Heterogeneous policies, heterogeneous technologies: The case of renewable energy

- We study the effect of market regulation and energy policy on renewable technologies.
- Reducing entry barriers is a significant driver of renewable energy innovation.
- The Kyoto protocol amplifies the effect of both energy policy and liberalisation.
- These effects are heterogeneous across technologies and stronger for wind.

This paper investigates empirically the effect of market regulation and renewable energy policies on innovation activity in different renewable energy technologies. For the EU countries and the years 1980 to 2007, we built a unique dataset containing information on patent production in eight different technologies, proxies of market regulation and technology-specific renewable energy policies. Our main finding is that, compared to privatisation and unbundling, reducing entry barriers is a more significant driver of renewable energy innovation, but that its effect varies across technologies and is stronger in technologies characterised by potential entry of small, independent power producers. In addition, the inducement effect of renewable energy policies is heterogeneous and more pronounced for wind, which is the only technology that is mature and has high technological potential. Finally, ratification of the Kyoto protocol, which determined a more stable and less uncertain policy framework, amplifies the inducement effect of both energy policy and market liberalisation.

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