| America's future economic growth and international competitiveness depend on our capacity to innovate, particularly in emerging global markets. This paper analyzes the forces that drive innovation in one such market, renewable energy technologies, utilizing the theory of induced technological innovation. Specifically, this paper operationalizes the determinants of innovation to consist of: 1) private market forces, 2) public policy that influences price and market size, and 3) public policy that catalyzes R&D investment. Analysis is conducted using a negative binomial regression to determine which of the three foundational determinants has the greatest impact on renewable energy innovation. In so doing this paper builds off of work conducted by Johnstone et al. (2010). Innovation is measured using European Patent Office data on a panel of 24 countries spanning the period from 1978-2005. The implications of this study are straightforward; policies, not market forces, are responsible for driving innovation in renewable energy technologies. Market-oriented policies are effective for mature technologies, particularly hydro, and to a lesser extent wind and solar power. R&D-oriented policy is effective for a broader technology set. In short, the United States needs a comprehensive policy environment to support renewable energy innovation; market forces alone will not provide the pace and breadth of innovations needed. That environment can and should be strategically targeted, however, to effectively allocate scare resources. |
