Does foreign environmental policy influence domestic innovation? Evidence from the wind industry

This paper examines the relative influence of domestic and foreign renewable energy policies on innovation activity in wind power using patent data from OECD countries from 1994 to 2005. We distinguish between the impact of demand-pull policies (e.g., guaranteed tariffs, investment and production tax credits), as reflected by wind power capacities installed annually, and technology-push policies (government support to R&D). We show that inventors respond to both domestic and foreign new capacities by increasing their innovation effort. However, the effect on innovation of the marginal wind turbine installed at home is 28 times stronger than that of the foreign marginal wind turbine. Unlike demand-pull policies, public R&D expenditures only affect domestic inventors. A simple calculation suggests that the marginal million dollars spent on R&D support generates 0.82 new inventions, whereas the same amount spent on the deployment of wind turbines induces, at best, 0.06 new inventions (0.03 locally and 0.03 abroad)

Carbon taxes, path dependency and directed technical change: evidence from the auto industry

Can directed technical change be used to combat climate change? We construct new firm-level panel data on auto industry innovation distinguishing between “dirty” (internal combustion engine) and “clean” (e.g. electric and hybrid) patents across 80 countries over several decades. We show that firms tend to innovate relatively more in clean technologies when they face higher tax-inclusive fuel prices. Furthermore, there is path dependence in the type of innovation both from aggregate spillovers and from the firm's own innovation history. Using our model we simulate the increases in carbon taxes needed to allow clean to overtake dirty technologies

Environmental policy and directed technological change: evidence from the European carbon market

This paper investigates the impact of the European Union Emissions Trading System (EU ETS) on technological change, exploiting installations-level inclusion criteria to estimate the System's causal impact on firms' patenting. We find that the EU ETS has increased low-carbon innovation among regulated firms by as much as 10%, while not crowding out patenting for other technologies. We also find evidence that the EU ETS has not impacted patenting beyond the set of regulated companies. These results imply that the EU ETS accounts for nearly a 1% increase in European low-carbon patenting compared to a counterfactual scenario

Asymmetric industrial energy prices and international trade

This paper measures the response of bilateral trade flows to differences in industrial energy prices across countries. Using a panel for the period 1996-2011 including 42 countries, 62 sectors and covering 60% of global merchandise trade, we estimate the short-run effects of sector-level energy price asymmetry on trade. We find that changes in relative energy prices have a statistically significant but very small impact on imports. On average, a 10% increase in the energy price difference between two country-sectors increases imports by 0.2%. The impact is larger for energy-intensive sectors. Even in these sectors however, the magnitude of the effect is such that changes in energy price differences across time explain less than 0.01% of the variation in trade flows. Simulations based on our model predict that a †40-65/tCO2 price of carbon in the EU ETS would increase Europe’s imports from the rest of the world by less than 0.05% and decrease exports by 0.2%

What role for climate negotiations on technology transfer?

Little progress has been made in climate negotiations on technology since 1992. Yet, the diffusion of climate change mitigation technologies to developing countries (non-Annex I) has increased dramatically over the last twenty years. The shift has mostly concerned emerging economies, which are now reasonably well connected to international technology flows. This is good news, as the bulk of emissions increases are expected to take place in these countries in the near future. In contrast, least developed countries still appear to be excluded from international technology flows, mostly because of their negligible participation in the recent economic globalization. The paper derives policy implications on the contribution of climate negotiations to international technology diffusion. Policy relevance statement. The discrepancy between the little progress made in climate negotiations on technology since 1992 and the steadily increase in the international diffusion of climate mitigation technologies leads to the perhaps controversial view that the diffusion of climate mitigation technologies does not need strong international coordination over technology issues under the UNFCCC. However, climate negotiations can play a key role to spur the demand for low carbon technologies by setting ambitious emission reductions targets and policies

Knowledge spillovers from clean and dirty technologies

How much should governments subsidize the development of new clean technologies? We use patent citation data to investigate the relative intensity of knowledge spillovers in clean and dirty technologies in two technological fields: energy production and transportation. We introduce a new methodology that takes into account the whole history of patent citations to capture the indirect knowledge spillovers generated by patents. We find that conditional on a wide range of potential confounding factors clean patents receive on average 43% more citations than dirty patents. Knowledge spillovers from clean technologies are comparable in scale to those observed in the IT sector. The radical novelty of clean technologies relative to more incremental dirty inventions seems to account for their superiority. Our results can support public support for clean R&D. They also suggest that green policies might be able to boost economic growth through induced knowledge spillovers

What drives the international transfer of climate change mitigation technologies?: empirical evidence from patent data

Technology transfer plays a key role in global efforts to reduce greenhouse gas emissions. In this paper, we characterize the factors that promote or hinder the international diffusion of climate-friendly technologies using detailed patent data from 96 countries for the period 1995-2007. The data provide strong evidence that lax Intellectual Property regimes have a strong and negative impact on the international diffusion of patented knowledge. Restrictions on international trade and foreign direct investment also hinder the diffusion of climate-friendly technologies. Surprisingly, local technological capabilities tend to discourage transfers. While broad indicators of technology capabilities are expected to facilitate transfers, this latter result stems from our technology-specific definition of local capabilities, which makes it possible to capture a substitution effect between local and foreign inventions

Policing carbon markets

Carbon markets have emerged in recent decades as one of the most important tools for curbing industrial greenhouse gas emissions, but they present a number of novel enforcement challenges as compared to more conventional pollution regulations—new regulators with narrow authority, lack of legal precedent, and more. To shed light on the practical issues involved in policing carbon markets, we present the first comprehensive analysis of the EU Emissions Trading System, a single program that was policed by 31 different national regulators. We find generally high rates of compliance coupled with low rates of enforcement, a pattern that is known in the literature as ‘Harrington’s paradox.’ Variation in the probability and severity of fines explain just one tenth of the variation in compliance rates. Meanwhile, other enforcement strategies that have been pointed to as resolutions to Harrington’s paradox in other applications, such as ‘naming and shaming,’ appear to have had little discernible effect

Fiscal and regulatory instruments for clean technology development in the European Union

Headline issue: The cost of existing environment-friendly technologies, such as wind turbines and SO2 scrubbers, needs to be brought down so that they can be deployed on a large scale, while fundamental research needs to advance on the frontiers of technologies such as smart grids or energy storage. Yet, despite these pressing challenges, European companies in the electricity production sector – the largest greenhouse gas emissions emitter in Europe, with 33% of European emissions in 2012 – spend less than 1% of their turnover on innovation, against 10-15% in IT or pharmaceuticals, suggesting that the incentives to conduct Research, Development and Demonstration (RD&D) of new or enhanced low carbon technologies and their associated systems and processes might not be in place. The objective of this policy note is to investigate whether the current level of public support to environment-friendly technologies is sufficient to allow European countries to respond to the multiple challenges posed by climate change and other environmental concerns and to discuss the policy interventions that might be needed in order to drive forward clean energy technology investments in Europe. Key findings: European countries currently emphasize technology deployment over direct Research and Development (R&D) support. Current efforts on deployment should be augmented with additional R&D support. Given that there is no evidence that we have hit diminishing returns to energy R&D funding, we recommend an increase of public R&D funding for low carbon technologies. The IEA estimates that public R&D spending needs to at least double to achieve significant carbon emissions reductions. Increased funding should be gradual and consistent to avoid adjustment costs. A doubling of public R&D expenditures over 10 years corresponds to what was observed between 2001 and 2011 and thus seems achievable. To signal long-term commitments to energy R&D funding, we recommend directing 10% of the planned EU-ETS auctioned allowances revenues until 2025 to R&D funding. This would lead to the doubling of EU public R&D expenditures in 10 years suggested above. Public R&D efforts should focus on technologies central to any decarbonisation pathway and have a strong public good component, such as CCS, energy storage, smart grids, energy efficiency and infrastructure for electric vehicles. Because emissions standards and permits markets favour innovation in technologies that are closest to the market, public R&D efforts should in contrast support the development of technologies further from market that nonetheless have long term potential