Induced innovation in energy technologies and systems: A review of evidence and potential implications for CO2 mitigation


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Abstract

jats:titleAbstract</jats:title> jats:pWe conduct a systematic and interdisciplinary review of empirical literature assessing evidence on induced innovation in energy and related technologies. We explore links between demand-drivers (both market-wide and targeted); indicators of innovation (principally, patents); and outcomes (cost reduction, efficiency, and multi-sector/macro consequences). We build on existing reviews in different fields and assess over 200 papers containing original data analysis. Papers linking drivers to patents, and indicators of cumulative capacity to cost reductions (experience curves), dominate the literature. The former does not directly link patents to outcomes; the latter does not directly test for the causal impact of on cost reductions. Diverse other literatures provide additional evidence concerning the links between deployment, innovation activities, and outcomes. We derive three main conclusions. (a) Demand-pull forces enhance patenting; econometric studies find positive impacts in industry, electricity and transport sectors in all but a few specific cases. This applies to all drivers—general energy prices, carbon prices, and targeted interventions that build markets. (b) Technology costs decline with cumulative investment for almost every technology studied across all time periods, when controlled for other factors. Numerous lines of evidence point to dominant causality from at-scale deployment (prior to self-sustaining diffusion) to cost reduction in this relationship. (c) Overall innovation is cumulative, multi-faceted, and self-reinforcing in its direction (path-dependent). We conclude with brief observations on implications for modelling and policy. In interpreting these results, we suggest distinguishing the economics of active deployment, from more passive diffusion processes, and draw the following implications. There is a role for policy diversity and experimentation, with evaluation of potential gains from innovation in the broadest sense. Consequently, endogenising innovation in large-scale models is important for deriving policy-relevant conclusions. Finally, seeking to relate quantitative economic evaluation to the qualitative socio-technical transitions literatures could be a fruitful area for future research.</jats:p>

Description
Keywords
energy innovation, endogenous technological change, learning by doing, induced innovation, CO2 mitigation costs, innovation policy, directed technological change
Journal Title
Environmental Research Letters
Conference Name
Journal ISSN
1748-9318
1748-9326
Volume Title
16
Publisher
IOP Publishing
Sponsorship
Institute for New Economic Thinking (Grant ID #INO19-00004)
Institute of New Economic Thinking, Washington DC (https://www.ineteconomics.org/), Grant ID #INO19-00004, “Induced innovation in energy and industrial systems: Evidence and implications for climate change policy"