Association for Public Policy Analysis & Management

In this paper, we examine the impacts of intergovernmental grants on clean energy technology innovation in the United States. We investigate this broad research question in the context of the American Recovery and Reinvestment Act of 2009 (ARRA). There has been an increasing trend over the past two decades that federal support for clean energy is implemented through “indirect governance” tools, such as intergovernmental grants, instead of direct administration from the federal government. The ARRA’s clean energy package has been an unprecedented federal investment to promote clean energy industries in order to stimulate economic growth. Approximately 67% of the ARRA’s clean energy investment was distributed through intergovernmental grants to state and local governments to help them finance their renewable energy and energy efficiency programs. While intergovernmental grants may lead to responsive implementation and improved program effectiveness by utilizing local knowledge on policy priorities according to the fiscal federalism theories, prior empirical research on the implementation of ARRA’s energy intergovernmental grants suggests that this “indirect governance” has imposed great challenges for state and local governments to implement the grant programs in a timely manner. Comparing with the significant efforts to study grant implementation, there has been less rigorous empirical works to evaluate the effectiveness of those intergovernmental grants on clean energy innovation and economic growth, which are the two major goals of the ARRA energy investment.

To fill this intellectual gap, this paper estimates the impacts of ARRA’s energy intergovernmental grants on clean energy technology innovation at the state level. Specifically, we focus on the impacts of 7 intergovernmental grant programs under the Department of Energy’s Office of Energy Efficiency and Renewable Energy (EERE) on stimulating technology innovation in renewable energy and energy efficiency, measured as patent application activities. Using ARRA administrative data and patent data from the US Patent and Trademark Office, we construct a panel of 49 states over period 2005-2015. Applying different estimating methods (including OLS and the first-differenced two-stage least squares estimation), we find that the ARRA energy intergovernmental grants implemented through decentralized networks significantly increased patent application activities in both renewable energy and energy efficiency technologies in the short-term. Contrary to the conventional wisdom that emphasizes the importance of long-term and stable government funding on patenting activities, our preliminary results suggest that the ARRA stimulus package, as a one-time shot, also demonstrated longer impacts on innovative activities in clean energy technologies after the grant periods ended.

This paper provides the first empirical evidence on the impacts of ARRA’s energy intergovernmental grants on clean energy technology innovation. Our empirical evidence indicates that short-term federal support for clean energy implemented through a decentralized system did stimulate technology innovation in renewable energy and energy efficiency at the state level and the impacts lasted after the grant period. Despite the inefficient implementation, the effectiveness of those grant programs in terms of driving clean energy technology innovation supports the indirect governance in the energy sector.