Which policy instruments to induce clean innovating?

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  • Research Policy 41 (2012) 1770 1778

    Contents lists available at SciVerse ScienceDirect

    Research Policy

    j our nal ho me p ag e: www.elsev ier .com

    Which va

    ReinhildKULeuven, MSI

    a r t i c l

    Article history:Received 16 MReceived in reAccepted 11 JuAvailable onlin

    Keywords:Clean innovatiPrivateDevelopmentDiffusionPolicy mixDemand-indu

    ge chblic can tee priventionende

    for ins are

    pull ducinh govion acting

    1. Why we need the private innovation machine for climatechange and how to turn it on

    How to lenges facin(e.g. Bosetttion and adaneeds to beclean technmercializatrequire a lonthe deploymdevelopme

    For cleaciently fastbe needed. and knowleprivate cleaeffective onpetition froinitial instaincentives ttechnologie

    E-mail add

    The issue is not just whether we need government interven-tion, but also how this government intervention should be designedto lower emissions at the lowest possible cost for economic

    0048-7333/$ http://dx.doi.olimit climate change is one of the grand policy chal-g the world today (Stern, 2007). Simulation exercisesi et al., 2009) conrm that to keep the costs of mitiga-ptation manageable, a wide portfolio of technologies

    available and used by polluters soon. Radically newologies which are not yet available or still far from com-ion will be needed to tackle climate change, but theseger-term perspective. In the shorter term, we also needent of already available cleaner technologies and the

    nt of near to market cleaner technologies.n technologies to be developed and diffused suf-

    and at the appropriate scale, policy intervention willIn view of the pervasive combination of environmentaldge externalities characterizing clean innovations, then innovation machine cannot be expected to be socially

    its own. In addition, new clean technologies face com-m the existing more dirty technologies, who enjoy anlled base advantage. Private actors need to be providedo switch from existing dirty technologies to new cleans (Acemoglu et al., 2009).

    ress: Reinhilde.veugelers@econ.kuleuven.be

    growth.Recently developed economic models of directed technological

    change (e.g. Acemoglu et al., 2009; Bosetti et al., 2009) stronglysupport the case for a portfolio of instruments including carbonprices, R&D subsidies and regulation (see Aghion et al., 2009a).Carbon prices, obtained through a carbon tax or a cap-and-tradesystem, will not only reduce the production/consumption of dirtytechnologies, they will also be important as incentive for the pri-vate sector to develop new clean technologies and accelerate theadoption of existing cleaner technologies. Expectations of futurecarbon prices and regulations are an especially important lever forprivate sector research, development and adoption of clean tech-nologies. In tandem with a sufciently high and long-term, timeconsistent carbon price as well as performance based regulation,public support for the development and adoption by the privatesector of clean technologies is needed. Public R&D support is espe-cially crucial for clean technologies which are still in the early stagesof development, neutralizing the installed base advantage of theolder, dirtier technologies. It is important that policy instrumentsare deployed simultaneously, as there are important complemen-tarities to exploit. Acemoglu et al. (2009) show that, while a carbonprice alone could deal with both the environmental and the knowl-edge externalities at the same time, using the carbon price alonewould be a more costly policy scenario, in terms of resulting in

    see front matter 2012 Elsevier B.V. All rights reserved.rg/10.1016/j.respol.2012.06.012 policy instruments to induce clean inno

    e Veugelers, Naamsestraat 69, B-3000 Leuven, Belgium

    e i n f o

    ay 2011vised form 3 June 2012ne 2012e 22 October 2012


    cing instruments

    a b s t r a c t

    In view of the sizeable climate chanfull speed. Beyond the supply of pudevelopment and adoption of new cleGreen House Gas (GHG) emissions. Thchallenge. It needs government intervexternalities and overcome path depon the motives of private sector rmsinnovation survey conrms that rmtime, the high importance of demandsector agreements as drivers for introthe private innovation machine, whicbe more powerful to induce the adoptpolicy mix and time consistently, affe/ locate / respol


    allenge, we need a clean innovation machine operating atlean R&D infrastructure and clean public procurement, thechnologies by the private sector needs to be assured to reduceate clean innovation machine, left on its own, is not up to this

    to address the combination of environmental and knowledgencies. The rm level evidence presented in this contributiontroducing clean innovations from the latest Flemish CIS eco-responsive to eco-policy demand interventions. At the samefrom customers and voluntary codes of conduct or voluntaryg clean innovations, is a reminder of the internal strength ofernments need to leverage. Policy interventions are shown tond development of new clean technologies when designed in

    future expectations. 2012 Elsevier B.V. All rights reserved.

  • R. Veugelers / Research Policy 41 (2012) 1770 1778 1771

    lower economic growth. Similarly, when using only the subsidyinstrument, keeping the carbon price instrument inactive, wouldimply excessively high levels of subsidies compared to their levelwhen used in combination.1

    Are governments deploying the right effective policies for stim-ulating clean innovations? Aghion et al. (2009b) examined therecord of government policies for clean innovation. With low,volatile and fragmented levels of carbon pricing and subsidies, theiroverall conclusion is that we are still far off from an effective policyframework capable of leveraging the power of the private sector toresearch, develop and deploy cleaner technologies.

    In this contribution we look at private clean innovation in moredetail and horiented gothat differeernment poprojects, thical objectivwhole enernew low-emthe need toas well as pof new tecties associaexample of system thatgies. In ICT,supporting ponents anddevelopmechases of cstrong procenergy is a hsion oriente(2011) repodemonstratpetroleum. result in sipoor designplemented 2007).

    This conture, large innovationsthis specialchange techdevelopingtransformathe developby the privat availableof this contwhich rmtions, and hhave been ipresent newule (Section

    1 A way of shprice or R&D sis to express hused as a singnation. Calibra(2009a) show the rst 5 yearst 10 years.

    oriented green innovation policy on how to leverage the privatesector.

    2. Data on clean innovations

    In this section, we take a look at data on clean innova-tions. A rst important observation to note is the poor qualityof standard data on clean innovations. No common denitionsare used, with terminology ranging from clean, sustainable pro-duction to eco-technologies, antipollution technologies and theirinnovations. While each source uses its own denitions, a com-

    enominator of clean or eco-innovations is that they are at generating substantial improvements for the environ-These environmental effects include CO2 emission reductionate change, but also involve other types of pollution reduc-aste treatment as well as the environmental gains from ause of resources. Clean energy and energy efciency arer subsector of eco-innovation. In reporting data, our focusrivate rms activities in innovations for climate change,pending on data availability, we also report broader cate-

    a on private R&D expenditures are not reported bylogy.2 There is only information available by the economicin which the R&D expending rms are active (NACE clas-on). es secto

    is onvest

    (likmms is thOSTAor ofbora

    thattion t wavcludl innm, one.rmaive a

    e is ong rms, chemeasun mo09, a

    the an-EU sn assevey ined thanergy echnorgy.previ

    som on ital benect quatelye are tents easuow this process can be stimulated by a green missionvernment policy. Climate change has unique featuresntiate this challenge from other mission oriented gov-licies (Jaffe, 2011). Unlike in the Manhattan or Apolloe mission is not focused on a specic isolated technolog-e. What is needed is a pervasive transformation of thegy-economic system, mobilizing polluters to switch toission systems. It shares with health related missions

    include support for development of new technologiesolicies on the demand side to accelerate the adoptionhnologies. The ICT area lacks the negative externali-ted with pollution, but it provides perhaps the nearesta similarly scaled transformation of the socio-economic

    is needed to fully leverage the power of new technolo- many OECD governments played a major role beyond(mission-oriented) research through purchases of com-

    systems, particularly in the early phases of technologynt. In energy, one could similarly envisage public pur-lean solutions in areas where the government has aurement interest (e.g. electric military vehicles). Thatighly specic and challenging case for designing a mis-d technology policy is demonstrated by its history. Jafferts on the 1970s large scale policy initiatives in the US toe the commercial feasibility of technologies to replaceThe large scale synfuels and related projects failed tognicant commercial outcomes and because of their

    and implementation crowded out rather than com-private investments (see also Yang and Oppenheimer,

    tribution will not discuss the public research infrastruc-scale public projects or public procurement for clean

    (several of these topics are covered in the paper in issue by Davis). Our focus is on the part of a climatenology policy that to leverage the private sector into

    and adopting clean technologies, to induce the neededtion of the energy-economic system. We look both atment and the deployment of new clean technologiesate sector. To this end, we rst provide a quick look

    data on clean innovations (Section 2). The major partribution is dedicated to a micro-economic analysis ofs have been creating and/or adopting clean innova-ow strong which types of government interventionsn affecting these decisions (Section 3). To this end we

    evidence from the Flemish CIS eco-innovation mod- 4). We close with some suggestions for a mission

    owing the higher costs when using only 1 instrument (i.e. the carbonubsidies), rather than a combination of carbon pricing and subsidies,ow high the optimal carbon price or subsidies would have to be whenleton instrument relative to its optimal level when used in combi-ting this scenario in the Acemoglu et al. (2009) model, Aghion et al.that the carbon price would have to be about 15 times bigger duringrs, while subsidies would have to be on average 115% higher in the

    mon daimedment. for climtion, wbetter a majois on pbut degories.

    Dattechnosector sicaticlassimajor energyR&D insectors

    A covationby EURbehaviin collawhereInnovathe lasas it inmentaBelgiumodul


    2 Therexpendi(like carreliable (and eve

    3 In 20nies from1000 no2010). Aeld surconrmout by eenergy tand ene

    4 The providesquestionronmenmore dirunfortun

    5 TherFirst, pamainly mThe EC-JRC-IPTS Scoreboard on large R&D spendersrms and their R&D expenditures on the basis of theirr of activity. Although in this classication, alternativee of the sectors considered, it fails to capture the clean

    ments of rms whose major sector of activity is in othere GE or Siemens).3

    only used data source for measuring private sector inno-e Community Innovation Survey, organized bi-annuallyT/OECD. The survey collects evidence on the innovative

    companies, not only innovations developed in-house ortion with others, but also innovations developed else-

    are adopted by rms. Unfortunately, the CommunitySurvey offers few insights into eco-innovation.4 Onlye, CIS-VI (20062008), partly overcomes this problem,es an optional one-page set of questions on environ-ovation. In Section 4 we will use these results frome of the countries that included the environmental

    tion on patent applications can be used to measurectivities related to environmental protection.5 To be

    nly information available by the economic sector in which the R&Ds are active. In most sectors important for greenhouse gas emissions

    micals, petroleum), overall innovative activities cannot be used as are for clean innovations, as the innovations in these sectors are alsostly) related to other motives.mong the 1000 largest R&D spenders in the EU, 12 dedicated compa-lternative energy sector managed to get into the list, another 2 in thependers. They hold an R&D intensity of 3.5% (EC-JRC-IPTS Scoreboard,ssment of R&D for low-carbon energy innovations, using websites andterviews, was performed for an EU funded project (SRS (2008)) andt innovation in the energy sector may not predominantly be carriedcompanies. Industries with elevated research activities in low-carbonlogies include companies active in industrial machinery, chemicals,

    ous CIS waves include evidence on motives for innovation, whiche links to environmental innovations, although very imperfect. Themproving energy efciency as an innovation motive relates to envi-ets, but does not necessarily reect an explicit green motive. Theestion on reducing environmental impact as an innovation motive,

    is merged with health and safety motives.a number of limitations in using patents to measure eco-innovations.measure inventive activity, not innovations. Second, eco-patentsre identiable inventions that underlie clean product innovations and

  • 1772 R. Veugelers / Research Policy 41 (2012) 1770 1778

    Graph 1. Growcounted on thebased on the

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    6 Patents arwhich in most

    Table 1Whos who in CET patenting?

    Size Specialization ConcentrationShare of country inworld CET patents

    RTA in CET patents Herndahl acrossCET technologies

    TOP 6Japan 29.7% 0.99 0.72US 15.9% 0.87 0.33Germany 15.2% 1.05 0.28Korea 5.6% 1.21 0.82France

    wn cbridgirld CEuntry

    RTA >he sh


    patetentss qui

    withn clecoun

    the indas going? econ

    motalysest Ces.

    dence cle

    his pin inth rates of patents (applications) for selected CET. Notes: Patents are basis of claimed priorities (patent applications led in other countriesrst led patent for a particular invention).

    basis of UNEP/EPO/ICTSD (2010). Patents and clean energy: bridgingen evidence and policy.

    s an eco-patent, the environmental effects should beith a patent class linked to clean technologies or envi-

    effects should be described in the patent application.ECD and WIPO...


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