Investment in clean technologies can help achieve a wide range of environmental objectives, from mitigating climate change, to controlling air and water pollution, and enhancing resource efficiency in general. Indeed, many governments now see technological innovation as a key channel through which they can lift their economies onto a more sustainable path. But what role can public policies play in encouraging such innovation?
Answering this question requires an accurate measure of innovations that reduce adverse environmental impacts–what is widely called eco-innovation. Patent data is a particularly attractive place to look for such a measure. Patented inventions are categorised into over 60,000 different technology classes in the International Patent Classification system. The classes are application-based, which allows for the identification of patents that are relevant for specific environmental concerns. For instance, inventions can be identified that are directly related to generation of energy from wind power, or the abatement of local air pollutants. In addition, as patents represent tangible outputs from inventive R&D, their study can give policymakers a real handle on how to orientate their innovation strategies.
Take renewable energy first of all. Using the OECD patent database, we have identified innovations related to renewable energy production for a panel of 26 countries over the period 1978-2003. A clear trend is that wind power, solar power and waste-to-energy technologies have recorded continuous growth in patenting, particularly since the mid-1990s. Innovation with respect to ocean energy has also been growing, but from a very low base, and more R&D in the future could change this picture. Not surprisingly, large countries such as Germany, the US and Japan, along with France and the UK, have the highest number of patents in renewables. However, relative to the size of the economy, a number of smaller countries appear as significant innovators in niche fields–Denmark for wind, Switzerland for solar and geothermal, Austria for geothermal, Norway and Sweden for ocean power, and so on. If the patent data is adjusted to reflect differences in the general propensity for inventors in different countries to patent, then Australia (for solar) and Belgium (for wind) also rank among the top inventors–that is, a relatively large part of their inventive activity is devoted to renewables.
Public policy can play an important role in encouraging such innovation. The role of public R&D expenditures is self-evident since many of the applied inventions which have been patented by businesses arose out of publicly-financed basic research. But there are other types of policies which may induce business-led innovation. For example, fiscal reforms may encourage technological innovation in renewable energy sources either by decreasing the relative price of the use of renewable energy compared to fossil fuels, or by providing upstream tax incentives for private sector investment in R&D and capital investment. Increasing demand for electricity generated from renewable sources through production quotas can also encourage innovation in renewable energy technologies. In short, the right policies can improve the returns on innovation with respect to renewable energy sources. Indeed, our own work shows that tax-based measures and production quotas, as well as support for research and development, have played a significant role in encouraging innovation in renewable energies.
Consider automotive emissions next. These are major sources of local air pollutants, such as carbon monoxide, particulate matter, hydrocarbons, nitrogen oxides, as well as a significant and growing contributor to greenhouse gas emissions. We examined patenting activity undertaken by the automobile industry in the US, Europe (with an emphasis on Germany) and Japan to study the effects of domestic and foreign environmental policies on innovations in automotive emissions control technologies. What we see is a shift toward the use of more “integrated” abatement technologies which reduce emissions by improving fuel efficiency or by preventing emissions from being produced in the first place, and away from the likes of catalytic converters, particulate filters and other post-combustion technologies. This shift appears to have been encouraged by the use of more flexible environmental regulations and by higher motor fuel prices. The end result is the development of technologies which both reduce emissions and the operating costs for car users.
This is welcome news for governments, who see eco-innovation as a means to achieve both key environmental objectives and create competitive business conditions for their domestic firms. Domestic inventors have typically dominated patenting activity in most large economies and for most technologies. For example, it is no surprise that Japanese inventors are responsible for 86% of vehicle emission abatement patents deposited in Japan. However, when it comes to patents for the same technologies deposited in the United States, the Japanese also take first place, outperforming their US counterparts! Indeed, in general the data show that the marketplace for eco-innovation is becoming more global, as inventions originating in one country are diffused throughout the world economy.
Our work on this question will continue as we launch into a new phase to examine eco-innovation in areas such as waste prevention and recycling, carbon capture and storage, building energy efficiency, wastewater treatment, “green” chemistry, etc. But the results so far highlight the importance of strengthening domestic conditions for innovation, while taking full account of the evolving global marketplace for technology. Most importantly, this demands flexible environmental policies to encourage the development of innovations that are widely applicable too.
Assistance of Hélène Dernis and Dominique Guellec from the OECD Directorate for Science, Technology and Industry is gratefully acknowledged.
©OECD Observer No. 264, December 2007