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Energy Technology Innovation: Considering Key Influences

May 4, 2011

China is investing massive public resources in the deployment of new energy projects, as well as investing in the development of low emissions and new energy technologies, far outstripping US public investment.  It is closing the energy technology innovation race with key OECD nations including the United States.

It is possible that OECD economies including the United States might have some magic ingredient which will help them maintain high-value energy technology innovation market share.  Perhaps higher relative private investment and technology clusters will continue to engender exponential innovation results.  The United States far outdoes all rivals in terms of venture capital and private equity investment (although comparable measures of private R&D investment remain extremely problematic).

There is little empirical evidence specific to energy technology innovation to support any such theory to date.  Is one facet more influential in technology innovation than another?  Will China’s massive public investments in energy technology result in a greater share of innovation?

In a cross-country emipirical study of low emissions technology innovation led by the OECD and CERNA in France, the authors demonstrate the increasing importance of major emerging markets in the technology innovation cycle, and highlight the opportunities for greater strengthening through further South-South ties.  In the paper, Invention and Transfer of Climate Mitigation Technologies on a Global Scale: A Study Drawing on Patent Data (2008), the authors examine patents based on PATSTAT analysis across 13 different technology categories from 1978 to 2003, with a focus on OECD and major emerging economies.  Patent data is used as an indicator of technology innovation and diffusion.  Data is examined from several angles so as to better understand origin and development of technology, and gain an understanding of transfer mechanisms. 

Japan, Germany and the USA account for two-thirds of innovations.  Japan alone accounts for 40.8%, USA for 12.8%, Germany for 12.7%, and in fourth place China for 5.8% of technology innovation.  The study demonstrates a very high level of energy technology innovation market concentration, varying across technologies.  Renewable energy technology innovation typically have a lower market concentration.

The patent study illuminates the nature and evolution of low emissions technology development, in particular highlighting some important correlations which might suggest some key influences. 

The authors demonstrate that there is positive correlation between technology innovation and OECD Annex 1 ratification of the Kyoto Protocol (which at the time of writing did not exist for those countries that had not ratified – Australia and the United States).  They see no relationship between the Kyoto Protocol and technology transfer. 

They demonstrate a correlation between renewable energy technology innovation and oil prices

The study implies that national innovation global market share is consistent with national public R&D expenditure figures (in the absence of reliable indicators of private R&D investment).

They also look at innovation intensity among technology types, and conclude that there is a correlation in intensity of innovation with high-intensity R&D industries (the comment they associate with this linearity is that ‘This corresponds to large R&D-intensive industries where patents are perceived as an efficient means of protection’.) 

By its own admission, the study does not successfully emipirically prove causal linkage between inputs (investment, energy prices etc) and outputs.  Econometric analysis will be needed to prove causation of the various observed correlations.  Proving which is more influential will require very large data sets.

However, intuitively one might be tempted to consider that energy technology innovation might be caused by both ‘push’ and ‘pull’ factors including public (and private) R&D investment, as well as long-term end-user market prices which might consist of high relative energy prices and their proxies (carbon price) – otherwise known as the induced innovation hypothesis.  Most OECD energy technology innovation policy is based on this premise.

Emerging markets including China are catching up with OECD in low emissions energy innovation, although a large gap persists. 

Source: Invention and Transfer of Climate Mitigation Technologies on a Global Scale: A Study Drawing on Patent Data

 

If success in innovation is more dependent upon public expenditure than private expenditure, or some other influence, then we can expect this ratio to change further in favour of the South – and rapidly, given the investment trends.  Market expectations of continued oil price pressures are likely to maintain a technology market pull effect across all economies, irrespective of the future evolution of climate change market agreements.  However, it is by no means clear what mix and ratio of investment and market conditions are most conducive for innovation.

Some, including Ron Pernick at Clean Edge, long for a strategic national plan in the United States which might serve to drive a competitive innovation edge.  For now, the energy policy of the United States is rudderless.  However, the fact that both sides of politics managed to agree on $180m for FY2011 for the flagship clean energy innovation hub, Advanced Research Project Agency – Energy (ARPA-E), offers a sign of hope that momentum can be built and the United States can retain innovation value.

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