Working Paper: NBER ID: w15423
Authors: David Popp; Richard G. Newell
Abstract: Recent efforts to endogenize technological change in climate policy models demonstrate the importance of accounting for the opportunity cost of climate R&D investments. Because the social returns to R&D investments are typically higher than the social returns to other types of investment, any new climate mitigation R&D that comes at the expense of other R&D investment may dampen the overall gains from induced technological change. Unfortunately, there has been little empirical work to guide modelers as to the potential magnitude of such crowding out effects. This paper considers both the private and social opportunity costs of climate R&D. Addressing private costs, we ask whether an increase in climate R&D represents new R&D spending, or whether some (or all) of the additional climate R&D comes at the expense of other R&D. Addressing social costs, we use patent citations to compare the social value of alternative energy research to other types of R&D that may be crowded out. Beginning at the industry level, we find some evidence of crowding out in sectors active in energy R&D, but not in sectors that do not perform energy R&D. This suggests that funds for energy R&D do not come from other sectors, but may come from a redistribution of research funds in sectors that are likely to perform energy R&D. Given this, we proceed with a detailed look at climate R&D in two sectors - alternative energy and automotive manufacturing. Linking patent data and financial data by firm, we ask whether an increase in alternative energy patents leads to a decrease in other types of patenting activity. We find crowding out for alternative energy firms, but no evidence of crowding out for automotive firms. Finally, we use patent citation data to compare the social value of alternative energy patents to other patents by these firms. Alternative energy patents are cited more frequently, and by a wider range of other technologies, than other patents by these firms, suggesting that their social value is higher.
Keywords: Energy R&D; Crowding Out; Climate Policy; Patent Data
JEL Codes: O33; Q4; Q42; Q55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in energy R&D spending (O39) | No crowding out of R&D in sectors not engaged in energy R&D (O39) |
| Increase in energy patents (Q48) | Decrease in non-energy patenting activity (O38) |
| Increase in alternative energy patents (Q42) | Decrease in non-energy patents (O39) |
| Alternative energy patents (Q42) | Higher social value compared to other patents (O35) |
| Crowding out in sectors performing energy R&D (O39) | Resource reallocation within firms (D25) |