OECD Studies on Environmental Innovation Environmental Policy Technological Innovation and Patents OECD Studies on Environmental Innovation

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OECD Studies on EnvironmentalInnovation

Environmental Policy,Technological Innovationand Patents


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Environmental Policy,Technological Innovation

and Patents

OECD Studies on Environmental Innovation


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ORGANISATION FOR ECONOMIC CO-OPERATION

AND DEVELOPMENT

The OECD is a unique forum where the governments of 30 democracies work

together to address the economic, social and environmental challenges of globalisation.

The OECD is also at the forefront of efforts to understand and to help governments

respond to new developments and concerns, such as corporate governance, the

information economy and the challenges of an ageing population. The Organisation

provides a setting where governments can compare policy experiences, seek answers to

common problems, identify good practice and work to co-ordinate domestic and

international policies.

The OECD member countries are: Australia, Austria, Belgium, Canada, theCzech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland,

Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand,

Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey,

the United Kingdom and the United States. The Commission of the European

Communities takes part in the work of the OECD.

OECD Publishing disseminates widely the results of the Organisations statistics

gathering and research on economic, social and environmental issues, as well as the

conventions, guidelines and standards agreed by its members.

Also available in French under the title:tudes de lOCDE pour linnovation environnementale

Politique environnementale, innovation technologique et dpts de brevets

Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda.

OECD 2008

Photo credit: David Wasserman/Brand X/Corbis

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http://www.oecd.org/publishing/corrigenda


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FOREWORD

ENVIRONMENTAL POLICY, TECHNOLOGICAL INNOVATION AND PATENTS ISBN 978-92-64-04681-8 OECD 2008 3

Foreword

Understanding the role that technological change can play in achieving environmentalobjectives is important since innovations can allow for improved environmental quality at

lower cost. However, the relationship between environmental policy and technological

innovation remains an area in which empirical evidence is scant. In an attempt to

bridge this gap, the OECD has examined these issues.

Three different case studies have been undertaken: abatement technologies for

wastewater effluent from pulp production; abatement of motor vehicle emissions; and

development of renewable energy technologies. While particular focus has been placed

on the role of environmental policy in bringing about the innovation documented, it is

recognised that other factors play a key role in inducing innovation which has positive

environmental implications.

The work was overseen by the delegates to the Working Party on National

Environmental Policies of the OECD, who provided valuable comments and inputs at

all stages of the project. In addition, the work has been presented at a number ofinternational conferences, and comments received have served to improve the study

significantly.

The authors would also like to thank Dominique Guellec and Hlne Dernis of the

OECD Directorate for Science, Technology and Industry for their foresight and hard

work in developing the OECDs patent database upon which much of this study is

based. And finally, Claire-Line Martin provided excellent support in the preparation of

the manuscript, which was very much appreciated.


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TABLE OF CONTENTS


Table ofContents

List of Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Chapter 1. Environmental Policy, Technological InnovatIonand Patent Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

2. The economics of innovation and eco-innovation . . . . . . . . . . . . . . . . 20

3. Measures of innovation and eco-innovation . . . . . . . . . . . . . . . . . . . . . 24

4. The policy determinants of eco-innovation. . . . . . . . . . . . . . . . . . . . . . 38

5. The case studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Annex 1.A1. Sources of Patent Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Annex 1.A2. Patent Classification Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Annex 1.A3. Number of EPO Applications in Different

Environmental Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Chapter 2. Environmental Regulation and International Innovationin Automotive Emissions Control Technologies. . . . . . . . . . . . . . 63

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

2. Environmental regulation in the automobile sector . . . . . . . . . . . . . . . 65

3. Innovation in automotive emissions control technologies . . . . . . . . . 754. Empirical analysis and results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

5. Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Annex 2.A1. Overview of Technologies and Corresponding Patent Classes . . 97


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ENVIRONMENTAL POLICY, TECHNOLOGICAL INNOVATION AND PATENTS ISBN 978-92-64-04681-8 OECD 20086

Chapter 3. Policy Versus Consumer Pressure: Innovation and Diffusionof Alternative Bleaching Technologies in the Pulp Industry . . 107

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

2. The pulp and paper industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

3. Pollution and the pulp and paper industry . . . . . . . . . . . . . . . . . . . . . . 114

4. Regulatory responses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

5. Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

6. Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

7. Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

Annex 3.A1. Relevant Patent Classes for Pulp Bleaching Technologies. . . . 138

Chapter 4. Renewable Energy Policies and Technological Innovation:Energy Source and Instrument Choice . . . . . . . . . . . . . . . . . . . . 139

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

2. The renewable energy sector: trends, technologies and policies . . . . 140

3. Patent applications for renewable energy . . . . . . . . . . . . . . . . . . . . . . . 144

4. Empirical analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

5. Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162

Annex 4.A1. First Page of Sample Patent Application . . . . . . . . . . . . . . . . . . 164

Chapter 5. Policy Conclusions and Further Work . . . . . . . . . . . . . . . . . . . . . 1671. Policy conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168

2. Further work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170

Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172

Annex 5.A1. Glossary of Relevant Patent and Related Terms . . . . . . . . . . . . 173

List of tables

1.1. Comparison of the patent systems of the United States, Japan

and Europe (circa 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

1.2. IPC patent classification system for solar concentrating devices

used for the generation of mechanical power . . . . . . . . . . . . . . . . . . 36

1.3. Characteristics of the case studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

2.1. Technologies covered. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

2.2. Fixed-effects model estimates for engine re-design technologies . . . 922.3. Fixed-effects model estimates for post-combustion devices. . . . . . 92


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3.1. Pulp producers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

3.2. Percentage of exports to each country: paper and paperboard. . . . 111

3.3. Summary of Ecolabel programs related to pulp and paper

manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

3.4. Summary of key regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

3.5. Number of domestic chlorine and non-chlorine patents,

selected years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

3.6. Top domestic patent assignees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

4.1. Share of electricity production from renewable sources

(excluding hydro) (%) by country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

4.2. Examples of policies aimed at supporting renewable energy . . . . . 145

4.3. IPC classifications for renewable energy. . . . . . . . . . . . . . . . . . . . . . . 147

4.4. Number of EPO patent filings in renewable energy technologies(Annual average 1978-2003, by inventor country) . . . . . . . . . . . . . . . 149

4.5. Number of EPO patent filings in renewable energy technologies

(Annual average 1978-2003, per unit of GDP, by inventor country) . . . 150

4.6. Number of EPO patent applications in renewable energy

technologies, normalised by overall patenting activity

(1978-2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

4.7. Descriptive statistics of explanatory variables (1978-2003) . . . . . . . 155

4.8. Estimated coefficients of the negative binomial fixed effects

models with individual policy variables . . . . . . . . . . . . . . . . . . . . . . . 1564.9. Correlation coefficients between policy variables . . . . . . . . . . . . . . . 157


models with a composite policy variable . . . . . . . . . . . . . . . . . . . . . . 158


models with clusters of policy variables . . . . . . . . . . . . . . . . . . . . . . . 160

List of figures

1.1. Share of environmental R&D in total government R&D, 1981-2005 . . 261.2. Proportion of facilities by country with budgets

for environment-related R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

1.3. Proportion of facilities by employee size class with budgets

for environment-related R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

1.4. Share of new products in turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

1.5. Number of TPF patent applications by inventor country . . . . . . . . . 34

1.6. Number of EPO Environmental patent applications

and total EPO patent applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

1.7. Number of EPO Environmental patent applications . . . . . . . . . . . 371.A3.1a. Number of EPO Applications in Different Environmental Areas. . 60


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1.A3.1b. Number of EPO Applications in Different Environmental Areas (suite) 61

2.1. Evolution of US HC and NOX standards for passenger cars

(gasoline) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

2.2. Evolution of US CO Standards for passenger cars (gasoline) . . . . . . 67

2.3. Evolution of Japanese CO, HC and NOX standards for passenger cars

(gasoline) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

2.4. Evolution of Japanese CO, HC, NOX and PM standards

for passenger cars (diesel) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

2.5. Evolution of European CO standards for passenger cars

(gasoline and diesel). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

2.6. Evolution of European HC and HC + NOX standards

for passenger cars (gasoline). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

2.7. Evolution of European HC + NOX standards for passenger cars(gasoline and diesel). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

2.8. Evolution of European HC and NOX standards for passenger cars

(gasoline) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

2.9. Evolution of European PM standards for passenger cars (diesel) . . 71

2.10. Evolution of patent applications at the USPTO, 1975-2001. . . . . . . . 78

2.11. Evolution of patent applications at the GPTO, 1975-2001. . . . . . . . . 79

2.12. Evolution of patent applications at the JPO, 1975-2001) . . . . . . . . . . 80

2.13. Evolution of patent applications at the EPO, 1975-2001 . . . . . . . . . . 82

2.14. Technology shares within engine re-design group at differentpatent offices (1975-2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

2.15. Source countries for patents (1975-2001) . . . . . . . . . . . . . . . . . . . . . . 83

2.16. Average patent family size by country and year . . . . . . . . . . . . . . . . 84

2.17. Source countries of USPTO engine re-design and post-combustion

patents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

2.18. Source countries of German engine re-design and post-combustion

patents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

2.19. Source countries of JPO engine re-design and post-combustion

patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

2.20. JPO engine re-design and post-combustion patents by domestic

inventors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

3.1. Domestic ECF and TCF patents by country. . . . . . . . . . . . . . . . . . . . . 123

3.2. Average patent family size by country and year . . . . . . . . . . . . . . . . 127

3.3. ECF and TCF patent trends, selected countries . . . . . . . . . . . . . . . . . 128

3.4. Diffusion of ECF bleaching technologies . . . . . . . . . . . . . . . . . . . . . . . 129

3.5. Diffusion of ECF and TCF bleaching technologies . . . . . . . . . . . . . . . 130

4.1. Annual growth rates for renewable energy in the worldand the OECD (1990-2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

4.2. Renewable energy sources in the OECD in 2004 . . . . . . . . . . . . . . . . 142


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4.3. Percentage of energy to be provided by renewable energy . . . . . . . 144

4.4. Introduction of policies by type for renewable energy

in OECD countries (1973-2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

4.5. Number of EPO patent applications by type of renewable . . . . . . . . 148

4.6. Number of EPO patent technologies for renewables by country . . . 148

4.7. EPO patent filings in renewable energy technologies

(annual mean, per unit of GDP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

4.8. Relationship between point of introduction of policies

and patent counts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

4.9. Dendogram of policy variable clustering . . . . . . . . . . . . . . . . . . . . . . 159


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LIST OF ACRONYMS


List of Acronyms

ADt Air-dried TonneAOX Adsorbable Organic HalideBAT Best Available TechnologyBOD Biological Oxygen Demand

CAAA Clean Air Act AmendmentsCAF Corporate Average Fuel EconomyCARB California Air Resources BoardCAT Catalytic Converters and Catalytic Regeneration TechnologyCIS Community Innovation SurveyClO2 Chlorine DioxideCO Carbon MonoxideCOD Chemical Oxygen DemandCVCC Compound Vortex Controlled CombustionDSTI Directorate for Science, Technology and Industry (OECD)ECF Elemental Chlorine-FreeECLA European Patent Classification SystemEGR Exhaust Gas RecirculationEPO European Patent OfficeGBAORD Government Budget Appropriations and Outlays for R&DGERD Gross Domestic Expenditures on R&DGPTO German Patent and Trademark OfficeH2O2 Hydrogen PeroxideHC HydrocarbonsIPR Intellectual Property Rights

JPO Japanese Patent OfficeNORSCAN US, Canada, Sweden, Finland and NorwayNOX Nitrogen OxidesNSF National Science FoundationO3 OzoneOBD On-Board DiagnosticsPAH Polycyclic Aromatic HydrocarbonsPb LeadPCT Patent Cooperation TreatyPM Particulate Matter


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LIST OF ACRONYMS


R&D Research and DevelopmentSO2 Sulphur DioxideTCF Totally Chlorine-FreeTPES Total Primary Electricity Supply

TPF Triadic Patent FamilyTRIPS Trade-Related Aspects of Intellectual Property RightsTSS Total Suspended SolidsUSPTO United States Patent and Trademark OfficeWIPO World Intellectual Property Organization


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ISBN 978-92-64-04681-8

Environmental Policy, Technological Innovation and Patents

OECD 2008

13

Executive Summary

Technological innovation can help realise environmental objectives in aless costly manner than would otherwise be the case. Thus, understanding

the role that technological innovation can play in achieving environmental

objectives is important for policy debates. However, the relationship between

environmental policy and technological innovation is an area in which empirical

evidence remains limited. In an attempt to bridge this gap, the OECD has

examined these issues, using patent activity as a proxy for technological

innovation. This work has assessed the role that environmental policies have

played in inducing eco-innovation.

Three different case studies have been undertaken: abatement technologies

for wastewater effluent from pulp production; abatement of motor vehicle

emissions; and development of renewable energy technologies. These cases

were selected in order to ensure variation in the issues addressed (product vs.

process innovation; integrated abatement technologies vs. end-of-pipe

technologies; degree of tradability of the technologies). While there is no ideal

measure of innovation, patent data have been widely used to assess the

effects of policy and other factors on technological innovation in general. As

such, in this report patent data is used to assess the nature, extent, and causes

of innovation specifically in the environmental context.

While particular focus has been placed on the role of environmental

policy in bringing about the innovation documented, it is recognised that other

factors play a key role in inducing innovation which has positive environmental

implications. The factors which drive innovation in general are also likely to

encourage eco-innovation specifically. For instance, factors such as macro-

economic stability, functioning of capital markets, the degree of economic

openness, and the quality of education systems affect innovation rates in

general, but also the specific case of eco-innovation by extension.

There are, however, some distinct concerns which arise with respect to

eco-innovation. Most importantly, there are two externalities involved in the

eco-innovation case: the positive externalities associated with information

spillovers resulting from the innovation process; and, the negative externality

associated with the environmental impacts. In the case of knowledgespillovers those who are responsible for innovation bear the full costs, without

receiving all the benefits. In the absence of policy interventions, the rate of


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EXECUTIVE SUMMARY


innovation will therefore be sub-optimal, and thus an economy will be less

competitive and productive over time.

In the case of environmental externalities, those who are responsible for

emitting pollution receive the full benefits from doing so, but without payingthe full costs. In effect the price of polluting is too low. And as with the

general theory of induced innovation, this will provide incentives for innovation

which uses the under-priced factor input intensively. Therefore, in the absence

of policy interventions to internalise the externality, innovation will bend in a

direction which is relatively more pollution-intensive than would otherwise

be the case.

Environmental and innovation externalities are usually the responsibilities

of different Government Ministries. Policy coordination is, therefore, key.

However, innovation and environmental policy have different objectives. Whilethe former is largely concerned with internalising knowledge spillovers (and

thus increasing competitiveness and productivity), the latter is concerned

with addressing negative environmental externalities. While no single

instrument is likely to be able to address both market failures, co-ordination

between the two is vital, if both the rate and the direction of innovation are to be

optimal.

As such, this volume focuses on the role of environmental policy in

bending innovation in a more environmentally-friendly direction. Several

interesting conclusions have emerged from the three case studies that wereundertaken:

Environmental policy does have an effect on technological innovation. For

instance, in the study on renewable energy, the implementation of different

policy measures had a measurable impact on innovation, with tax measures

and quota obligations being statistically significant determinants of patent

activity. However, the effect of the different policies varied by the type of

renewable energy involved.

General scientific capacity matters. Again in the case study on renewable

energy innovation, the variable reflecting expenditures on targeted R&D

was statistically significant in every model estimated.

Relative prices induce particular kinds of innovation. In the case of motor

vehicle emissions abatement, fuel prices encouraged investment in

integrated innovation (in which fuel efficiency gains also arose), but not in

post-combustion technologies. In the case of renewable energy, the role of

electricity prices was rarely significant, except for solar energy. However, as

fossil fuel prices rise (and renewables become more competitive), the price

substitution effect is likely to become more important.

Other market factors can also be important spurs to innovation. In the case

of bleaching technologies in the pulping process, public concerns about the


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EXECUTIVE SUMMARY


environment appeared to spur the development of ECF and TCF technologies,

pre-dating the introduction of regulatory standards. Interestingly, eco-labelling

did not appear to have an influence on innovation in this case.

The type of innovation changes through time. In the renewables sector,different energy sources have reached maturity at different points, and

there have been different generations of innovation within particular

renewable energy sources. In the case of motor vehicle emissions abatement,

there has been a shift from post-combustion technologies to integrated

technologies.

International diffusion of environmental innovation is common. In the case

of both bleaching technologies and motor vehicle emissions, abatement

patent families (for some countries) are large, reflecting significant technology

transfer. In the case of motor vehicle emissions abatement, the transfer ofJapanese technologies to the US is striking.

In other areas, there is some evidence of a first-mover advantage. In the pulp

and paper sector, the early policy interventions introduced by Finland and

Sweden resulted in a strong comparative advantage in TCF technologies.

While not addressed directly in this project, two more general conclusions

emerge from the literature. First, investing in R&D is risky. As such it is important

that the environmental policy framework not add to this risk, but rather provide

investors with a stable horizon in which to undertake research investments. If

markets have difficulty efficiently dealing with commercial risk associatedwith innovative activity, they will be even less likely to deal efficiently with the

uncertainties associated with unstable policy conditions. Second, the policy

framework should allow for a variety of technological options to be adopted.

Governments have limited resources at their disposal, as well as limited

information about optimal technological trajectories. Moreover, with the

potential for lock in, it is important to develop policies which minimise the

downside risks of picking losers. In general, this means targeting

environmental policies as close as possible to the environmental objective itself,

not some proxy.

The volume concludes that patent data is a helpful means by which to

examine eco-innovation and suggestions for future policy research are proposed:

a) development of robust indicators of eco-innovation across a wider spectrum

of environmental areas (e.g.green chemistry, abatement of air pollution,

carbon capture and mitigation, building energy efficiency, waste prevention,

etc.); b) assessment of the environmental and economic returns on patented

eco-innovation inventions in selected areas; and c) examination of the links

between environmental policy, economic globalisation and eco-innovation,

with a focus on international technology transfer.


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ISBN 978-92-64-04681-8

Environmental Policy, Technological Innovation and Patents

OECD 2008

17

Chapter 1

Environmental Policy,Technological InnovatIon and Patent Activity

by

Nick Johnstone and Ivan Hascic (OECD Environment Directorate)

and Katrin Ostertag (Fraunhofer Institute)*

Technological innovation can allow for the realisation ofenvironmental objectives in a manner which is less costly than would

otherwise be the case. As such, understanding the role that

technological innovation can play in achieving environmental

objectives is important for policy debates. This chapter provides a

review of the theory and evidence with respect to the role that

environmental policies can play in inducing innovation, and

provides an introduction to case studies undertaken. On the basis

of patent data, the nature, extent, and causes of innovation with

respect to renewable energy, wastewater treatment and motor vehicleemissions control were explored. While particular focus has been

placed on the role of public policy in bringing about the innovation

documented, it is recognised that other factors play a key role in

inducing innovation which has positive environmental implications.

* Comments from Davis Popp and Frans de Vries gratefully acknowledged.


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1. ENVIRONMENTAL POLICY, TECHNOLOGICAL INNOVATION AND PATENT ACTIVITY


1. IntroductionTechnological innovation can help realise environmental objectives in a

less costly manner than would otherwise be the case. For example, some

innovations may drive down the cost of pollution abatement. This results in

welfare gains. On the one hand, the same environmental quality may be achieved

with fewer factor inputs devoted to abatement. On the other hand, for the same

amount of factor inputs, environmental quality may be improved.

Thus, an improved understanding the role that technological innovation

can play in achieving environmental objectives is important for policy makers.

However, the relationship between environmental policy and technological

innovation remains an area in which empirical evidence is scant.1 Moreover,

there are almost no empirical studies with international coverage. Part of the

reason for this is the absence of appropriate comparative data to reflect the

innovation process. In this report patent activity is used as a proxy for

technological innovation.

Three different case studies have been undertaken: abatement technologies

for wastewater effluent from pulp production; abatement of motor vehicle

emissions; and development of renewable energy technologies. These cases were

selected in order to ensure variation in the issues addressed and the

characteristics of the innovation. Specifically:

autos are a traded commodity, and as such international influences matter.

In addition, autos are a consumer good and thus the objectives of regulations

are to reduce end-use pollution, not pollution from production;

in the case of pulp and paper, unlike autos, we are focusing on pollution at

the source of production. However, the focus is on a process technology,rather than end-of-pipe solutions. The analysis of innovation with respect

to a process technology represents a new contribution to the literature; and,

renewable energy sources are both a process (generating electricity) and a

product (e.g. the turbines themselves). Electricity is not generally a traded

commodity, which contrasts with autos. However, the renewable equipment

may be traded.

On the basis of patent data, the nature, extent, and causes of innovation

in each of these areas were explored. Particular focus has been placed on the

role of public policy in bringing about the innovation documented. This

includes both policy stringency and the nature of the environmental policy


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instruments applied. However, it is recognised that other factors play a key

role in inducing innovation which has positive environmental implications.

Factors such as fuel and energy prices, sectoral growth rates, and general

scientific capacity have been controlled for in the more formal analyses

included in the case studies.

Several interesting conclusions have emerged from the three case studies

that were undertaken:

Environmental policy does have an effect on technological innovation. For

instance, in the study on renewable energy, the implementation of different

policy measures had a measurable impact on innovation, with tax

measures and quota obligations being statistically significant determinants

of patent activity. However, the effect of the different policies varied by the

type of renewable energy involved. General scientific capacity matters. Again in the case study on renewable

energy innovation, the variable reflecting expenditures on targeted R&D

was statistically significant in every model estimated.

Relative prices induce particular kinds of innovation. In the case of motor

vehicle emissions abatement, fuel prices encouraged investment in

integrated innovation (in which fuel efficiency gains also arose), but not in

post-combustion technologies. In the case of renewable energy, the role of

electricity prices was rarely significant, except for solar energy. However, as

fossil fuel prices rise (and renewables become more competitive), the pricesubstitution effect is likely to become more important.

Other market factors can also be important spurs to innovation. In the case

of bleaching technologies in the pulping process, public concerns about the

environment appeared to spur the development of ECF and TCF

technologies, pre-dating the introduction of regulatory standards.

Interestingly, eco-labelling did not appear to have an influence on

innovation in this case.

The type of innovation changes through time. In the renewables sector,different energy sources have reached maturity at different points, and

there have been different generations of innovation within particular

renewable energy sources. In the case of motor vehicle emissions

abatement, there has been a shift from post-combustion technologies to

integrated technologies.

International diffusion of environmental innovation is common. In the case

of both bleaching technologies and motor vehicle emissions, abatement

patent families (for some countries) are large, reflecting significant

technology transfer. In the case of motor vehicle emissions abatement, thetransfer of Japanese technologies to the US is striking.2


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In other areas, there is some evidence of a first-mover advantage. In the

pulp and paper sector, the early policy interventions introduced by Finland and

Sweden resulted in a strong comparative advantage in TCF technologies.

This introductory Chapter begins with a review of the literature related tothe key determinants of innovation, with specific focus on environmental

innovation. It also provides a discussion of alternative measures of innovation

and eco-innovation, before proceeding to a discussion of the impact of

environmental policy on environmental innovation. The Chapter concludes with

a summary of the characteristics of the case studies that were undertaken. The

following Chapters then present the case studies, followed by a concluding

Chapter which summarises the main policy conclusions and proposes areas

for further research.

2. The economics of innovation and eco-innovationWhen assessing the determinants of innovation which results in reduced

environmental impacts (hereafter eco-innovation), it is important to first

understand the determinants of innovation in general. The role that general

market and policy factors play in encouraging innovative activities is therefore

crucial to an understanding of the factors that facilitate innovation which is

more specifically environmental in nature. Since the primary interest of this

report is the analysis of the influence ofenvironmental policy instruments on eco-

innovation, the following review of the more general determinants of overallinnovation will be very brief.

2.1. The determinants of innovation in general

There is considerable variation in innovative activity both across OECD

countries and within OECD countries between sectors of the economy (see OECD,

2007a). Researchers have sought to identify the reasons for this variation, and a

number of factors appear to be significant. These can be distinguished as

i) market and firm-level factors; and ii) policy factors.

2.1.1. Market and firm-level factors

Over six decades ago, Schumpeter (1942) argued that there was a positive

correlation between market concentration and innovation. In theory, this is

because a monopoly is in a better position to prevent imitation, and because it

will have more resources with which to finance R&D activities. A monopoly

may therefore be better able to bear the risk (and reap the benefits) associated

with R&D investments. However, in a seminal paper, Arrow (1962) argued that

the efficiency incentives associated with perfect competition are actually

more conducive to innovative activities.


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Given these conflicting theoretical views concerning the potential role of

market structure on incentives to invest in R&D, it is not surprising to find that

the empirical evidence is also mixed. While Gerosky (1990) found support for

the positive effects of competition, Kraft (1987) and Acs and Audretsch (1987)

found support for the Schumpeterian hypothesis.3 Therefore, theoretical and

empirical support has been found for both a negative and a positive relationship

between the level of innovation and the degree of market competition.

The spatial scope of the market is also thought to be an important driver

of innovation. In effect, the more global the market in which a firm operates,

the more likely the firm will be to innovate. Criscuolo et al. (2005) found that

markets serve as a conduit of information; as such, the pool of information

available to global firms is greater than that which is available to national and

local firms. For similar reasons, it is sometimes argued that foreign direct

investment can be an important conduit, expanding the potential knowledge

pool upon which the firm can draw. Some recent empirical evidence (Jaumotte

and Pain 2005a) indicates that openness is among the most important

determinants of investment in R&D.

Another important feature of industrial R&D arises out of the frequent

need for a firm to self-finance its R&D investments. The inherent riskiness of

these investments, the skewed nature of potential returns, and the potential

for asymmetric information between prospective borrowers and lenders make

external sources of financing more difficult to secure (Jaumotte and Pain,2005a). Under such conditions, capital markets may have difficulty assessing

the optimality of potential investments in R&D (Scherer and Harhoff 2000).

Consequently, it is argued that firms with greater internal financial resources

are more likely to invest in R&D. Two explanations have been advanced for this

(see for example, Kamien and Schwartz, 1978):

Outside lending may be difficult to obtain, because a failed R&D project

leaves few valuable tangible assets. Given the risk associated with R&D

projects, external lenders may be reluctant to finance such projects without

substantial collateral. Firms may be unwilling to reveal private information that could make the

project interesting to outside lenders, because they fear that this information

will then become available to rivals.

Such financing problems are not thought to be as important for firms

quoted on the stock market because these firms have easier access to capital

than other firms (Syrneonidis, 1996). Moreover, the recent deepening of venture

capital markets in some countries/regions (North America, Netherlands, and UK),

has tended to reduce some of the need to rely upon internal finance (OECD,

2006a).


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Small firms may face particular difficulties in financing their R&D projects.

As noted by Jaffe et al. (2003), these firms have less internally generated cash and/

or less access to financial markets. Firm size may also be important if there are

significant economies of scale associated with R&D. The evidence in this area

is mixed as well (Syrneonidis, 1996). However, it would appear that the effect

of firm size is non-linear, becoming less important once a minimum threshold

is reached. Empirical evidence indicates that this threshold may be as low as

approximately 100 employees (Syrneonidis, 1996).

2.1.2. Public policy factors

According to work by the OECD a number of general policy framework

conditions are also likely to be important drivers of innovation. First, stable

macroeconomic conditions are positively related to innovation. Low and

stable interest rates are particularly important for risky investments, such as

those associated with R&D (OECD, 2006a). Second, firms which are exposed to

international market competition are more likely to be innovative. As such,

more open international trade and foreign investment policies will tend to

result in more innovation. Third, and in a similar vein, when a firms products

operate in markets that are less heavily regulated, innovation tends to be stronger

(Jaumotte and Pain, 2005c).

The effects of more targeted innovation and science policies have also

been assessed. One intrinsic characteristic of the knowledge produced throughR&D is that it is very difficult to exclude others from the benefits that arise from

that R&D. This makes knowledge a public good as such, it will be underprovided

by the market, because the private returns to R&D investments are much lower

than the social returns [for an empirical analysis, see for example Mansfield

et al. (1997)]. In addition, and as noted earlier, even in the absence of the public

good elements of R&D, there can be particular difficulties in financing R&D at

optimal levels. There is, therefore, a need for policy intervention, whether to

increase the returns on innovation or to reduce the cost of its generation. [See

OECD (2004) for a review of current practice in OECD countries.]OECD governments have provided financial support for R&D for many

years. In recent years, the form in which this support is provided has changed,

with a transition being made from grants to various forms of tax credits

(OECD, 2007b). However, the evidence on the returns to public sector support

for R&D is mixed. While Hall and van Reenen (2000) find positive evidence that

tax incentives encourage investment in R&D, a meta-analysis undertaken by

Garcia-Quevado (2004) did not find systematic evidence in support of the more

general contention that subsidies encourage greater private sector R&D.

The effectiveness of subsidies depends upon the degree of additionalityassociated with the subsidies being provided i.e. the extent to which they


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lead to a higher overall level of R&D expenditure. On the one hand, crowding

out can occur if the funds provided displace private sector expenditures that

would otherwise have been made. Falk (2004) found evidence that government

subsidies have a significant positive effect on business R&D, but only when

previous R&D is controlled for suggesting that the beneficiaries of subsidies

may be mainly firms that have previously undertaken R&D. On the other hand,

crowding in may also occur: if there are capital constraints and economies of

scale in innovation, provision of public support may lead to greater privately-

financed R&D. Interestingly, Lach (2002) found that subsidies to Israeli SMEs

had a significant (and positive) impact on company-financed R&D, but this

was not the case for larger firms.

In order to address the public good nature of the knowledge produced by

R&D, legal protection can be provided to help innovators capture potential

rents. Thus, the strength of a countrys intellectual property rights (IPR) regime

is often thought to be a key driver of R&D. However, recent cross-sectional

empirical work [e.g. Cohen et al. (2000)] generally found that the IPR regime is

a weak predictor of R&D investment in OECD countries. This may be due to the

fact that there is little difference in the stringency of IPR regimes across

countries, so isolating their effect is complicated. Nonetheless, in work

undertaken at the OECD, it was found that a 1% increase in the standard

deviation of the Park index of IPRs resulted in an 8% increase in the number

of patents and 1-1.5% in R&D expenditures (Jaumotte and Pain, 2005a).

In addition, many governments have put in place programmes which

facilitate cooperation between public research institutions and industry. [See

Jaumotte and Pain (2005b) for a discussion.] While many of these programmes

are motivated by a wish to realise greater economic benefits from publiclyfunded

R&D, they may also serve as a spur to private sector R&D. If well-designed, these

programmes can encourage the internalisation of knowledge externalities

between public and private bodies and (most importantly) between different

private bodies.

2.2. The specific case of eco-innovation

The lessons learned concerning innovation in general, and the role that

public policy can play in inducing this innovation are, of course, directly

relevant to a more specific discussion of eco-innovation. For instance, market

structure may be important because some of the sectors where environmental

impacts are potentially most important (e.g. chemicals, pulp and paper,

energy) also have concentrated markets.

There are, however, some distinct concerns which arise with respect to

eco-innovation. Most importantly, there are two externalities involved in theeco-innovation case: the positive externalities associated with information


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spillovers resulting from the innovation process and the negative externality

associated with the environmental impacts (see Jaffe et al., 2005). In the case

of knowledge spillovers those who are responsible for innovation bear the full

costs, without receiving all the benefits. In the absence of policy interventions,

the rate of innovation will therefore be sub-optimal, and thus an economy will

be less competitive and productive over time.

In the case of environmental externalities, those who are responsible for

emitting pollution receive the full benefits from doing so, but without paying

the full costs. In effect the price of polluting is too low. And as with the

general theory of induced innovation,4 this will provide incentives for innovation

which uses the under-priced factor input intensively. Therefore, in the absence

of policy interventions to internalise the externality, innovation will bend in a

direction which is relative more environment-intensive than would otherwise

be the case.

In general, distinct policies need to be implemented to resolve both of

these problems. Such policies have generally been the responsibilities of

different Ministries. This is appropriate, because of the differing underlying

policy objectives. However, in some cases, it can lead to policy incoherence.

For instance, the objectives of environmental policy measures with respect to

eco-innovation may be undermined by innovation policy measures which

support more polluting technologies (see Goel and Hsieh, 2006).

Many OECD governments have made significant efforts to co-ordinatethese two sets of policies (e.g. the European Unions Environmental Technology

Action Plan). On the one hand, the innovation effects of environmental

policies have become an increasingly important criterion in policy assessment

for Ministries of the Environment. On the other hand, the environmental

effects of innovation policies have become an important criterion for policy

assessment in Ministries of Science, Technology and Industry (see Kivimaa

and Mickwitz, 2006 and Kivimaa and Mickwitz, 2004).

Indeed, in the OECDs Science, Technology and Industry Outlook (2004), a

majority of countries cite environment-related concerns in their science andtechnology priorities, including: Australia (environmentally sustainable

Australia); Austria (environment, energy and sustainability); France (development

of renewable energy); Germany (clean processes and production technologies);

Hungary (environmental protection); Norway (energy and environment); UK

(sustainable energy) and the US (climate, water and hydrogen).

3. Measures of innovation and eco-innovationGiven the importance of technological innovation in modern economies,

identifying reliable measures of technological innovation has long preoccupied

economists (and continues to do so). The task is further complicated when


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measures of specific types of innovation are sought such as eco-innovation

even if a reliable measure of innovation can be identified, it may be difficult to

determine whether it is specifically environmental in nature.

3.1. Input and output measures of innovation

Due to the complexity of the innovation process, all potential measures

of innovation (e.g. budgets for research and development, number of scientific

personnel) are at best imperfect indicators of the innovativeness of an

economy. [For annual data on research and development and other relevant

indicators, see OECD Research and Development Statistics (2006c), and Main

Science and Technology Indicators (2006b).]5

Following the different phases of the R&D process [i.e. basic and applied

research and (experimental) development] through to the different stages ofinnovation (from invention to diffusion), a range of different indicators for

measuring technological change can be found in the literature. Three basic

groups can be distinguished: resource (or input) indicators; indicators of R&D

results (i.e. output indicators of the R&D process); and progress indicators

(i.e. output indicators focussing on the economic impacts of innovations)

(Grupp, 1998).

Input indicators follow the rationale that, for technological change to take

place, the necessary resources have to be invested in knowledge acquisition.

Among the most commonly applied input indicators are: i) R&D expendituresand ii) R&D personnel. Generally, data on R&D personnel is not as widely available

as data on R&D expenditure. However, input indicators may also refer to other

ways of knowledge acquisition, such as investment in R&D intensive goods, or

expenditure for licenses.

The OECD has also sought to disaggregate public R&D data by socio-

economic objective (OECD 2002). (No effort has been made to collect private

sector R&D data disaggregated by socio-economic objective.) In principle, the

allocation of expenditures to specific objectives is determined on the basis of

managerial intentions at the time of commitment of the funds. However,given the uncertainty associated with general R&D, further disaggregating

public R&D data by socio-economic objective may be even more difficult to

establish with confidence, particularly for more basic forms of research.

Moreover, even if this could be done, drawing boundaries between the different

objectives6 is by no means straightforward. Bearing these caveats in mind, data

on public sector R&D expenditures for control and care of the environment is

presented in Figure 1.1. Based on this figure, many OECD countries have

clearly been increasing their investment in environmental research and

development (R&D), in an effort to boost technological developments thatimprove environmental quality.7


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At the micro level, a survey of 4 000 manufacturing facilities in seven

countries undertaken by the OECD Environment Directorate in 2003 provided

data on those facilities which reported having undertaken environment-

related R&D.8 In the sample, 58.7% of facilities reported that they had

incurred R&D expenditures, and 9.3% of facilities reported having invested in

environment-related R&D. Figure 1.2 shows the proportion of facilities

reporting that they had environment-related R&D expenditures (by country).

Figure 1.1. Share of environmental R&D in total government R&D, 1981-2005

Source: OECD (2005).

Figure 1.2. Proportion of facilities by country with budgetsfor environment-related R&D

Source: Johnstone (2007).

%

6

5

4

3

2

1

01981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

Korea Germany France United Kingdom Japan United States

0.18

0.14

0.10

0.06

0.00

0.16

0.12

0.08

0.04

0.02

Canada

Mean +/ 1 std. error

France Germany Hungary Japan Norway United States Total


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Norway had the highest percentage, with just under 15% reporting having do

ne so, while for Germany, it is only 3.6%. For four of the seven countries

(France, Canada, Japan and the US), the proportion was approximately 10%.

Figure 1.3 shows the proportion of facilities with environment-relatedR&D budgets (according to facility size). As can be seen clearly, larger facilities

(more than 500 employees) are more likely to have undertaken such investments

(with almost 20% reporting having done so), while this figure is less than 10% for

facilities with less than 250 employees. In the sample as a whole, the average

size of facilities responding affirmatively had over 720 employees; for those who

responded negatively, the relevant figure was less than 300.

The data appears to be consistent with results obtained from other

surveys. For instance, according to statistics on research and development

from the US National Science Foundation,9

55.3% of US companies with morethan 5 employees in the manufacturing sector reported R&D expenditures

for 2001. In the OECD sample, 51% of US manufacturing facilities (with more

than 50 employees) are engaged in R&D. Among those, 16% reported having a

R&D budget specifically for environmental matters.

In the OECD survey, the sectors with the highest percentage of facilities

reporting having undertaken investments in environment-related R&D were:

coke, petroleum and refining (13.6%); chemicals and chemical products

(12.8%); paper and paper products (12.5%); and motor vehicles (12.4%).

Figure 1.3. Proportion of facilities by employee size classwith budgets for environment-related R&D

Source: Johnstone (2007).

0.20

0.15

0.10

0.05

0.00< 100 100-249 250-499 > 500

0.25

Mean +/ 1 std. error

Number of employees


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Although input indicators (and R&D expenditures in particular) reflect an

important element of the innovation system, there are a number of

disadvantages associated with their use as an indicator of innovation. For

example, and as noted earlier with respect to private R&D expenditures, the data

are incomplete. Further, the data are only available at an aggregate level and

cannot be broken down by technology group. In addition, efforts to unbundle

specific environmental R&D from other types of R&D can be difficult,

particularly as efforts to improve environmental performance become more

integrated with general business strategies (see Johnstone and Labonne, 2006).

However, the greatest shortcoming associated with the use of R&D data is that

it measures inputs to the innovation process, rather than successful outputs.

Given the uncertainty associated with the innovation process, the economic

value of equivalent R&D expenditures can also vary widely.

As such, an output measure of innovation is broadly preferable. There

are two principal candidates for indicators of the output of R&D: bibliometric

data (scientific publications) and technometric data (patent publications). The

use of bibliometric data as a measure of innovation has been given renewed

impetus with the growth of the internet, combined with increasingly efficient

search engines. Using keywords and indexing codes, searches of relevant

databases (e.g. the Science Citation Expanded Index) are typically undertaken.

Data on author, affiliation, date of publication, etc. can be extracted, and

counts developed to assess relative innovative capacity (see Meyer, 2002).

This kind of indicator is particularly useful as for analysing the diffusion

of knowledge among inventors (and between countries), based on

co-publications and citations. However, there are some shortcomings associated

with the use of bibliometric data. In particular, while such data is indeed an

output indicator of innovation, it is only an indicator of an intermediate output.

Publication in a peer-reviewed journal reflects a scientific advance, but not

necessarily one which has commercial applications. It is difficult to use

citations as an index of quality, let alone economic importance.

For these reasons, patent data are more commonly used as outputindicators of innovation. Compared to bibliometric data, patents are more

closely linked to applied research and experimental development. They are

therefore closer to the commercial stage of innovation. In addition, for reasons

explained below, patents lend themselves to cross-country comparisons of

innovation performance in specific technology fields.

Downstream output-based measures of innovation necessitate the

identification of specific innovations which have been developed and

commercialised. Data of this kind is usually collected through surveys of firms;

and self-reporting of the introduction of novel goods/technologies or successfulinventions. However, since the answers provided in these surveys are highly


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subjective, they are often difficult to interpret. Most commonly, a companys

turnover with new products is used.

For instance, the European Community Innovation Survey (CIS) requests

that respondents indicate the value share of novel products in total turnover.

10

While it is difficult to assess the reliability of responses to such questions, they do

give an indication of self-perceived innovation. Unfortunately, the CIS did not

previously ask respondents to provide information of specific relevance to

environmental concerns. Figure 1.4 provides the aggregate data from the third

CIS, which reported on responses from the 1998-2000 survey.

3.2. Patents as a measure of innovation

For this report, patents have been used as a key measure of innovation.11

With the exception of the European Patent Office, patents are granted bynational patent offices (usually specialised agencies) in individual countries.

They give the holder the right to exclude others from the production of a

specific good (or from the use of a specific process) for a defined number of

years. This period may vary, depending on the nature of the innovation. In

order to be eligible for a patent, the innovation must be novel, involve a non-

obvious inventive step, and be useful (see Dernis and Guellec, 2001). Definitions of

novelty differed in the past among countries. Today generally, the concept of

universal novelty is implemented in national patent legislation. It requires that

no publication of any sort () may occur anywhere in the world prior to the filingdate of the invention (Adams, 2006).

Figure 1.4. Share of new products in turnover

Source: Eurostat, Third Community Innovation Survey.

25

20

15

10

5

0

Share in total turnover (%) 1998-2000

Icela

nd

Norw

ay

Luxembo

urg

Greece

France

Austria

Denm

ark

Belgi

um

Portu

gal

Italy

Spain

Finlan

d

Germ

any


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Patent protection is only valid in the country that grants the patent.

Inventors who desire patent protection in other nations must file separate

applications in those nations, either directly or indirectly [e.g. through a

regional patent office such as the European Patent Office (EPO) or the World

Intellectual Property Organisation (WIPO)]. Although the broad principles are

the same, there are differences in administrative procedures and nature of

protection granted between patent offices. Some of the main characteristics

are presented in Table 1.1.12

Table 1.1. Comparison of the patent systems of the United States, Japanand Europe (circa 2000)

Prosecution Features United States Japan Europe

Basis of deciding patent

priority

First to invent First to file First to file

Native language filing

permitted?

Any language (English

translation for record)

Japanese or English Any EPO member language,

with English, French or German

translation; translations required

for each country designated

Patent term 20 years from filing 20 years from filing 20 years from filing

Publication of patent Yes, 18 months from filing Yes, 18 months from filing Yes, 18 months from filing

Examination deferral No Yes, 7 years from filing Yes, 6 months from publication

Third-party contestation

of patent

Post-grant opposition Post-grant oppositions Post-grant oppositions

Patentability standards Least unfavourable

to applicants

Strict standards-claims need

working examples

Moderate standards; some

variation by nationality, limited

grace period

Breadth of claim awarded Very Broad Narrow Broad

Overall comparable costs

(1993)

$13.000 $30.000 $120.000

Strength of enforcement Very strong Weak Medium (varies) enforcement

by national patent offices

Interpretation of claims Literal interpretation,

pro patentee court systems,

equivalents applied

Narrow interpretation linking

back to specifications,

equivalents not applied

Interpreted less literally;

equivalents applied, but under

different principles

Judicial style Adversarial court trials,

jury trials often seen

Brief intermittent hearing

with judge, written testimony

is widely used

Largely by written testimony,

some oral hearings, court

experts used

Uncertainty in outcomes High, due to lay judges

(in District Courts) and juries.

No in UK

High, especially due to delays,

and pressure to settle out of

court

Relatively low in all jurisdictions

Time taken (1993) 18-24 months 36 months + opposition

(3-5 years)

30 months + opposition

(expeditious)

Source: Adapted from Somaya (2000) and Gallini (2002).


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While differences remain, there has been considerable convergence in

the characteristics of intellectual property rights regimes over time. Indeed,

applying the Park Index13 of the strength of IPRs from 1980 to 2000, Jaumotte

and Pain (2005c) found that there is relatively little variation across OECD

countries. Recent data suggest that the coefficient of variation in the index for

OECD countries fell from 0.32 in 1990, to 0.07 in 2005 (Park and Lippoldt 2007).

EPO patent applicants may designate as many of the 32 EPO member-states

for protection as desired. The application is first examined and if successful

granted by the EPO. The patent is then transferred to the individual national

patent offices designated for protection. Because EPO applications are more

expensive, European inventors typically first file a patent application in their

home country, and then apply to the EPO if they desire protection in other

European countries. However, by filing with EPO, the total costs will be much less

than if individual applications are made to each country (Popp, 2005).

The procedure through the WIPO is based on the Patent Co-operation

Treaty (PCT). In this case, any of the more than 140 signatory nations can be

designated for patent protection. The WIPO issues a preliminary examination

report, but does not actually grant the patent. This is the responsibility of the

national patent office, to which the application is subsequently transferred.

Applications abroad must be filed within one year of the priority date,

which is the year in which the initial application was filed. If the inventor does

file abroad within one year, the inventor will have priority over any similarpatent applications received in those countries since the priority date. This

legal concept of priority was first introduced in the Paris Convention in 1883.

Additional fees apply for each application. Because of these features of patent

law, only the more valuable inventions are filed in several countries. Moreover,

filing a patent application in a given country is a signal that the inventor

expects the invention to be profitable in that country.

Patents are typically sorted by the priority year. If a patent is granted,

protection begins from the priority date. It corresponds quite closely to the

date when the inventive activity took place, as patent applications are usuallyfiled early in the innovation process. Initially, patents were only published

when granted. However, due to long delays of such publications and the

resulting disadvantages (e.g. duplication of R&D), starting in the 1960s, most

patent offices adopted the deferred examination process. This includes the

requirement that an application be published while it is still pending

typically around 18 months after the earliest filing date (Adams, 2006). In

empirical research, it is therefore important to distinguish between data on

patent applications and data on patents granted.


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Patent data provide a rich data source for empirical studies. In particular,

they have the following strengths:

There are very few examples of major inventions which have not been

patented (Dernis and Guellec, 2001). Compared to R&D expenditure, patents are an output indicator (i.e. they

measure productive innovation activity).

Further, the data classified into detailed technologies. A distinction can,

therefore, be made between, for example, air pollution control devices

designed to reduce NOX emissions and devices designed to control SO2emissions (see e.g. Popp, 2005).

Patent data is generally readily available (although not always in a

convenient format). They are based on objective standards that change

slowly on the basis of invention novelty and utility (e.g. Griliches, 1990).

Patent data are also discrete, and thus easily subject to statistical analysis.

Moreover, given the objective standard of assessing patents, these statistics

provide some uniformity in comparing innovation across countries.

And finally, patent data have the potential to be linked to sectoral data

(see e.g. EPO and OECD work on concordance between ISIC and IPC codes)

and to firm level data.14

It is important to recognise that patents cannot be used to develop a

measure ofall innovations. First, they are designed only to protect technologicalinventions. Other IPR regimes exist to protect innovations in other fields for

example, copyrights for literature, trademarks for words or graphic devices

which distinguish a product and the registration of designs, and where

protection is focussed on the appearance of a product (Adams, 2006). Less

formal ways (than intellectual property rights) to protect technological

inventions also exist notably industrial secrecy, or purposefully complex

technical specifications (Frietsch and Schmoch, 2006).15 In return for receiving

the monopoly rights inferred by a patent, the inventor is required to publicly

disclose the invention. Rather than make this disclosure, inventors may preferto keep their invention secret. Surveys of inventors indicate that the rate at

which new innovations are patented varies across industries (Cohen et al.,

2000 and Blind et al., 2006). For meaningful empirical analyses, it is therefore

important to control statistically for these differences in the propensity to

patent.

A further critique of patent data relates to the fact that not everything

that is patented is eventually commercialised and adopted. There are, however,

significant fees attached to the examination of a patent application (and to

renewal fees, once the patent has been granted). So it is safe to assume that, atleast in the expectations of the applicant or patent holder, the prospects for


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commercialisation and adoption are good. Nonetheless, the economic value of

patents varies (Popp, 2005). The OECDs Triadic Patent Family only includes

patents which have been deposited at all of the European Patent Office (EPO),

the Japanese Patent Office (JPO), and the US Patent and Trademark Office

(USPTO). This ensures that the patents included in the TPF database are of

wide commercial value.

In addition, different patent offices apply different rules to define the

scope of a patent. In particular, the JPO often requires multiple patents for a

single patent at the USPTO or the EPO. When comparing patent counts across

countries, this can result in a significant bias. Most patent databases apply a

consolidation filter, in which all patents which are derived from the same

original invention are included in a single patent family. The latter is thus

defined as the set of patent applications in multiple countries pertaining to

the same invention (and thus, sharing the same priority details16). The

inventor country of a patent family is the country of residence of the inventor,

as stated in the priority filing. Drawing on the feature that additional fees

apply for each patent filing abroad, Lanjouw and Schankerman (2004) have

used data on patent families as proxies for the quality of individual patents.

However, when comparing patent families across different countries of origin,

the general patterns of patent filings abroad have to be kept in mind. Since

these are motivated by commercial strategies, they depend on regional

specificities, size of the domestic market, and the export orientation of an

economy (Grupp 1998).

As a result, the propensity for patent applicants to file internationally

varies significantly. These factors explain why, for European countries, the

percentage of patent families that are first filed in one European country, and

then followed by subsequent patent applications for the same invention

abroad, is relatively high (e.g. 56% for Germany in the years 2000-2005). In

contrast, the same indicator for the US (with its very large domestic market)

and for Japan (as a more closed economy) is 42% and 19%, respectively

(WIPO 2007).

17

In terms of host countries, the patent offices in the US, Chinaand the EPO receive the most non-resident patent filings (WIPO, 2007).

On the basis of the TPF database, the OECD has developed a wide variety

of indicators of the innovation capacity of different OECD economies. This

includes data on the total number of patents filed by country at both the

European Patent Office and the USPTO, as well as in these two offices and

the Japanese Patent Office. Figure 1.5 provides data on the number of TPF

applications by inventor country for selected OECD countries. Further data is also

being made available (e.g. citation data, inventor data) with on-going

development of the PATSTAT database; it is anticipated that this additional workwill also be exploitable for future empirical work related to eco-innovation.


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While the TPF database eliminates certain biases in patent data, the

geographic and consolidation filters applied in its development may not be

sufficient for examining very specific areas of technological innovation. Since a

very large number of applications and grants do not pass through the relevantfilters, the resulting patent counts may be very small. The more specific the area

under analysis, the more important this problem will be. Perhaps more

Figure 1.5. Number of TPF patent applications by inventor country

1983

1983

20 000

18 00016 000

14 000

12 000

10 000

8 000

6 000

4 000

2 000

0

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

1 200

1 000

800

600

400

200

0

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

A. Germany, Japan and United States

Germany Japan United States

Australia Austria Belgium

B. Other OECD Countries

Canada Denmark Finland

France Hungary Ireland Italy Korea Netherlands

Norway Spain Sweden Switzerland United Kingdom


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significantly, these filters may not be appropriate for assessing the effects of

domestic environmental policies on innovation (see Popp, 2005). As such, the TPF

database may not always be the most appropriate source of data for very specific

research questions. In the work undertaken, patent data was therefore also

obtained from a commercial database (Delphion) for two of the three case studies.

(See Annex 1.A1 for a discussion of different sources of patent data). Delphion

applies a consolidation filter similar to that used in the TPF and as such,

differences in the breadth of patents between different countries have been

corrected for.

3.3. Patents as a measure of eco-innovation

Arguably, the identification of those innovations which are specifically

environmental in nature is facilitated through the use of patent data due to

the nature of the classification systems used for IPRs. Specifically, relevant

patents can be identified using the International Patent Classification (IPC),

developed at the World Intellectual Property Organisation (www.wipo.org).

While there are other classification systems, most researchers use the IPC

classification system when searching for patents. This classification system

involves a hierarchy of codes, structured into different levels. When patents

are granted, they are given technology classifications and sub-classifications

by various patent offices. These classifications can then be used to identify all

relevant patents for a given type of technology.18

The IPC uses a technology-oriented approach. (Annex 1.A2 provides an

overview of the IPC system.) Since very detailed engineering-based descriptions

are given for each class, this allows for the identification of technologies which

have important environmental implications. Table 1.2 gives an idea of the

hierarchical structure, taking the example of solar concentrating devices used

for the generation of mechanical power.

This example, taken from the case study on renewable energy, is relatively

straightforward. All patent applications within class F03G 6/08 are clearly related

to renewable energy, and there are likely to be very few patents involving solarenergy concentrating technologies which do not list this class, particularly

since each application can list multiple classes.

A broader effort to identify environmental patents was also undertaken by

the OECD, building upon a search algorithm developed at the Directorate for

Science, Technology and Industry. Using the DSTI definition of environmental

patents, counts of patents deposited by different countries in a number of

different environmental areas have been derived. For most policy areas, Germany,

the US, and Japan dominate (see Figure 1.6). There

Documents

OECD Studies on Environmental Innovation Environmental Policy Technological Innovation and Patents OECD Studies on Environmental Innovation