The Political Economy of Energy Innovation

This chapter empirically investigates the effects of environmental policy, institutions, political orientation, and lobbying on energy innovation and finds that they significantly affect the incentives to innovate and in creating cleaner energy efficient technologies. The results suggest that political economy factors may act as barriers to energy innovation even in the presence of stringent environmental policy. This implies that, in order to move towards a greener economy, countries should combine environmental policy with a general improvement of institutions, consider the influence of government’s political orientation on environmental policies as well as the size of energy intensive sectors.