Control of SO2 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 b

Department 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 benvironmental 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-pushQ and bdemand-pullQ

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 – 718
case 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 benvironmental 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 technologyQ refers to everything from bend-of-pipeQ pollution control technologies

to alternative energy technologies that share the characteristic of helping to maintain the bpublic goodQ

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 bmainstreamQ literature on innovation,

which dates back at least to Ref. [2], shows that scholars have moved beyond the consideration of

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the 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], ban invention is an idea,

sketch, or model for a new device, process or system.Q bAdoption,Q (sometimes referred to as

binnovation,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. bDiffusionQ 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, blearning by doingQ 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 blearning by usingQ or breinventionQ). 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 pushQ or bdemand 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) 697–718 699
full 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 bindustrial–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 boutsidersQ in this figure refer to industries outside this bblack

boxQ 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 benvironmental technologyQ 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 bindustrial–environmental innovation complexQ of energy-related

environmental technologies in the U.S.

700 M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718
Case 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 (SO2) 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, SO2 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 SO2 industrial–environmental innovation complex.

M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 701
Activity 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 SO2

control technology over time.

3. Overview of government actions and SO2 control technology development

There is a long history of public concern about SO2 because of its negative effects on human health

and ecosystems. SO2 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]. SO2 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, SO2

emissions have been linked to the formation of fine particles associated with increased human mortality

[13].

Public concern about SO2 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 SO2-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 SO2 emissions over the years. As in Fig. 1, the

Fig. 3. Research methods used in this paper to understand the innovation process.

702 M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718
mainstream 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

SO2 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 SO2 emissions since 1970. Four

main technology strategies for SO2 emissions control have been pursued by the electricity industry:

(1) tall gas stacks that disperse emissions away from immediate areas; (2) bintermittent controlsQ

which involve routine operational adjustments to reduce power plant SO2 emissions in response to

atmospheric conditions; (3) pre-combustion reduction of sulfur from fuels; and (4) removal of SO2

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 bflue gas desulfurizationQ (FGD)

systems or bscrubbingQ technologies, contact a post-combustion gas stream with a base reagent (or

bsorbentQ) in an absorber in order to remove SO2. Fig. 4 depicts commercially available FGD

technologies, which can be classified to the first order as bonce-throughQ and bregenerableQ processes.

Once-through technologies bind the SO2 permanently to the sorbent for later disposal or by-product

use, particularly as gypsum for wallboard, while regenerable technologies release the SO2 from the

sorbent during regeneration for later processing and byproduct recovery, such as sulfuric acid,

elemental sulfur, and liquid SO2. Both types of FGD system can be further classified as bwetQ or

bdry,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 (22% 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 272% 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) 697–718 703
Table 1

Chronology of government legislation/regulation in SO2 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 bimminent and substantialQ 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 SO2 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 SO2 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 technologyQ

performance standards for major new sources of SO2. There was a btechnology basisQ

underlying the NSPS: EPA had to stipulate which control technologies were adequately

demonstrated for use by utilities in SO2 control.

FGD Market Implications: The maximum allowable emission rate for new and substantially

modified sources was 1.2 lbs of SO2/MBtu heat input (2.2 kg/Gcal), a rate that effectively

required 0–85% SO2 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.

704 M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718
preferred, and it makes possible reliable, 95%+ SO2 removal efficiencies. The leading dry FGD system

is the lime spray drying process (28% 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 bretrofitQ application to bexistingQ power plants, as opposed to

bnewQ 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 SO2 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 SO2 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 SO2 in two phases. Phase I (1995–1999) applied an aggregate

emission limit of 2.5 lb of SO2/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) 697–718 705
Table 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 SO2 control;

NAPCA’s RD&D levels for SO2 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 FacilityQ 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 SO2 control

technology evaluations; and it engaged in cooperative

RD&D activities with utility/vendor teams and other

government agencies.

! EPA began funding the SO2 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 bcontinued

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 SO2 control funding in FY1975.

! A considerable amount of FGD research money was

transferred from EPA to OFE in FY1979.

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first 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 SO2 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 bcleanQ 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, bin

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) 697–718 707
4.1.1.1. 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 SO2 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 SO2 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 SO2

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 SO2 control in Fig. 5 have varying degrees of certainty.

The expenditure numbers for 1974–2000 are most certain, and are labeled bagency budget numbersQ in

Fig. 5 because of the preponderance of data for those years. The expenditure numbers for 1957–1969,

labeled b1968 Hearing DataQ 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 InterviewQ 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 SO2 control.

3 BoM was reportedly still active in SO2 control research in 1971, although by 1975, it was not. The stable, roughly US$3 million per year in

constant 2003 dollars of SO2 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.

708 M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718
fact 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 bartQ

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 bclass-basedQ patent dataset, illustrated in Fig. 6, identified

2,681 patents issued from 1887 to 1997 that were relevant to SO2 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 babstract-basedQ 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 SO2 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 SO2 control.

4 Not included in this latter trend-line are the patents on fluidized bed combustion and gasification. These patents primarily focus on removing

SO2 from the alternative generation technologies.

M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 709
depicts 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 SO2 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 SO2 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 SO2 control: total, post-combustion, and precombustion patents.

710 M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718
of 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 SO2 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 SO2 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 onQ 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 SO2 control, the demand-pull has a stronger effect on

inventive activity than the technology push. Additional evidence, including the technical content

analysis of the SO2 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) r2: 0.64 (0.00)

Abstract-based: post combustion plus supplemental r

2

: 0.03 (0.48) r2: 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) 697–718 711
analysis of papers presented at the national SO2 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 SO2 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 trialQ 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.

712 M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718
Early 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

SO2 control technology, learning curve analysis provides a quantitative measure of improvements

associated with this post-adoption innovative activity, also known as blearning-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 SO2

industrial–environmental innovation complex.

Government played an important role in fostering these relationships, especially through its funding

of the SO2 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 knowledgeQ 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) 697–718 713
know-how could be transferred effectively. The SO2 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 SO2 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 SO2 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 SO2 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; bFirmQ 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].

714 M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718
by continued stability in cross-organizational ties at the SO2 Symposium as well as continued growth in

the number of ties in the network overall (see Ref. [14] for additional analyses of the SO2 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 SO2 control. The top series shows the improvement in the average SO2 removal

efficiency of FGD systems coming online each year. Today, new FGD systems are routinely designed for

SO2 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 bjobQ at different points

in time, i.e., 90% SO2 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 SO2 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 SO2 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% SO2 removal.

M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718 715
CAA 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 SO2 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-basedQ 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.

718 M.R. Taylor et al. / Technological Forecasting & Social Change 72 (2005) 697–718