Induced Innovation in Non-Hydro Renewable Technologies: The Effects of Energy Prices and Federal Spending

Our society’s reliance on fossil fuels has many negative results, including compromised national security and foreign relations as well as environmental damage. Many see technology as the key to an improved energy future, and in particular the development of new, cleaner renewable energy sources. The question then remains how to stimulate such technological innovation. In this study, I use U.S. patent data from 1970 to 2001, along with historic energy prices and federal spending data to see the affect energy price and R&D spending have on innovation in the non-hydro renewable energy industries – solar, wind, geothermal, oceanic, and fuel cell. Using a simple regression, I found a very strong, positive relationship between both R&D spending and energy price on innovation in the non-hydro renewable energy industries. This suggests that a policy intended to stimulate renewable energy innovation could do so either through increased federal R&D spending, or by increasing energy prices through taxation or other means