# Control of SO 2 

# emissions from power plants: A case of induced technological innovation in the U.S.

Margaret R. Taylora, 

### * , Edward S. Rubinb

, 1 

### , David A. Hounshellb

, 2

a Goldman School of Public Policy, University of California Berkeley, 2607 Hearst Avenue, Berkeley, CA 94720-7320, USA

bDepartment of Engineering and Public Policy, Carnegie Mellon University, Baker Hall 129, Pittsburgh, PA 15213, USA

Received 10 May 2004; received in revised form 26 August 2004; accepted 4 November 2004

Abstract

This paper investigates how the details of government actions induce innovation—the overlapping activities of invention, adoption and diffusion, and learning by doing—in b environmental technology,Q products and processes that either control pollutant emissions or prevent emissions altogether. It applies multiple quantitative and qualitative measures of innovation to a case subject to several btechnology-push Q and b demand-pull Q instruments: sulfur dioxide control technology for power plants. The study employs analyses of public R&D funding, patents, expert interviews, learning curves, conference proceedings, and experience curves. Results indicate that: regulation and the anticipation of regulation stimulate invention; technology-push instruments appear to be less effective at prompting invention than demand-pull instruments; and regulatory stringency focuses inventive activity along certain technology pathways. Increased diffusion of the technology results in significant and predictable operating cost reductions in existing systems, as well as notable efficiency improvements and capital cost reductions in new systems. Government plays an important role in fostering knowledge transfer via technical conferences, as well as affecting the pattern of collaborative relationships within the technical research community via regulatory changes that affect the market for the technology. Finally, the

0040-1625/$ - see front matter D 2004 Elsevier Inc. All rights reserved. doi:10.1016/j.techfore.2004.11.001

* Corresponding author. Tel.: +1 510 642 1048; fax: +1 510 643 9657.

E-mail addresses: mataylor@uclink.berkeley.edu (M.R. Taylor)

8 rubin@cmu.edu (E.S. Rubin)

8 hounshell@andrew.cmu.edu (D.A. Hounshell).

1 Tel.: +1 412 268 5897.

2 Tel.: +1 412 268 1019. Technological Forecasting & Social Change 72 (2005) 697 – 718case provides little evidence for the claim that cap-and-trade instruments induce innovation more effectively than other instruments. D 2004 Elsevier Inc. All rights reserved.

Keywords: Technological change; Induced innovation; Environmental technology; Environmental policy

1. Introduction

As we look to a sustainable future, it is difficult to imagine how it can be achieved without significant innovation in b environmental technology,Q a range of products and processes that either control pollutant emissions or alter the production process, thereby preventing emissions altogether. This paper seeks to contribute to the debate about how society can induce innovation in these technologies.

bEnvironmental technology Q refers to everything from b end-of-pipe Q pollution control technologies to alternative energy technologies that share the characteristic of helping to maintain the bpublic good Q of a clean environment. Public goods are typically characterized by weak market incentives for private investment and development, and this characterization applies, to varying degrees, to different environmental technologies. Pollution control technologies and alternative energy technologies provide good examples of this. The market that pollution control technologies satisfy is fully defined by government, as the technologies produce no economically valuable good in and of themselves. The market that alternative energy technologies satisfy, however, is shaped by a combination of the privately valued and publicly valued characteristics of the energy they provide; such privately valued characteristics include cost, availability, and other performance attributes of energy, while their publicly valued characteristic is their impact on the environment. In the case of innovation to support a clean environment, the common finding that under-investment in innovation is a problem in many industries is compounded by the weakness of private investment incentives in environmental technologies. Government therefore plays a particularly important role in shaping environmental technological innovation. Government has long been recognized as a distinct competitive force that helps determine the structural conditions of many industries (see Ref. [1] , for example). Among other things, government actions can: form a barrier to entry and sometimes even exit in an industry; affect the positions of substitutes vis-a `-vis existing firms; affect rivalry among existing competitors; and affect the relative positions of an industry’s suppliers and buyers (government can even be a supplier or a buyer itself) [1] . Government actions with such structural effects on environmental technology-related industries are likely to shape innovation in those industries, at least indirectly. But government often acts more directly in shaping environmental technological innovation, through actions such as: conducting and supporting R&D activities, thereby pushing the technology forward; creating (and destroying) demand for various technologies that focus on an environmental goal through regulatory detail or subsidy; and facilitating knowledge transfer through everything from the patent system to industry-specific conferences, publications, and collaborations. The government’s role in affecting environmental technological innovation is clearly complex, but so is the innovation process itself. A review of the extensive bmainstream Q literature on innovation, which dates back at least to Ref. [2] , shows that scholars have moved beyond the consideration of M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 698the innovation process as a linear model—first made policy-relevant in Ref. [3] —of basic then applied research, followed by development and diffusion. Instead, the innovation process can be pictured as a set of activities—invention, adoption, diffusion, and learning by doing—which overlap each other and allow feedback between the activities. As stated in Ref. [4]

, b an invention is an idea, sketch, or model for a new device, process or system. Q bAdoption,Q (sometimes referred to as

b innovation,Q although not in this paper in order to avoid confusion with the overall innovation process) is the first commercial implementation of a new invention. bDiffusion Q refers to the widespread use of a commercial innovation, and is often studied as a communication process between current and potential users of a technology [5] . Finally, b learning by doing Q refers to the post-adoption innovative activity that results from knowledge gained from difficulties or opportunities exposed through operating experience (this activity is sometimes alternatively referred

to as b learning by using Q or breinvention Q). Studies show that operating personnel and their contacts with other researchers are important sources of such post-adoption ideas and technological advances (for a discussion, see Ref. [6] ). Fig. 1 depicts the role of government actions on the innovative activities just described in the case of an environmental technology. At the center of the figure is government, which rests in the midst of the overlapping innovative activities of invention, adoption and diffusion, and learning by doing. Arrows emanating from government illustrate the primary innovative activity each type of government action affects. These arrows are labeled either btechnology push Q or b demand pull,Q labels which link the figure to one of the themes of the mainstream innovation literature: the relative importance in driving innovation of supporting particular technologies (reducing their price on the supply curve) versus responding to market needs (increasing their quantity on the demand curve). Note that all the innovative activities in Fig. 1 are enclosed in a circle, which demarks the

Fig. 1. Government actions and the innovation process in an environmental technology.

M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 699full innovative process; on the outside of this circle are the outcomes of the full innovative

process. The multifaceted innovative process just described is conducted by a set of innovative actors embedded in standard business relationships with suppliers, buyers, competitors, and substitutes. Fig. 2 depicts the various sources of innovation in this b industrial–environmental innovation complex,Q which represents energy-related environmental technologies in the U.S. The most important sources of innovation in this complex are the system vendors—in many cases boiler manufacturers and architectural and engineering firms—and the users of their products, the power companies. All arrows in this figure represent organizational ties; arrows without endpoints refer to the standard business relationships discussed above. The single dashed arrow is between power companies and a very special and important innovative actor, the Electric Power Research Institute (EPRI), which is the U.S. utility sector’s non-profit cooperative research, development, and demonstration (RD&D) consortium. Organizations without arrows are highlighted because of their innovative importance; their connections to the other organizations are not as easily delineated as in the case of the power company-to-EPRI tie. Finally, the b outsidersQ in this figure refer to industries outside this bblack box Q which have technical relevance to the specialties involved inside it.

2. Research approach

The preceding paragraphs lay out a complex situation in which multiple government actions affect the environmental technological innovation process—a process carried out by multiple actors doing multiple innovative activities—in many ways, both direct and indirect. But they do not address how we can best induce innovation in environmental technology. How do you generalize about the role of different government actions in inducing innovation? The mainstream economics of innovation literature does not catalogue government actions by their effects on innovation in order to make environmental policy-relevant recommendations, despite having recognized environmental regulation as an inducement mechanism for technological change at least since Ref. [7] . The much younger b environmental technology Q literature (see Ref. [8,9] for a review), however, has been particularly concerned with how the details of government actions—characteristics such as regulatory stringency, flexibility, and uncertainty—affect environmental technological innovation. This literature, while considerably smaller than the mainstream innovation literature, is possibly more diverse, encompassing theoretical studies, a few large empirical studies, and a number of case studies scattered among various disciplines. Fig. 2. Sources of innovation in the characteristic b industrial–environmental innovation complex Q of energy-related environmental technologies in the U.S. M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 700Case studies are a particularly strong research approach in this area because they allow scholars to be attentive to the details of different government actions and their varying effects on aspects of environmental technological innovation. In the case of long-standing environmental technologies, it is even possible to study the innovative responses to multiple government actions centered on the abatement of a single pollutant over time. Such consideration of the full universe of government actions affecting an innovation complex is important in enhancing understanding of the strategic frameworks that organizations within it might use, while the focus on a single pollutant limits the variety of environmental technology features—such as those articulated in Ref. [8] —which could undermine insights into innovative responses. Despite these strengths, case study research always raises the question of whether the findings are so specific to a particular government action, technology, or industry that its findings cannot be generalized. This concern about generalizability is one of the driving motivations behind this paper, which highlights lessons about the government role in innovation in the long-standing set of technologies that control sulfur dioxide (SO 2 ) emissions from electric power plants. Everything from the selection of the case to the research methodology used is designed to facilitate the eventual creation of a model, based on this and later cases, of the effects of various government actions on the multifaceted environmental technological innovation process. Such a model would ideally guide policy-makers interested in supporting a transition process to a sustainable future. The case analyzed in this paper is one of several long-standing pollution control technologies for use in the power sector; as such, it has technical characteristics, organizational characteristics, and a history of public involvement that can be documented and compared/contrasted with those of other end-of-pipe technologies—both past and present—in this sector. In addition, because this case focuses on an industry based on pollution control, the role of government in defining the industry’s structural conditions and directly inducing technological innovation should be particularly strong. This strength should make it simpler to parse out the role of government from among the numerous factors driving innovation than it would in an environmental technology with stronger private investment incentives. It also should make the resulting insights it provides into the relationship between government actions, private innovative activities, and the technologies that result from innovation serve as a reasonable guide for similar studies in industries in which government plays a subtler role. The paper’s research approach integrates several repeatable quantitative and qualitative methods that are well-established in the mainstream innovation literature to arrive at its insights. This approach provides a more realistic understanding of the innovation process than any single method would be able to provide (for a useful review of methodological issues in the study of technological innovation, seeRefs. [6,10] ). It also provides the foundation for building a catalogue based on repeating certain analyses across cases. Fig. 3 illustrates the various research methods used in this paper: analyses of U.S. patents, government research laboratory activity, SO 2 control technology conference proceedings, learning and experience curves, and interviews with influential experts. Arrows from these methods point to the primary innovative activities they provide insight into. Note that no method speaks to only one innovative activity. Patents, for example, measure inventive activity, but they are also important to the understanding of adoption and diffusion, as inventors typically file patents because they expect to market their inventions. Government research laboratory activity speaks mainly to RD&D funding, but is also important for understanding the ways government facilitated knowledge transfer in the SO 2 industrial–environmental innovation complex. M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 701Activity in technical conferences provides a window into all the various innovative activities, as well as a dataset to illustrate changing researcher networks over time. Learning curves and experience curves both reflect diffusion, but they also speak to learning-by-doing and the full innovative process, respectively. Finally, expert interviews provide insight into all the various innovative activities, as well as to the outcomes of innovation. More details on these research methods will be provided as we describe relevant analyses after a brief overview of government actions and the development of SO 2 control technology over time.

3. Overview of government actions and SO 2 control technology development

There is a long history of public concern about SO 2 because of its negative effects on human health and ecosystems. SO 2 is an eye, nose, and throat irritant, which in the extreme has contributed to such infamous air pollution incidents as the killer smogs in Donora, PA, in 1948 and London, England, in 1952 [11,12] . SO 2 emissions also are the major culprit (along with nitrogen oxides) in acidic deposition, with resulting damage to lakes, streams, plants, and forest growth. More recently, SO 2 emissions have been linked to the formation of fine particles associated with increased human mortality [13]

. Public concern about SO 2 emissions manifested itself in repeated government actions. Space constraints make it impossible to go into much detail here about particular government actions and the contemporaneous technological hurdles, industry participants, government institutional shifts, and collaborations among actors in the SO 2 -industrial environmental innovation complex (for such detail, see Ref. [14] ). Instead, this section provides an overview of the main technology strategies and the various U.S. government actions that have been used to control SO 2 emissions over the years. As in Fig. 1 , the Fig. 3. Research methods used in this paper to understand the innovation process. M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 702mainstream innovation literature theme of technology push and demand pull in inducing innovation is used to categorize government actions.

3.1. Technology strategies for SO2 control

SO 2 is primarily emitted to the atmosphere as a byproduct of the combustion of fossil fuels necessary to many long-standing economically productive processes. Electricity generation is the main U.S. emissions source, accounting for an average of 67% of SO 2 emissions since 1970. Four main technology strategies for SO 2 emissions control have been pursued by the electricity industry: (1) tall gas stacks that disperse emissions away from immediate areas; (2) b intermittent controlsQ which involve routine operational adjustments to reduce power plant SO 2 emissions in response to atmospheric conditions; (3) pre-combustion reduction of sulfur from fuels; and (4) removal of SO 2 from the post-combustion gas stream. Although the Battersea, Bankside, and Fulham power stations in London, England employed this fourth, post-combustion removal technology strategy as far back as 1926, power plant air pollution control strategies through the 1960s generally emphasized either the first three strategies or switching to naturally lower-sulfur fuels. Since that time, the focus has shifted to post-combustion control technologies—the focus of this paper—as well as fuel-switching. Post-combustion control technologies, otherwise known as b flue gas desulfurization Q (FGD) systems or b scrubbing Q technologies, contact a post-combustion gas stream with a base reagent (or

b sorbent Q) in an absorber in order to remove SO 2 . Fig. 4 depicts commercially available FGD technologies, which can be classified to the first order as b once-through Q and bregenerable Q processes. Once-through technologies bind the SO 2 permanently to the sorbent for later disposal or by-product use, particularly as gypsum for wallboard, while regenerable technologies release the SO 2 from the sorbent during regeneration for later processing and byproduct recovery, such as sulfuric acid, elemental sulfur, and liquid SO 2 . Both types of FGD system can be further classified as bwet Q or

b dry,Q which refers to the moisture level of the waste material and the flue gas leaving the absorber. Whereas wet systems comprise roughly 87% of world FGD capacity and dry systems comprise another 11% of world capacity, only a few regenerable FGD processes are in use today ( 2 2% of world capacity), with no significant increase in worldwide capacity since the early 1980s (calculated from [15] ). Wet once-through FGD systems using limestone as the scrubbing reagent are the dominant technology internationally, with 2 72% of world capacity. The limestone forced oxidation process is

Fig. 4. Classification of commercial FGD processes. Source: [15]

. M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 703Table 1 Chronology of government legislation/regulation in SO 2 control, with implications for the FGD market Government action Summary and implications for FGD market

Air Pollution Control Act

Public Law 84-159 July 1955 Summary : Authorized funds for demonstration projects, grants to state & local air pollution control agencies, and research by the Department of Health, Education, and Welfare (HEW). More a technology push than a demand pull, the act was based on the principle that the federal government should protect the right of states & local governments to control air pollution while supporting and aiding research and developing abatement methods. FGD Market Implications : First federal signal of interest in air pollution control, so first potential market for control technology. Demand signal weak: provided no stringency requirements, timeframe, or national demand.

Clean Air Act Public Law

88-206 December 1963 Summary : Expanded research funding and federal financing of state & local governments for air pollution control. Provided first limited enforcement powers to Secretary of HEW, who could take legal action against interstate polluters. FGD Market Implications : Negligible change in incentives from previous act due to limited enforcement power and continued decentralized market.

Air Quality Control Act

Public Law 90-148 November 1967 Summary: Required the HEW National Air Pollution Control Administration (NAPCA) to designate air quality control regions, establish air quality criteria, and issue associated reports on available control technology. States were directed to set ambient air quality standards and propose implementation plans, with federal intervention an option if states did not comply within 15 months. The HEW Secretary was authorized to act against stationary sources of air pollution only in times of b imminent and substantial Q danger to public health. FGD Market Implications : This act contained signals that the FGD market was likely to become national: (1) drafts of the bill had national (vs. state) ambient air quality standards, and (2) the intervention provision for state compliance failures elevated the federal role in air pollution control. Still, final version of the act continued the incentives for a decentralized FGD market and NAPCA was slow to fulfill its enforcement and other responsibilities.

1970 Clean Air Act

Amendments (1970 CAA) Public Law 91-604 December 1970 Summary: Required the newly formed Environmental Protection Agency (EPA) to establish national ambient air quality standards for SO 2 from all sources without consideration of economic or technical feasibility. Each state was required to develop a state implementation plan (SIP) for controlling existing stationary sources and submit it for EPA approval. FGD Market Implications : SIPs were submitted in 1972, and almost all called for continuous reduction of SO 2 emissions, which required utilities to use low sulfur fuels, pre-combustion treatment, or FGD systems, rather than intermittent controls. Utilities sued and lost at the level of the Supreme Court in 1976. The act’s strong enforcement power, national standards-based market signal, technological flexibility, and post-Supreme Court legal certainty were very conducive to creating an FGD market in the U.S.

1971 New Source

Performance Standards (1971 NSPS) December 1971 Summary : The 1970 CAA required EPA to create these bbest available technology Q performance standards for major new sources of SO 2 . There was a btechnology basisQ underlying the NSPS: EPA had to stipulate which control technologies were adequately demonstrated for use by utilities in SO 2 control. FGD Market Implications : The maximum allowable emission rate for new and substantially modified sources was 1.2 lbs of SO 2/MBtu heat input (2.2 kg/Gcal), a rate that effectively required 0–85% SO 2 removal, depending on coal properties. This standard was technologically flexible, as it could be met through the use of low sulfur fuels, pre-combustion cleaning, and FGD systems. Utilities sued on the grounds that FGD systems were not demonstrated enough; EPA was concerned that the technology basis would not hold up to repeated legal tests. Thus, legal uncertainty weighed against other market-inducing characteristics of the NSPS. M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 704preferred, and it makes possible reliable, 95%+ SO 2 removal efficiencies. The leading dry FGD system is the lime spray drying process ( 2 8% of world capacity), and it typically achieves lower removal efficiencies at lower costs and for smaller capacities than wet limestone systems. Note that the costs of both wet and dry systems will be higher in bretrofit Q application to b existing Q power plants, as opposed to

bnew Q application to new power plants. In this paper, when bFGDQ systems are used without additional technical details, the systems in question should be understood as once-through wet limestone FGD systems.

3.2. Government actions: demand pull

There were nine major legislative/regulatory events in the U.S. that helped to shape the demand for FGD systems since the 1950s. These government actions generally occurred every few years, with the Government action Summary and implications for FGD market

1977 Clean Air Act

Amendments (1977 CAA) Public Law 95-95 August 1977 Summary: Directed EPA to implement new source performance standard for SO 2 based on a percentage reduction from uncontrolled levels. FGD Market Implications : Intended to promote universal scrubbing at new plants.

1979 New Source

Performance Standards (1979 NSPS) June 1979 Summary: Required a 70–90% reduction of potential SO 2 emissions (depending on coal sulfur content and heating value) for new plants built after 1978. FGD Market Implications: For new & substantially modified sources, the sliding scale guaranteed a market for wet FGD for high-sulfur coals and dry FGD for low-sulfur coals. This was not technologically flexible. The 1979 NSPS created an incentive for utilities to rely on existing power plants rather than build new ones or modify existing plants beyond the limits of either their willingness to install FGD or bet on the EPA’s enforcement capabilities.

Senate Attempt at 1987

Clean Air Act Amendments (CAA Try) Summary: The most serious of several unsuccessful attempts to overhaul the CAA in the 1980s due to heightened concern about acid rain precursors. FGD Market Implications: Contributed to an expectation that low-cost, moderate-removal FGD (dry FGD and sorbent injection systems) would be required at all power plants. One version of this legislation required the federal government to subsidize the capital cost of installing scrubbers.

1990 Clean Air Act

Amendments (1990 CAA) Public Law 101-549 November 1990 Summary: Established an emission allowance trading program to achieve a cap in 2010 of 8.12 million annual tonnes of SO 2 in two phases. Phase I (1995–1999) applied an aggregate emission limit of 2.5 lb of SO 2/MBtu heat input of coal (4.5 kg/Gcal) to 261existing generating units, while Phase II (2000–2010) applies an aggregate emission limit of 1.2 lb/MBtu (2.2 kg/ Gcal) to about 2,500 existing units. FGD Market Implications: The act brought existing sources back as potential players in the FGD market after avoiding the 1979 NSPS. The aggregate emission limits are not particularly stringent, and could be met through the use of low sulfur fuels, pre-combustion cleaning, and FGD systems. The act killed the expectation of a large market for dry FGD, and resulted in a smaller-than-expected market for wet FGD. This is because the dominant response to the act was to meet aggregate limits by fuel switching (low-removal) at many of a utility’s plants while installing a few offset wet FGD systems (high-removal). Table 1 (continued) M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 705Table 2 Chronology of public RD&D highlights
Decade Main public actors Highlights 1950s The Tennessee Valley Authority (TVA) a ; the Department of Interior’s Bureau of Mines (BoM); the Department of Health, Education, and Welfare(HEW) ! Before 1955, TVA studied wet scrubbing systems; used a pilot plant to demonstrate ammoniacal liquor scrubbing.

! Before 1955, BoM and HEW did general work on the

nature and control of pollutants from fuel combustion.

! In 1957, BoM and HEW started investigating sorbents

for dry scrubbing technologies. 1960s TVA, BoM, HEW’s National Air Pollution Control Administration (NAPCA) ! BoM and HEW did bench scale research into lower cost sorbents, including organic agents and transition metal complexes, while continuing bench and pilot work on the alkalized alumina process.

! In 1967, as part of the Air Quality Act, NAPCA became

the agency with primary responsibility for management of the engineering RD&D work related to SO 2 control; NAPCA’s RD&D levels for SO 2 control were increased significantly in Fiscal Year (FY) 1968 in comparison to previous years.

! In 1969, TVA participated with NAPCA on a full-scale

demonstration of a dry limestone injection system. 1970s TVA, the Environmental Protection Agency (EPA) research laboratory successor to NAPCA (EPA Lab), b and the Department of Energy (DOE) Office of Fossil Energy (OFE) ! In 1971, TVA built a 1 MW test unit for wet limestone FGD at the Colbert facility near Muscle Shoals, Alabama.

! In 1972, EPA funded the construction by Bechtel of three

10 MWe prototype scrubbers as the bAlkali Wet Scrubbing Test Facility Q at TVA’s Shawnee Steam Plant; this facility was key to the development of the FGD technology in use today around the world.

! The EPA established its own 0.1 MW wet limestone pilot

plant at the EPA lab facility in Research Triangle Park, North Carolina; it funded repeated SO 2 control technology evaluations; and it engaged in cooperative RD&D activities with utility/vendor teams and other government agencies.

! EPA began funding the SO 2 Control Symposium in 1973,

and remained the sole funder until 1982, when the Electric Power Research Institute (EPRI, the utility industry’s research consortium) joined in; the DOE became the third co-funder in 1991.

! EPA accelerated its RD&D program in an effort to

demonstrate conclusively the technical and economic feasibility of wet limestone scrubbers, due to b continued utility resistance to scrubbers and uncertainty as to whether the technology-based standard could withstand repeated legal tests. Q [16] ; a dramatic peak occurred in EPA SO 2 control funding in FY1975.

! A considerable amount of FGD research money was

transferred from EPA to OFE in FY1979. M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 706first occurring in 1955 and the last occurring in 1990. Table 1 provides summaries of these government actions and their implications for the U.S. FGD market.

3.3. Government actions: technology push

Table 2 provides an overview of the major highlights in public RD&D on behalf of SO 2 control, dating from the 1950s to the 1990s.

4. Results

4.1. Inventive activity

4.1.1. Datasets Inventive activity is particularly important to the origin of a new technology, although it is also an ongoing feature of the innovation process. Inventive activity can foster both radical new ideas that revolutionize industries, as well as incremental improvements to a technology stream that help it mature. The research approach of this paper incorporates two measures of inventive activity: public RD&D expenditures as an input into inventive activity, and patents as an output of inventive activity. Decade Main public actors Highlights
1980s TVA, EPA Lab, OFE ! The OFE became the dominant public RD&D funder, taking on the support of the TVA Shawnee facility and, in December 1985, initiating the Clean Coal Technology Demonstration Program, a US$2.5 billion government– industry cost-sharing program established to demonstrate advanced b clean Q coal technologies, including FGD, at a commercially relevant scale.

! The EPA shifted its research focus from the now

commercially established wet FGD systems to lower cost retrofit dry scrubbing and sorbent injection systems, b in anticipation of a major U.S. acid rain retrofit program being considered by Congress. Q [17]

. 1990s TVA, EPA Lab, OFE ! The DOE concluded its program by the end of 1997

! EPA basically concluded its program after 1992.

! The Shawnee test facility was disassembled in 1994, and

TVA discontinued further FGD research [18]

.

a Set up by the U.S. Congress in 1933 primarily to provide flood control, navigation, and electric power (TVA is the largest public power company in the U.S.) in the Tennessee Valley region, the TVA is unique among U.S. government agencies in that it was designed as a federal corporation.

b This laboratory has had many names over the years, including the Office of Energy, Minerals, and Industry for EPA’s Office of Research and Development, the Industrial–Environmental Research Laboratory, the Air and Energy Engineering Research Laboratory, and the National Risk Management Research Laboratory in the Air Pollution Prevention and Control Division. Table 2 (continued) M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 7074.1.1.1. RD&D data. System vendors, utilities, and government all financed RD&D in SO2 control technology; for purposes of longitudinal RD&D analysis, it is useful to separate these expenditures between private sector and public sector RD&D. While private sector RD&D expenditures were impossible to obtain for the purposes of longitudinal analysis, public RD&D SO 2 expenditure data were difficult but possible to obtain. Difficulties in data collection arose in large part due to shifting organizational homes for public FGD RD&D over time. Fig. 5 consolidates the results of three different types of data into a 40-year time-series of public RD&D in SO 2 control, as adjusted to 2003 dollars using the Consumer Price Index for all Urban Consumers. The data in Fig. 5 come from the BoM, HEW, EPA Lab, and OFE (the TVA funded its SO 2 RD&D with non-public money). The sources include congressional hearings, personal interviews, summary budget documents, internal agency reports, and agency spreadsheets and graphs. The estimates of combined public RD&D in SO 2 control in Fig. 5 have varying degrees of certainty. The expenditure numbers for 1974–2000 are most certain, and are labeled b agency budget numbersQ in Fig. 5 because of the preponderance of data for those years. The expenditure numbers for 1957–1969, labeled b 1968 Hearing Data Q because they were obtained from testimony at a congressional hearing, are the next most certain, with FY1968 completely certain. FY1969 NAPCA numbers, however, are based on the house allowance alone, so the 1969 data point is quite uncertain; this is indicated with a dashed line in Fig. 5 . Finally, the 1971–1973 expenditure numbers, labeled bEPA Lab Interview Q are the most uncertain, as they are based on memory, albeit that of a technical expert [19] ; they also pertain only to the EPA, so they probably underestimate total public RD&D in these years. 3 Note that government (as well as the utilities and EPRI) used in-house personnel to do some RD&D, but contracted out a larger quantity to vendors, engineering firms, private researchers, universities, and nonprofit institutes.

4.1.1.2. Patents. Patent counts are widely used in the mainstream innovation literature as a descriptive indicator of inventive activity and a measure of inventive output. Every output of invention is not patented, however. The often incremental nature of technical advance, the strategic importance of secrecy, and the Fig. 5. Estimated combined public RD&D in SO 2 control.

3 BoM was reportedly still active in SO 2 control research in 1971, although by 1975, it was not. The stable, roughly US$3 million per year in constant 2003 dollars of SO 2 research funding at BoM in 1957–1968 implies that RD&D numbers for this organization in the early 1970s are likely to be equal to this amount or less. M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 708fact that inventors typically file patents if they see commercial promise for their inventions are all reasons why patents should be considered a relative, rather than an absolute, measure of inventive activity. Still, they are an extremely valuable data source. Studies in the mainstream innovation literature have shown that patenting activity can be linked to events external to a firm. In addition, patents provide detailed and publicly accessible technical and organizational information for inventions over a long period of time. U.S. patents can be identified by their technological classification dating back to 1790. The U.S. Patent and Trademark Office (USPTO) classification system gives every similar grouping of patent b art Q a three-digit class and subclass. Depending on the breadth of their technical claims, patents are assigned one or more classes/subclasses by the patent examiner, who uses them to investigate the legal prior art of a patent application. Patent classes are also used by the majority of researchers to establish patent datasets, usually after researchers consult the USPTO Manual of Classification . As FGD technology is cross-disciplinary and patents might be missed if the Manual was the only way to choose the list of classes for our patent dataset, we interviewed the primary USPTO examiner of FGD technologies to create this list instead [20] . The resulting b class-based Q patent dataset, illustrated in Fig. 6 , identified 2,681 patents issued from 1887 to 1997 that were relevant to SO 2 control. The technical breadth of FGD raised uncertainty about whether important patents might still be missing from this dataset. A second, more focused, dataset of 1,593 patents was generated using electronic patent text search capability available for patents granted in 1976 or later. The abstract of each of these patents was read and analyzed according to broad technological and organizational categories; after discarding irrelevant patents caught in the initial search, the resulting b abstract-based Q dataset contained 1,237 patents. Fig. 7 shows the abstract-based patent dataset, as well as breakdowns of this dataset according to technological and organizational category. For use in comparison with R&D expenditures, Fig. 7 portrays trend-lines for patents according to two types of SO 2 technology: (1) precombustion treatment and (2) post-combustion and its supplemental technologies (post-combustion treatment, sorbent/additive development, by-product modification, during-combustion treatment, and measurement technology). 4 For use in comparison with environmental legislation and regulation, Fig. 7 Fig. 6. U.S. class-based patents relevant to SO 2 control.

4 Not included in this latter trend-line are the patents on fluidized bed combustion and gasification. These patents primarily focus on removing
SO 2 from the alternative generation technologies. M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 709depicts important government actions occurring during the contemporaneous time-period with lines running to the x -axis. To check the commercial relevance of both the class-based and abstract-based datasets, patent lists obtained from prominent FGD vendors were compared against each dataset. Both datasets included a high percentage of these commercially relevant patents, with the abstract-based dataset showing better overall performance (see Ref. [14] for more detail).

4.1.2. Discussion Fig. 6 shows patenting levels as a step-function between two time periods; prior to 1970, there was little or no activity (no more than four patents per year), despite public RD&D funding as well as legislative/regulatory events occurring in 1955, 1963, and 1967. Interestingly, patent activity starts to pick up in 1967, the year before the large 1968 increase in public RD&D funding and the year of the 1967 Air Quality Act, which flirted with establishing national standards for SO 2 control. Patent levels after 1970—the same year the establishment of national standards was passed through the 1970 CAA— never fell below 76 per year. National standards provide a national market for SO 2 control technology, and patenting behavior appears to reflect this. The more refined abstract-based dataset illustrated in Fig. 7 also shows stronger correlation to government actions than to RD&D funding. The gradual decline in patenting activity in Fig. 7 is marked by significant peaks that roughly correspond to legislative and regulatory events, with the highest levels Fig. 7. Demand-pull actions and U.S. abstract-based patents relevant to SO 2 control: total, post-combustion, and precombustion patents. M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 710of patenting activity occurring in 1978, 1979, 1988, and 1992. These years also marked the highest level of patenting activity in Fig. 6

. Table 3 shows the results of two regression approaches taken to understanding statistically whether patent datasets in SO 2 control technology correlate better with technology push (public RD&D funding that lowers the cost of technology) or demand pull (legislative and regulatory event) types of government actions. The second column shows the square of correlation (r 2 ) r-square and significance of the ANOVA F-statistic resulting from regressing the various patent datasets against the public RD&D dataset. Note that the 1970 RD&D number is assigned an average between the value of the year preceding as well as the value of the year succeeding it. Pre-combustion technology could not be plotted against public RD&D funding, as for many years coal cleaning had its own funding stream that had varying relevance to SO 2 control. The third column in Table 3 shows the same statistics for regressions of the patent datasets against government legislative/regulatory events. A simple least-squares regression approach was used in which a dummy variable is bturned on Q when the inventor is likely to be showing strong responses to a government action and then bturned off Q when the situation returns to the status quo. In this analysis, enacted legislative and regulatory events activated the dummy variable for 2 years, starting from the date of enactment, then deactivated the dummy variable for the rest of the time period. This allowed anticipation of passage during the consideration of the legislative/regulatory action to lead to patent applications for the next 2 years. This window was defined in order to capture the 2-year lag between pollution abatement expenditures and patent activity found across environmental media in Ref. [21]

. Anticipated, but not enacted, legislative events—specifically, the 1987 attempt to reform the CAA— activated the dummy variable for only 1 year following the end of legislative consideration. This allowed for 1 year of anticipation during the year of legislative consideration to lead to a patent application, as in the enacted legislative case, while giving less weight to the impetus for invention sparked by the anticipation, rather than the enactment, of legislation. Note that experts strongly supported the idea that anticipation of a revised CAA drove the inventive activity behind the 1988 patent peak. For each patent dataset, Table 3 shows that in SO 2 control, the demand-pull has a stronger effect on inventive activity than the technology push. Additional evidence, including the technical content analysis of the SO 2 Symposium and the interviewed experts, also supports the prominence of legislative/ regulatory events—notably national standards—in inducing inventive activity. This finding is consistent with other case studies of environmental technologies [22]

. Finally, one of these demand-pull regulatory events provides an opportunity to understand the importance of regulatory stringency in driving inventive activity along particular technology pathways. Even as it helped drive innovation in dry FGD systems in the 1980s, according to expert interviews and

Table 3 Results of regression analysis of patents against technology-push and demand-pull policy instruments
Patent dataset Technology push: public R&D funding Demand pull: legislative/regulatory events Class-based (filedN=1955) r 2 : 0.04 (0.23) r 2 : 0.39 (0.05) Abstract-based: total r 2 : 0.00 (0.84) r 2 : 0.64 (0.00) Abstract-based: post combustion plus supplemental r 2 : 0.03 (0.48) r 2 : 0.63 (0.00) Abstract-based: pre-combustion Not applicable r 2 : 0.73 (0.00) M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 711analysis of papers presented at the national SO 2 Symposium, the 1979 NSPS also curtailed invention in pre-combustion technologies [14] . As seen in Fig. 7 , patenting in these technologies grew rapidly in the early 1970s, since the relatively low stringency and high flexibility of the performance-based 1970 CAA and 1971 NSPS allowed low-sulfur and cleaned coals to play a prominent role as a compliance strategy, despite the NSPS’s FGD technology basis. The promise of pre-combustion sulfur removal in reducing emissions at relatively low cost had been recognized since the early 1960s, but the stringent 1979 NSPS caused a precipitous decline in patenting levels that never recovered, even after the less stringent 1990 CAA restored a market for the technology.

4.2. Adoption and diffusion, learning by doing

Fig. 8 depicts the demand for FGD systems in the U.S. and internationally, according to IEA Coal Data publications. In the 1970s, the stringency of the NSPS, the limited availability of low-sulfur coal, and the tight deadline for attainment of primary SO 2 emissions standards provided an important incentive for the development of FGD technology in the U.S. The vendor industry responded to this demand with rapid entry: the number of U.S. scrubber vendors went from 1 to 16 in the 1970s. Considerable exit, mergers, and acquisitions also occurred in the industry, however, especially in the 1980s, and to a lesser extent in the 1990s, when the expected large demand for retrofit units did not materialize after the 1990 CAA. As in other environmental technologies, notably wind turbines, U.S. system vendors compensated for periods of unexpectedly low domestic demand by helping to serve growth in the European and other markets. Fig. 8 shows the very rapid advent of full scrubbing in Germany, which was later followed by other European countries [23]

.
4.2.1. Operating experience and learning curves According to industry analysts, vendors often incorporate new ideas into commercial installations, finding that bthe jump from the idea to the full scale trial Q is important to technological innovation [24]

. Once an FGD system is applied to a power plant, however, the responsibility for its operation goes to the utility pollution control operator, who often plays an important innovative role by solving post-adoption technical challenges.

Fig. 8. International diffusion of wet FGD systems, by cumulative capacity (GWe). Source: Adapted from IEA Coal Data. M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 712Early scrubbers presented considerable challenges to these operators. One example was extreme corrosion inside the system; as one of our interviewed experts put it, bthings dissolved away and pieces of ductwork fell off and we found big holes in them. Q Another challenge was the reagent precipitating inside the system, associated with plugging and scaling; this required taking a unit down after a few days of operations in order to correct the blockage using means such as shovels, jackhammers, and small dynamite charges. One expert related a case of a utility using about 40 people in a shift, each with different jobs such as replacing nozzles or fan blades, in order to take a module off-line and service it for 24 h before its next use. These reliability challenges contributed to high operating and maintenance

costs. Perhaps the most important factor in bringing operating and maintenance costs down was a gradual change in the training and selection of operating personnel. Experts explained that a typical utility team in the late 1970s would have a mechanical engineer supervising boiler-operating personnel to also run the FGD system. In the 1980s, the same team would be comprised of a more dedicated staff that would treat the scrubber as the chemical plant it basically is; these teams achieved higher reliability and slightly higher removal efficiencies. In some cases, chemical engineers were hired, while in other cases, people who had been rotating through power plant operations were given specialized training on scrubber chemistry and operations, then given a separate job category as chemical operators. In addition to this qualitative evidence for the importance of operating experience in innovation in SO 2 control technology, learning curve analysis provides a quantitative measure of improvements associated with this post-adoption innovative activity, also known as b learning-by-doing. Q Analysis of the operating data for 88 U.S. power plants with at least 12 continuous years of wet limestone FGD operation indicated that the total adjusted cost for FGD operation, maintenance, and supervision was reduced on average to 83% of its original value for each doubling of cumulative power generation at the plant [14] . This value of 83% is known as the bprogress ratioQ in organizational learning curve analysis, and it is comparable to progress ratios found in many other industries. Most of the other industries that exhibit this progress ratio do not share the strong government role in innovation that distinguishes environmental technology [25,26]

.
4.2.2. Organizational relationships and network analysis One major theme emerges in the experts’ description of the importance of operating experience to FGD development: the complementary and interacting roles for both the operators and the designers of FGD systems in advancing the technology over the last 30 years. Here we investigate the changing relationships between the operators and the vendors, as well as between all the actors in the SO 2 industrial–environmental innovation complex. Government played an important role in fostering these relationships, especially through its funding of the SO 2 Symposium. This conference was essential to the evolution of FGD, according to strong agreement among the diverse set of experts interviewed for this research. It promoted formal and informal exchange among researchers, including: operating experience and related know-how, such as tacit knowledge; new developments in FGD; and information on public and EPRI RD&D. 5 At least one expert saw the papers presented at the conference as considerably less important than the brubbing of

nosesQ of researchers, both at the conference and, more importantly, after the conference, when more

5 In the mainstream innovation literature, scientific or technical btacit knowledge Q can be seen as an important element of know-how (see discussion in Ref. [27] , which also includes a discussion of the importance of informal networks in the transfer of tacit knowledge from publicsector research institutions). M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 713know-how could be transferred effectively. The SO 2 Symposium proceedings do not provide archival information on such informal interactions, as they occurred at the many hospitality suites, luncheons, and other conference gatherings. The co-authorship patterns of papers presented at the SO 2 Symposium, however, provide a proxy source of information on the channels of interpersonal and interorganizational knowledge flow facilitated by the conference over time. 6 Fig. 9 depicts how the network of technological collaborators defined by these co-authorship arrangements changed as regulatory events changed the SO 2 industrial–environmental innovation complex over time. In the period before the 1977 CAA and 1979 NSPS, which was dominated by EPA and utility tension over the FGD technology basis for the 1971 NSPS, not every organization type in the complex was connected to every other type through authorship ties on papers. Utility-to-utility ties and firm-to-firm ties dominated, and only 20% of the overall ties brought different types of organizations together. Between the 1979 NSPS and the 1990 CAA, there were substantial increases not only in the total number of paper co-authorship ties, but also in the percentage of ties across organization types. This provides evidence of the formation of a collaborative community of researchers that developed shortly after the implementation of the 1979 NSPS, when new and modified sources were required to implement FGD systems, acid rain was under intense study, and new SO 2 control requirements were widely anticipated. This community remained strong in the immediate aftermath of the 1990 CAA, as indicated Fig. 9. Evolving co-authorship ties between organization types for three time periods. Figure shows percentages of total ties in each period. bNP R&DQ=non-profit research and development organizations; bFirm Q includes FGD vendors and architectengineering firms.

6 For previous research use of paper co-authorship as a measure of collaboration, see such articles as Refs. [28–33]

. M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 714by continued stability in cross-organizational ties at the SO 2 Symposium as well as continued growth in the number of ties in the network overall (see Ref. [14] for additional analyses of the SO 2 Symposium and its role in knowledge and technology transfer).

4.3. Outcomes of innovation

Fig. 10 demonstrates the maturing of FGD technology over time through the outcomes of the innovation process in SO 2 control. The top series shows the improvement in the average SO 2 removal efficiency of FGD systems coming online each year. Today, new FGD systems are routinely designed for SO 2 removal efficiencies in the range of 95% to 98% or more. The bottom series shows the substantial reductions achieved in the capital cost of this technology over time. The costs shown here are for a new wet limestone system doing the same b jobQ at different points in time, i.e., 90% SO 2 removal at a standardized 500 MW plant burning high-sulfur coal. Over the 20- year period shown, capital cost decreased by a factor of two. In large part, these capital cost improvements were due to the improvement in reliability that can be dated to the end of the 1980s, according to a study of 111 FGD installations in 1986–1988 that declared that reliability was no longer an issue with FGD. With increased reliability, costly design options such as spare absorber modules were dropped in the 1990s, with additional cost savings resulting from technological trends that provided economies of scale, lowered the unit cost, eliminated unnecessary components, and reduced reagent preparation costs [34,35]

. Note that the majority of the improvements related to removal efficiency, reliability, and capital cost occurred before the 1990 CAA. This is important, as many look to the 1990 CAA as a model not just of an environmental regulation that achieves compliance at low cost to the polluting industry, but as an example of a regulation that induces innovation. As most of the innovation in the dominant technology to control SO 2 emissions occurred before the 1990 CAA, the evidence in this case does not support the superiority of market-based mechanisms over national performance-based standards as inducement mechanisms for environmental technological innovation. Nor does it refute this; unfortunately, the 1990

Fig. 10. Experience curves: U.S. wet FGD SO 2 removal efficiency and capital cost as a function of world wet FGD installed capacity. Costs—based on historic projections—were standardized as if they applied to a new 500 MWe wet limestone FGD system burning 3.5% sulfur coal, with 90% SO 2 removal. M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 715CAA simply came too late in the maturation of FGD to see its effects. Another natural experiment is needed in order to investigate this issue in more depth.

5. Conclusions

This case provides several observations about how government actions induce innovation in environmental technology. First, patenting activity shows that technology push, in terms of public RD&D funding, appears to be less effective at promoting invention in environmental technology on its way to commercialization than demand pull, as defined by the government’s ability to create and destroy niche markets through the details of legislation and regulation. Patenting activity also shows that the anticipation of regulation is an important element of the inventive activity process in pollution control technology. In addition, regulatory stringency apparently focuses inventive activity along (and away from) particular technical pathways. Expert interviews show that operating experience is an important part of the innovation process in pollution control technology. Learning curves demonstrate that the operating experience that comes with increased diffusion of the technology results in significant and predictable operating cost reductions. Expert interviews also establish the importance of the relationship between FGD operators and other members of the SO 2 industrial–environmental-innovation complex. In addition, they show that government efforts at supporting knowledge transfer through the funding of conference proceedings are extremely valuable. These conferences allow collaborative relationships to build and develop, while promoting diffusion of new FGD developments and the results of public research across innovative actors. Network analysis of conference proceedings demonstrates that collaborative relationships can shift with changes in the market situation for a pollution control technology, as defined by government legislation and regulation. In particular, cross-affiliation relationships become tighter as government tightens national standards and raises expectations of new standards. Finally, this case shows that most of the performance and cost improvements in FGD technology occurred before the passage of the most prominent example of a bmarket-based Q mechanism for pollution control, the 1990 CAA. There is thus a lack of evidence for the claim that the 1990 CAA induced innovation, in comparison with other environmental instruments.

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Margaret R. Taylor : Professor Taylor’s research uses insights and methods drawn from organization theory, economics, history, and engineering to explore the effects of government actions on innovative activities in environmental control technologies. She is currently involved in an effort to inform international integrated assessment models of global climate change on policy incentives for environmental innovation. Her background includes legal and Capitol Hill experience in the areas of international trade, energy, and the environment.

Edward S. Rubin : Professor Rubin’s research is in the areas of environmental control, energy utilization, and technologypolicy interactions. He is actively involved in several large-scale assessments of national policy issues. These include energy R&D planning and global climate change mitigation options, including issues of carbon management.

David A. Hounshell : Trained in both engineering and history, Professor Hounshell studies innovation at the intersection of science, technology, and industry. His work includes extensive studies of industrial research and development, the development of manufacturing technology in the United States, and the role of independent inventors and entrepreneurs in the development of technology. M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 718