Association for Public Policy Analysis & Management

Panel: Demand Pull Polices and Energy Innovation

(Natural Resource Security, Energy and Environmental Policy)

This panel proposal addresses the conference theme of how research can make government more effective by highlighting recent empirical work on the effects of policy on innovation in energy. Innovation is needed to enable a transition to an energy system that is more affordable, reliable, and cleaner than that of today. Governments are confronting important decisions as to whether, how, and how much they should take an active role in supporting this. This role is justified by at least two market failures: negative pollution externalities from fossil fuel combustion and positive knowledge spillovers from technology development. The low carbon sector as an infant industry and asymmetric information in technology adoption provide further justifications. While these arguments have sustained a broad consensus for 70 years that government support for R&D is necessary, their use to justify demand side policy, “demand pull”, has been much more controversial. In contrast, supporting innovation through demand pull has been associated with cautionary heuristics such as that “governments should not pick winners” and that such support is prone to a “technology pork barrel” politics. Yet one of the most robust insights from the innovation literature has been the notion that feedbacks from production and use are crucial to creating opportunities for improving technology. Technologies can improve via learning by doing, economies of scale, development of supply chains, and even user-inspired innovation. The focus on demand side policy raises questions for policy makers, e.g. how to select programs for support, when to terminate programs, as well as how to balance scale vs diversity. The long term aspects of energy problems and the adoption of innovations mean that the efficiency of policies need to be considered over a longer time period than is typical for policy makers. It may be impossible to address the multiple market failures above without governments doing some “picking” of what to support. The papers in this panel aim to inform decisions like these by empirical work on how demand factors have affected innovation. Our panel is international and while the panelists are academics, several have played roles as policy practitioners. Professor Gallagher recently returned to her academic position after over a year as Senior Policy Advisor in the White House OSTP. Professor Schmidt is a Consultant to the UNDP. Professor Rai is a Commissioner for the Austin, TX municipal electric utility. The papers in this panel draw on a variety of theoretical frameworks and methods, including: interviews, historical case studies, regression analysis, and data on patents and alliance formation. Professor Schmidt compares learning patterns in wind, photovoltaics, and batteries to assess the role of learning-feedbacks in technologies’ supply chains. Professor Anadon looks at the role of governments as customers and as industry partners in fostering innovation in startups. Professor Rai’s paper uses evidence from solar electricity in China to explore the linkage between demand-pull policy and the local aspects of innovation. Professor Nemet’s paper analyzes previous demonstration program to inform the challenge of supporting large scale pre-commercial technologies.