Cross-border, policy-induced innovation in clean technologies

As governments around the world attempt to curtail the harmful impacts of climate change, climate and environmental policies are becoming more ubiquitous and increasingly more stringent. Some policies encourage switching to less polluting forms of energy production, such as clean technologies, while other policies take aim at the most polluting industries. Still other policies are intent on tackling energy efficiency, and thus energy star and similar programs are also a common feature of climate policies. The underlying presumption is that the strongest policies will both induce innovation and encourage rapid and widespread switching to these new technologies. The umderlying question of how and to what degree climate policies are able to induce innovation and diffusion of clean technologies warrants substantial research, and indeed is the fundamental reason for this present research. This dissertation starts by analyzing “The Porter Hypothesis” (PH), which theorizes that competitive firms properly attuned to environmental policies should respond in innovative ways, increasing their competitiveness and resulting in a “win-win” scenario. This has become an influential theory for climate technology innovation. The PH is widely discussed in the Induced Technological Change (ITC) literature dealing iii with climate technologies induced in part by climate policies. Yet the majority of this research, in particular ITC literature exploring such inducement effects, is strictly confined to domestic analysis; that is, the question of domestic policies inducing or not inducing domestic firms or innovators. The fact that inducement effects are not explored across borders represents a major gap in the literature and this is a problem because climate technologies are evidently quite globally dispersed. For the most part, ITC models are largely unable to account for a “foreign” Porter effect. A cross-border PH might beg the question of whether a nation’s competitiveness increases in response to its domestic, in addition to foreign, environmental policies. Of course data limitations and the young age of the clean energy industry, coupled with its complicated global markets, might also account for this shortcoming in the literature. Nevertheless, the Porter Hypothesis conceptualized as operating across borders should open a new area of research into global but differentiated climate policies, and their potentially strong impacts on innovators, regardless of origin. The second paper in this dissertation empirically tests a dynamic, multi-country Porter Hypothesis by regressing patents in several clean technologies over foreign environmental policies. In this paper, a sample of 32 countries over 16 years is used to understand the extent to which an international Porter Hypothesis exists, if indeed such an effect does. This extends beyond most of the empirical research by focusing on foreign policies and the impact these have on domestic innovators. The influence of foreign environmental policy stringency is proxied by weighting the average foreign EPS (environmental policy indicator from OECD) and its explanatory power for patenting in clean energy technologies (with patent rates as a proxy for innovation rates). The goal is iv to explore the magnitude of the foreign policy effect on home-country innovation in clean energy technologies together and taken separately. Properly constructed policy, as the “Porter Hypothesis” suggests, may lead to higher profits through innovative product development. Therefore, the question of whether countries are induced by foreign government’s environmental policies has important ramifications for domestic and global climate policy-makers. The final paper of this dissertation relies on institutional theory as a lens to understand cross-border, policy-induced innovations in environmental technologies. Using a sample of 32 countries, including the OECD countries and the BRICS, this article implies an important relationship between environmental policies and institutional quality. In particular, institutional distance between foreign environmental policies and domestic innovations is found to be significant. This finding benefits from a gravity model, which uses a formula to take the distance between institutional proxies, in order to understand the “institutional distance”, or the distance between a home and foreign institutions. Environmental technologies, in particular solar and wind energy, experience foreign policy pulls in different ways: for the former, “frontier” foreign policies “pull” innovations at home while for the latter, institutional “distance” between foreign policy leader and domestic innovator appears most significant.Ph.D.Includes bibliographical referencesby Kyle Stuart Herma