In the academic paper “Directing Technical Change from Fossil-Fuel to Renewable Energy Innovation: An Application Using Firm-Level Patent Data”, Dr Joëlle Noailly, Head of Research at the Centre for International Environmental Studies of the Gratuate Institute, and Roger Smeets provide some guidelines on how to induce a technological transition from renewable to fossil-fuel energy. Joëlle Noailly gives us more precisions.
What are the distinctive features of your research?
We know that today approximately 70% of the world’s electricity is currently produced from highly carbon-intensive fossil fuels, namely, coal, oil, and gas. Some countries, such as Australia, China, India and Poland, produce between 70% and 95% of their electricity through the combustion of coal only. This large reliance on fossil fuels explains why the sector of electricity generation is by far the largest producer of carbon emissions. Electricity production generates 41% of worldwide carbon emissions – twice the share of the transport sector – and emissions are expected to increase sharply in the future due to growing electricity demand, notably from developing countries. In light of this, achieving substantial emission reductions will call for decarbonising the electricity generation sector and, thus, moving away from the dominance of fossil-fuel (FF) technologies. Renewable (REN) energy, such as solar, wind, and renewable combustibles, can provide a clean alternative to electricity production. Yet, despite recent developments, renewable energy represents only 18% of the world's electricity.
Our research asks the question: Who are the actors of such a technological transition? it stresses the central role of small innovating firms specialised in renewable technologies (i.e. cleantech firms) in moving our energy systems away from fossil fuels. We use patent data in fossil-fuel and renewable energy technologies for 5,471 European firms over the 1978–2006 period, and our methodology emphasises firm’s heterogeneity in driving technological change. We make a distinction between small specialised firms, which innovate in only one type of technology, and large mixed firms, which innovate in both technologies, in order to analyse how REN patents can replace FF ones at the sector level both through a shift in innovation activities within existing firms and through firms’ entry and exit. We use zero-inflated count data estimation techniques to identify the factors that affect specialised versus mixed firms’ patenting behaviour both at the intensive (i.e., levels of innovation) and extensive (i.e., technological entry) margins.
And what conclusions do you draw?
Our study shows that the small cleantech firms can have a big impact in changing our energy systems: these small innovating firms are responsible for 70% of all renewable patenting activities. In particular, the acceleration in the number of renewable patents in the last 15 years is mainly the result of the entry of small innovating firms, such as clean-tech startups, in renewable technologies. Our econometric analysis analyses factors affecting entry of these firms, and emphasises the role of market developments for renewable energy in Europe (and thereby market-pull policies). Innovation by the large established firms – although active in both fossil fuels and renewables – instead remains largely concentrated in fossil-fuel technologies, with only a very moderate shift towards renewables over the sample period. The policy challenge is thus twofold: first, to encourage small specialised firms to start and sustain innovation in renewable technologies (for instance, by helping startup firms to find financing). The second challenge is to make large firms more responsive to drivers of renewable innovation.
Noailly, Joëlle, and Roger Smeets. “Directing Technical Change from Fossil-Fuel to Renewable Energy Innovation: An Application Using Firm-Level Patent Data”, in Journal of Environmental Economics and Management, vol. 72, July 2015, p. 15–37.
See also a blog post summarising the paper.