Technology and innovation

Innovation is a key driver of productivity and economic growth. It can help achieve environmental objectives at lower costs, and lead to new business opportunities and markets. It is widely acknowledged that far-reaching innovation will be needed to address climate change and other environmental challenges, and to accelerate the transition to green growth.

The main challenge is to influence the direction of innovation towards more environmentally benign ends. Further, this should be done in a manner that generates the greatest net benefit to society. Policy instruments that encourage innovation include protection of intellectual property, support to basic research and development (R&D), creation of innovation clusters or investment in skilled workforce. These instruments must be complemented with measures that help direct innovation towards more environmentally effective and cost-efficient solutions. One example would be tracing a predictable path for pricing emissions or by tightening emission limits. Another challenge is to mitigate the risk of additional environmental pressures generated by new technology and products. Often the consequences for human and ecosystem health of new materials may not be known.

Public policies may change the opportunity costs of production and consumption. If that happens, they have the potential to induce innovative responses by firms and consumers. Some responses could be to adopt environmentally friendly alternatives, develop new technological solutions or shift towards new management methods. Some policy instruments aim closest to the negative externality (e.g. taxing polluting emissions rather than input use) and provide incentives across a wide spectrum of firms and consumers. These will likely yield innovation at lower cost to society (Johnstone and Haščič, 2013; Haščič and Migotto, 2015).

Additional measures might also be needed. These would help leverage the necessary financing for demonstration projects and market commercialisation. They could also facilitate investment in the supporting infrastructure to speed-up technology diffusion among consumers (e.g. charging stations for e-vehicles). Importantly, outcomes of R&D investment are intrinsically serendipitous. They may take a long time to translate into higher productivity and standards of living (see chapter on Environmentally adjusted multifactor productivity).

Main trends and recent developments

R&D budgets are rising, but the share devoted to the environment remains stagnant

Total R&D (public and private) has increased in most OECD countries. This is especially the case in Estonia, where its share on GDP has more than doubled since 2000. Korea and Turkey follow closely (Figure 12.1f). Government budgets for R&D (GBAORD) have also increased in many countries since 2000. However, the amount dedicated to environmental and energy objectives has remained stable in the OECD overall (Figures 12.1a-c).

Public expenditure on energy RD&D is shifting towards renewables

Public expenditures on energy-related research, development and demonstration (RD&D) increasingly target renewable energy in most OECD countries. In the Slovak Republic, Spain, Portugal, Ireland and New Zealand, over half of public energy RD&D is now directed towards renewables. In Japan, France and Australia, this share has more than quadrupled since 2000 (Figure 12.1d).

At the same time, there have been sharp cuts in publicly-funded RD&D on fossil fuel energy. Countries such as Ireland, Luxembourg and Greece have now completely phased-out public support for fossil fuel RD&D (excluding carbon capture and storage). In Sweden, the Slovak Republic, Belgium, Hungary and Portugal, it now accounts for less than 1% of public energy RD&D. In contrast, support for fossil fuel RD&D keeps rising in Italy, Japan, Canada and Austria, and it now accounts for over a quarter of publicly-funded energy RD&D in Poland and New Zealand (Figure 12.1e).

Support for greening R&D is often a necessary first step. However, its success must be assessed against outcomes of innovation. Other domains such as chemistry and material sciences influence innovation in green technologies at least as much as research on energy and the environment. Analysis of patenting activity provides one way to assess the (intermediate) outcomes.

Following a rapid growth, inventive activity in environment-related technologies has been slowing down

The development of environment-related technologies (ENV-TECH) grew remarkably between 2000 and 2010. This was particularly apparent with applications to climate change mitigation (CCM) in buildings, transport and energy generation (Figure 12.2a). Worldwide, the number of high-quality inventions in these three domains has trebled since 2000 (doubled for ENV-TECH as a whole). Meanwhile, inventive activity in general (all technologies) has risen by only about 30%. However, inventive activity has been slowing down across all major ENV-TECH domains since 2011, both in levels and as a share on total.

OECD countries still lead the way, but the contributions of China and India are rising fast

A large majority (90%) of green inventions originate in OECD countries, – especially in the United States, Japan, Germany, Korea and France. However, the contributions of the People’s Republic of China (hereafter China) and India are increasing rapidly. In some countries development of ENV-TECH represents an increasingly large part of their overall inventive output. It reaches 22% in Denmark, which is almost double the OECD average (Figure 12.2c); this reflects a high degree of specialisation. Denmark thus contributes twice as much to the world stock of ENV-TECH than to technologies in general (RTA = 2.0, Figure 12.2e).

Conversely, countries such as Turkey, Ireland and China contribute much less to the world stock (relative to their overall inventive output). Innovation in several countries, including Portugal and South Africa has slipped compared to the early 2000s (Figure 12.2e, Figure 12.3a). Providing continuous incentives for directing innovation towards environmental objectives remains a challenge. OECD work suggests that stringent, predictable and flexible environmental policies are more likely to provide effective long-term signals to innovators (OECD, 2011).

International collaboration in ENV-TECH is becoming more common, contributing to development of local absorptive capacities

Encouraging collaboration on technology development is particularly pertinent when addressing public bads such as global climate change or regional water pollution. In the OECD and G20, about 10% of cross-border co-inventions concern ENV-TECH. This is only slightly less than what one would expect given that ENV-TECH account for about 11% of inventive activity on average. The difference used to be much greater only a few years ago. This suggests that researchers from different countries now collaborate on ENV-TECH more, and about as much as on other domains, which is encouraging (Figure 12.3b).

Importantly, international collaboration in research and technology can help local businesses take advantage of existing technologies (i.e. help build local absorptive capacity). This, in turn, helps increase the uptake of cleaner technologies globally.

Low patenting activity in many non-OECD economies opens the door to international technology transfer

Inventors seek protection for their inventions in countries where they expect to invest, export or otherwise market their products. Often they do so in multiple jurisdictions (geographic markets). The rate of patenting is highest in the United States, Japan and Europe. In these markets innovators seek patent protection for about 30% of ENV-TECH inventions developed globally, and for as many as 47% in the Chinese market (Figure 12.4). In many emerging economies and developing countries the rate of patent protection is very low. Indeed, less than 1% of world’s ENV-TECH inventions have a patent application registered in Brazil, South Africa, Argentina, India or Colombia. This suggests that the door is wide open for a more massive inward technology transfer and diffusion. Achieving a wider diffusion of environmentally friendly technologies can help reduce environmental impacts at lower costs. Further, it can speed up the transition to green growth.

Measurability and interpretation

The indicators of R&D activity presented in this chapter relate to the following:

Government R&D budgets directed at socio-economic objectives “environment” and “energy”, expressed as percentages of total government budgets for R&D. The data refer to government appropriations or outlays for R&D (GBAORD).
Public energy technology RD&D expenditures directed at “renewable energy” and “fossil fuel energy”, expressed as percentages of total public energy RD&D.
Total R&D including expenditures by businesses, higher education, government and non-profit organisations, expressed as percentage of GDP. The data refer to gross expenditure on R&D (GERD).

R&D expenditure is an input measure that indicates an economy’s relative degree of investment in generating knowledge. It thus reflects intent, not an outcome; high R&D spending alone does not mean superior innovation performance. Internationally harmonised data on government R&D following the Frascati Manual are available for most OECD countries. However, at a more detailed level, the coverage of national surveys, as well as sampling and estimation methods, may vary. Significant gaps exist around harmonised data on private-sector R&D expenditure.

The indicators of technological innovation based on patent data presented in this chapter relate to the following:

Technology development: The number of inventions (simple patent families) developed by a country’s inventors, independent of the jurisdictions where a patent application has been registered (i.e. all known patent families worldwide are considered).
International collaboration in technology development: the number of co-inventions (simple patent families) developed jointly by inventors from at least two countries.
Technology diffusion: the number of inventions for which a patent application has been registered in a given jurisdiction through national, regional or international routes (equivalents of the priority patent application, pertaining to the same “simple patent family”). It shows the extent to which firms and individuals (domestic or foreign) seek to protect their inventions in the relevant markets. See also Glossary.

Patent data present a number of attractive properties compared to other alternative metrics of innovation. They are widely available, quantitative, commensurable and output-oriented. They can also be disaggregated – an important advantage when analysing environment-related technologies. At the same time, not all innovations or inventions are patented. Further, the number of patents by itself does not indicate their relative importance and impact. Analytical techniques have been developed to overcome some of these limitations (e.g. patent family size, relative technological advantage). Yet it is important to carefully interpret these indicators.

Little information is available on non-technological innovation, such as changes in business models, working patterns, managerial and organisational innovations more broadly. Yet these are instrumental for green growth at least as much as new technologies.

Sources

EPO (2016), Worldwide Patent Statistical Database (PATSTAT), Autumn 2016 edition, European Patent Office.

Haščič, I. and M. Migotto (2015), “Measuring environmental innovation using patent data”, OECD Environment Working Papers No. 89, OECD Publishing, Paris, https://doi.org/10.1787/5js009kf48xw-en.

IEA (2016), “RD&D budget”, IEA Energy Technology RD&D Statistics (database), https://doi.org/10.1787/data-00488-en.

Johnstone, N. and I. Haščič (2013), “Policy incentives for energy and environmental technological innovation: Lessons from the empirical evidence”, in Encyclopedia of Energy, Natural Resource and Environmental Economics, Vol. 1, pp. 98-106, Elsevier, Amsterdam.

OECD (2017a), “Patents in environment-related technologies: Technology development by inventor country”, OECD Environment Statistics (database), https://doi.org/10.1787/data-00760-en (accessed in March 2017).

OECD (2017b), “Patents in environment-related technologies: Summary indicators”, OECD Environment Statistics (database), http://stats.oecd.org/Index.aspx?DataSetCode=PAT_IND (accessed in March 2017).

OECD (2017c), “Patents in environment-related technologies: International collaboration in technology development by inventor country”, OECD Environment Statistics (database), https://doi.org/10.1787/data-00762-en (accessed in March 2017).

OECD (2017d), “Patents in environment-related technologies: Technology diffusion and patent protection”, OECD Environment Statistics (database), https://doi.org/10.1787/data-00763-en (accessed in March 2017).

OECD (2017e), “Green growth indicators”, OECD Environment Statistics (database), https://doi.org/10.1787/data-00665-en (accessed in March 2017).

OECD (2016a), “Research and development statistics: Government budget appropriations or outlays for RD”, OECD Science, Technology and R&D Statistics (database), https://doi.org/10.1787/data-00194-en (accessed in December 2016).

OECD (2016b), “Main Science and Technology Indicators”, OECD Science, Technology and R&D Statistics (database), https://doi.org/10.1787/data-00182-en (accessed in December 2016).

OECD (2011), Invention and Transfer of Environmental Technologies, OECD Publishing, Paris, https://doi.org/10.1787/9789264115620-en.