Oil prices and energy technology innovation: An empirical analysis

To achieve environmental sustainability and reduce their vulnerability to oil shocks, countries can develop new energy technologies. Technological advances reduce the cost of structural changes in the energy economy, and thus also increase the political feasibility of such changes. But what explains international variation in the form and quality of energy technology innovation? We build on previous theories and offer an integrated account: increasing oil prices reinforce existing sectoral innovation systems, both politically and economically, thus allowing public policymakers and private entrepreneurs to profitably invest in new energy technologies. We test this theoretical argument against data on public R&D expenditures and patents in the domain of renewable energy technology for industrialized countries from 1989 to 2007. We find strong support for the interactive hypothesis. Thus, we contribute to literatures on (i) domestic responses to international shocks, (ii) environmental sustainability and energy security, and (iii) the political economy of technology innovation. (C) 2011 Elsevier Ltd. All rights reserved.