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1. Financing energy innovation: internal finance and the direction of technical change

Author:
Joëlle Noailly and Roger Smeets
Publication Date:
09-2021
Content Type:
Working Paper
Institution:
Centre for International Environmental Studies, The Graduate Institute (IHEID)
Abstract:
Achieving the goals of the Paris Agreement and of climate neutrality by 2050 in the European Union will require mobilizing financial investments towards clean energy innovation. This study examines the role of internal finance (cash flows and cash holdings) and financing constraints for innovation in energy technologies. We construct a dataset for 1,300 Europeans combining balance-sheet information and patenting activities in renewable (REN) and fossil-fuel (FF) technologies and estimate the sensitivity of patenting activities to's internal finance. We use count estimation techniques and control for a large set of-specific characteristics and market developments in REN and FF technologies. We find that patenting activities ofs specialized in REN innovation are significantly more sensitive to a shock in cash flows thans specializing in FF innovation. Hence, our results emphasize that innovatives in clean energy may be particularly vulnerable to financing constraints. We discuss the implications of these results for energy transition policies aiming to redirect finance towards clean energy R&D.
Topic:
Environment, Science and Technology, European Union, Finance, Sustainable Development Goals, Innovation, and Energy
Political Geography:
Europe

2. Directing Technical Change from Fossil-Fuel to Renewable Energy Innovation: An Application Using Firm-Level Patent Data

Author:
Joëlle Noailly and Roger Smeets
Publication Date:
01-2014
Content Type:
Working Paper
Institution:
Centre for International Environmental Studies, The Graduate Institute (IHEID)
Abstract:
This paper investigates the determinants of directed technical change at the firm level in the electricity generation sector. We use firm-level data on patents filed in renewable (REN) and fossil fuel (FF) technologies by 5,261 European firms over the period 1978-2006. We investigate how energy prices, market size and knowledge stocks affect firms’ incentives to innovate in one technology relative to another and how these factors may thereby induce a shift from FF to REN technology in the electricity generation sector. We separately study small specialized firms, which innovate in only one type of technology during our sample period, and large mixed firms, which innovate in both technologies. We also separate the extensive margin innovation decision (i.e. whether to conduct innovation) from the intensive margin decision (i.e. how much to innovate). Overall, we find that all three factors - energy prices, market sizes and past knowledge stocks - matter to redirect innovation towards REN and away from FF technologies. Yet, we find that these factors have a larger impact on closing the technology gap through the entry (and exit) of small specialized firms, rather than through large mixed firms’ innovation. An implication of our results is that firm dynamics are of direct policy interest to induce the replacement of FF by REN technologies in the electricity generation sector.
Topic:
Innovation, Renewable Energy, Fossil Fuels, Patents, and Firm Dynamics
Political Geography:
Global Focus