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  Foreword

  Innovation is of key importance for climate change mitigation because it has the potential to lower the cost of achieving policy objectives. Whether this potential materialises will depend much on public policy. On the one hand, the economic costs of mitigation are likely to be very high, but will be critically influenced by the rate of innovation. In addition, the long-run nature of the climate challenge means that there is great variation in possible trajectories resulting from alternative innovation pathways. Public policy has a key role to play in both the rate and direction of innovation.

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  Acronyms
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  Executive summary

  Technological innovation can lower the cost of achieving environmental objectives, so it is important to understand how environmental policy and technological innovation are linked. This is particularly true in the area of climate change where the economic costs of reducing greenhouse gas emissions are affected greatly by the rate of innovation. While we suspect that public policy can play an important role in accelerating the development and diffusion of climate change mitigation technologies (CCMTs), empirical evidence in this area remains scant.

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  Recent trends in innovation in climate change mitigation technologies

  In this chapter we present data on trends in innovation in climate mitigation technologies. The data have been generated using newly developed search strategies to extract data from a worldwide database of patent documents (PATSTAT). In comparison with previous reports, this chapter draws upon the more detailed European Classification System (ECLA) and, most significantly, draws upon the expertise of patent examiners at the European Patent Office (EPO) in the development of search strategies. We present data on invention, technology transfer and research co-operation for a broad cross-section of countries over the last three decades. We also review some of the relevant empirical evidence on the determinants of innovation in these fields.

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  The determinants of innovation in electricity generation technologies: A patent data analysis

  In this chapter we analyse the determinants of innovation in the electricity generation sector. We present data on the evolution of different types of technologies – renewables, fossil fuel based and nuclear – by considering patent data for 11 OECD countries over the period 1978-2008. We pay particular attention to the role that fossil fuel prices play in inducing innovation in electricity generation. The results show that the effect of the fossil fuel price varies according to the different types of technologies. While the effect on fossil fuel technologies is negative, it is positive on renewables, which suggests that there may be a possible substitution effect. The point at which the substitution effect outweighs the efficiency effect is somewhat less than the peak oil price of the most recent oil price shock.

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  Technological change, fuel efficiency and carbon intensity in electricity generation: A cross-country empirical study

  In this chapter we present the results of an empirical analysis of the determinants of energy efficiency in fossil fuel electricity generation across 28 OECD economies over the period 1981-2006. We pay particular attention to the role played by technological development. Results show that the input mix, capacity utilization and new investment in capacity play a significant role in increasing energy efficiency. Increasing the knowledge stock is also associated with higher efficiency levels, with the effect varying significantly depending upon assumptions concerning the extent of international knowledge spillovers. Given the link between increased efficiency and lower CO2 emissions, we conclude that technological change has a negative effect on carbon intensity, while changing the input mix affects CO2 intensity both through an increase in efficiency as well as by lowering the input-weighted emission factor.

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  Increasing the penetration of intermittent renewable energy: Innovation in energy storage and grid management

  Intermittent renewable energy sources (wind, solar, ocean) present significant challenges to electricity grid management. In this chapter we present empirical results on the factors which encourage innovation and investment in energy storage and grid management technologies in order to increase grid flexibility. We argue that focussing policy incentives on innovation in these areas may obviate some of the problems associated with targeting R et D at specific generating technologies. Drawing upon a rich worldwide database of patent applications, with a dataset on 28 countries over three decades, we present preliminary analysis of the effects of different economic and structural factors on innovation in energy storage and grid management.

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  International technology agreements for climate change: Analysis based on co-invention data

  This chapter examines the effect of multilateral energy technology initiatives, so called "Implementing Agreements", on international research collaboration in seven important climate change mitigation technologies. The analysis is conducted using patent data on 33 OECD countries during the period 1970-2009. We find that co-invention is significantly affected by the membership in the Implementing Agreement. Joining an agreement would increase co-invention by between 150% and 200% in the case of the agreements which relate to carbon capture and storage and solar photovoltaics, and approximately 100% for biofuels, fuel cells, and wind power. Given the urgency to develop effective international mechanisms to mitigate climate change, these results are encouraging and the topic is an important area for further policy research.

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  Energy and climate policy: Conclusions and further policy research

  In this chapter we present suggested areas for further policy research. Additional work on the identification of the innovation impacts of alternative policies is clearly required. This will necessarily involve modeling the links between policy regimes, knowledge stocks, capital investment and specific environmental outcomes (e.g., emissions) in a comprehensive manner. The development of commensurable indicators of policy regimes across a variety of emitting sources is perhaps the greatest challenge. An important additional challenge for the policy research community relates to the provision of solid empirical evidence which helps countries provide targeted support for "green" innovation without running the risk of locking economies into relatively costly mitigation paths. Technology-neutrality is not always an option, but there is little guidance from the empirical literature on how to target support efficiently. In addition, almost all of the existing work focuses on the effects of policies on technologies that are relatively close-to-market and clearly identifiable as "environmental". Little work has been done on the role of policy on the invention and adoption of breakthrough technologies and more generic technologies with positive (and potentially even more significant) environmental consequences. A final important avenue for policy research involves the assessment of the value of international research collaboration and technology agreements.

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