data. Partial financial support for this paper comes from DOE grant 593A3140217.The process by which new technologies develop is a central question for economic theory, as well as for public policy. Nonetheless, as economists, our understanding of the process is limited. Theories of technological change have focused both on demand-side factors, which spur innovative activity by increasing the value of new innovations, and supply-side factors, such as scientific advancements that make new innovations possible. This paper uses patent data from the United States to study the role of both demand-and supply-side factors in the development of energy-efficient technologies since 1970. I show that it is possible to use patent citation data to construct a measure of the supply-side factors that influence innovation. This measure is helpful in explaining inventive activity, as it tends to control for diminishing returns to research over time.Understanding the factors that influence energy-efficient innovations is important for environmental policy. Many of the environmental problems facing the world today, such as global warming, are long-term problems that technological progress may play a crucial role in ameliorating. However, most climate change models treat technological change as exogenous. The paper begins with a review of the economic literature on the source...
Despite growing empirical evidence of the link between environmental policy and innovation, most economic models of environmental policy treat technology as exogenous. For long-term problems such as climate change, this omission can be significant. In this paper, I modify the DICE model of climate change (Nordhaus 1994, Nordhaus and Boyer 2000) to allow for induced innovation in the energy sector. Ignoring induced technological change overstates the welfare costs of an optimal carbon tax policy by 8.3 percent. However, cost-savings, rather than increased environmental benefits, appear to drive the welfare gains, as the effect of induced innovation on emissions and mean global temperature is small. Sensitivity analysis shows that potential crowding out of other R&D and market failures in the R&D sector are the most important limiting factors to the potential of induced innovation. Differences in these key assumptions explain much of the variation in the findings of other similar models.
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