Creating Incentives for Environmentally Enhancing Technological Change

Lessons from 30 Years of U.S. Energy Technology Policy

Abstract

Due to the externalities associated with energy production and consumption, public policy is necessary to provide a stimulus for the development and diffusion of more environmentally sound energy technologies. Based on an in-depth history of technological development for four electric power technologies, this paper draws lessons for the design of future policies to promote innovation in energy technologies. The technologies examined are: wind turbines, solar photovoltaics, gas turbines, and atmospheric fluidized bed combustion. The analysis considers both supply-push and demand-pull approaches for stimulating technological change. It concludes that government activities to promote environmentally enhancing technological development must include both supply-push and demand-pull policies during the period spanning pre-commercialization, first commercial use and lead adoption. Furthermore, this analysis identifies five industry sector characteristics that influence the level of government effort necessary to support commercialization: the size, strength and risk of the private market niche; industry structure; firm financial capability; firm technological capability; and sources of innovation.