Creating Incentives for Environmentally Enhancing Technological Change: Lessons from 30 Years of U.S. Energy Technology

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.