Energy and Climate Policy

Bending the Technological Trajectory

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Technological innovation can lower the cost of achieving environmental objectives, so it is important to understand how environmental policy design and technological innovation are linked. This is particularly true in the area of climate change where the estimated future costs of reducing greenhouse gas emissions are affected greatly by the technological trajectory of the economy. While we suspect that public policy can play an important role in accelerating the development and diffusion of climate change mitigation and adaptation technologies, empirical evidence in this area remains scant. This book presents a series of papers that explore the extent to which technological innovation can lower the cost of achieving climate change mitigation objectives.

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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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