The effects of public industrial policy on renewable energy innovation

The key research question of this thesis is to what extent and what types of public industrial policy and their interactions affect innovation in renewable energy (RE) as a whole and in different RE technologies (RETs). Innovation in RE is widely believed to be important in helping change the energy mix away from fossils and hence contribute to a more sustainability-friendly energy transition. In the introductory chapter I outline the problem of climate change and the impact of fossils-based energy use to that change. In the second chapter entitled “Theoretical Framework: Determinants of Innovation and the Role of Public Industrial Policy”, focuses on the conceptual foundations, notably on the role of innovation in fostering positive change in general and in RE in particular, as well as on how public industrial policy may help address problems of market failures and foster innovation in RETs. The third Chapter entitled “Empirical Protocol and Method” explains the main variables, data sources and our empirical methodology. Chapter four on ‘Industrial policy for renewable energy: The innovation impact of European policy instruments and their interactions’, examines the impact of RE policies as well as three RE policy instruments (demand-pull, technology-push and systemic), and their interactions on RE innovation in 15 European Union states for the period 1995–2014. Following a critical literature survey, I developed a conceptual framework and hypotheses which I then tested by employing a comprehensive data set that we collected for this purpose. I found that RE policies as a whole as well as demand-pull and technology-push instruments affect RE innovation positively. The impact of interactions between instruments on RE innovation was also found to be positive and significant, except in the case of specific pairs of instrument interaction where the outcome was contingent on the specification used. I discussed reasons for these findings, as well as implications for public policy, limitations and opportunities for further research. In the fifth Chapter, entitled “Can Industrial Policy Pick Winning Renewable Energy Technologies? ”, a lasting debate in Industrial Policy (IP) literature concerns whether government support to sectors and firms can help ‘pick winners’. More recent literature has shifted attention to picking winning policies, policy instruments and/or technologies, in particular General Purpose Technologies (GPTs). I suggested that RE can qualify as GPT that incorporates a number of more specific RE technologies (RETs). I developed theory and Hypotheses, and provide econometric evidence for the impact of three IP policy instruments on different RETs. I also examined the unexplored role of country experience in mediating this relationship, as well as regional variations in the EU. In addition, I constructed a quality adjustment indicator to examine whether IP affected the quality of the innovation outcomes. I employed a comprehensive data set for the OECD and EU and North and South EU regions and found support for our the theory-derived Hypotheses. In Chapter 6 (“Fostering Innovation in Renewable Energy Technologies: Choice of policy instruments and effectiveness”), I examined the effectiveness of different types of RE policy instruments (demand-pull, technology-push and systemic) on innovation, for an array of RETs. More specifically, I collected and analysed data on policy intervention, innovation activity and performance for 21 countries over the period 1990-2014 – which I then used to evaluate and compare the effect of different instruments on different RETs. Our results showed that demand-pull policy instruments have been the most effective of all in fostering innovation activity, and that their level of effectiveness increases when they are used to target a specific RET. In Chapter 7 (“The Interrelationship Between Subsidies to Fossil Fuels and to Renewable Energy Sources in the OECD”), I looked at the question of the substitutability between subsidies to fossil fuels and to RETs.While the issue of substitutability between energy sources has been widely examined in literature, the argument that supporting fossils fuels will hamper energy transitions, has been taken as self-evident. However, the relationship between subsidies to RE and to fossil fuels is more nuanced. In theory the two types of subsidies can substitute each other, be unrelated or even be complementary to each other. The overall impact on RE transition will depend on the exact relationship. In this context I examined three different specifications, each time with a more disaggregated independent variable. I found that overall subsidies to fossil fuels have a negative effect on subsidies to RE and that this varies between different types of fossil-based energy sources. In the eighth and final chapter (‘Summary, Conclusions and Policy Implications”), I summarised the key innovations and contributions of the thesis and examined its policy implications, as well as the limitations and opportunities for further research. Key contributions of this thesis alongside their policy implications are that the use of different policy instruments and their interactions matter; different RE technologies require different types of policy instruments in order to induce innovation; policy experience also matters; and public policy interventions can help induce lower quality innovations. In addition I found that different RET technologies require different types of RE policy instruments in order to induce innovation. Moreover I found that instruments that aim to increase demand are more effective in fostering RE innovation. Finally, I found evidence that subsidies to fossil fuels, impacts negatively on the subsidies on RETs. This is an extra reason that can hinder energy transitions to RE. In all, by cross-fertilising IP and RE literature, by developing and testing econometrically a number of novel Hypotheses, by employing a comprehensive data set created for the purposes of this thesis, and by extending the debate on IP from targeting sectors and firms to that of policies, policy instruments and RETs, I believe that our thesis makes significant inroads and provides useful implications for policy making. Clearly more is better, and I hope to continue and to motivate others to contribute in this very important issue.