Energy and environmental technology.

• Author: Popp, David
• Position: Research Summaries

Developing new and improved clean-energy technologies is an important part of any strategy to combat global climate change. For example, generation of electricity and heat is the largest source of carbon emissions, accounting for 42 percent of carbon emissions worldwide in 2012. (1) Meeting the climate policy goals currently under consideration, such as European Union discussions to reduce emissions by 40 percent below 1990 levels by 2030 or the U.S. Clean Power Plan goal of reducing emissions from the electricity sector by 32 percent by 2030, will not be possible without replacing much of the current fossil fuels-based electric generating capacity with alternative, carbon-free energy sources.

My research focuses on the role of technology for both reducing energy consumption and providing clean energy. This work includes three main themes: empirical studies of the relationship between environmental policy and innovation, policy simulations and empirical work on ways environmental and science policies may promote energy innovation, and empirical studies of environmental technology transfer. Much of my research uses patent data to track energy innovation, thereby building on the pioneering efforts of NBER researchers such as Adam Jaffe and Bronwyn Hall, whose early forays into patent data made these data accessible to a new generation of researchers. (2)

Empirical Studies of Induced Innovation

My empirical work on policy-induced technological change seeks to understand how policy affects the development of new environmentally-friendly technologies. I use patent data to track changes in environmental technologies, such as pollution control devices, alternative energy sources, and technologies designed to improve energy efficiency. With this research, I aim to better inform researchers who simulate the effects of long-term policies such as climate change policy and to contribute to the broader discussion of environmental policy design.

Early work on energy innovation focused on the link between energy prices and innovation. In a 2002 paper, I use patent data to identify innovation on 11 different alternative energy and energy efficiency technologies. (3) In the long run, a 10 percent increase in energy prices leads to a 3.5 percent rise in the number of energy patents. Most of the response occurs quickly after a change in energy prices, with a mean lag response time between energy prices and patenting activity of 3.71 years. My estimates controlled for the quality of knowledge available to an inventor as well as other factors influencing R&D, such as government support for energy research and technology-specific demand shifters.

Subsequent work turned attention to the incentives offered by various policy instruments, showing that the types of incentives matter. In a 2003 paper, I combine plant-level data on flue gas desulfurization (FGD) units installed at U.S. coalfired power plants with patents pertaining to FGD devices to assess the impact of innovation before and after the 1990 Clean Air Act (CAA), (4) which instituted permit trading for sulfur dioxide (S[O.sub.2]). Before this act, new plants were required to install flue gas desulfurization capacity capable of removing 90 percent of S[O.sub.2]. As a result, the innovations that occurred before the 1990 CAA focused on reducing the cost of FGD units, rather than on improving their environmental performance. After passage of the act, the focus of innovation became improving the ability of FGD units to remove S[O.sub.2] from a plant's emissions.

While economists often favor using broad-based policies, such as a carbon tax or tradable permits, to address externalities, policy makers often use more narrowly focused options. In renewable energy, popular options include feed-in tariffs, in which governments guarantee a fixed price above prevailing market prices for energy from renewable sources, and renewable portfolio standards that require a minimum percentage of electricity be generated using renewable sources. While renewable portfolio standards leave it to market forces to decide which renewable sources are used to meet the target, feed-in tariffs may target specific energy sources. For example, at their peak, feed-in tariffs for solar energy in Germany were over seven times higher than the feed-in tariffs for wind energy. (5)

In a 2010 publication, Nick Johnstone, Ivan...