The Political Economy of Energy Innovation
This chapter empirically investigates the effects political economy factors on energy innovation in a sample of 20 countries between 1995 and 2010. We use various proxies for energy innovation and focus on the role of environmental policy, good governance, political orientation, and the distribution of resources to energy intensive industries. We show that political economy factors affect the incentives to engage in energy-related innovation even in the presence of stringent environmental policy. Specifically, good governance and left-wing governments provide incentives for greater R&D resources to the energy sector, while a larger distribution of resources toward energy intensive sectors can induce market-size effects and lobby for larger energy R&D allocation. This implies that, in order to move towards a greener economy, countries should combine environmental policy with a general improvement of institutions, consider the influence of government’s political orientation on environmental policies and the size of energy-intensive sectors.