Working Paper: NBER ID: w27145
Authors: David Popp; Jacquelyn Pless; Ivan Hai; Nick Johnstone
Abstract: Historically, innovation in the energy sector proceeded slowly and entrepreneurial start-up firms played a relatively minor role. We argue that this may be changing. Energy markets are going through a period of profound structural change. The rise of hydrofracturing lowered fossil fuel prices so much that natural gas is now the primary fuel for electricity generation in the US. Renewable energy technologies also experienced significant cost and performance improvements. However, integrating intermittent resources creates additional grid management challenges, requiring further innovation. This chapter documents the evolving roles of innovation and entrepreneurship in the energy sector. First, we provide an overview of the energy industry, highlighting that many new energy technologies are smaller, modular, and increasingly rely on innovation in other fast-moving high-tech sectors. We then conduct two descriptive data analyses that document a sharp decline in both clean energy patenting and start-up activity from about 2010 onwards. We discuss potential explanations and provide some evidence that while innovation in existing technologies may simply have been successful, continued innovation will be needed in enabling technologies that are more likely to depend on progress in other sectors.
Keywords: Innovation; Entrepreneurship; Energy Sector; Clean Energy; Hydraulic Fracturing
JEL Codes: O31; Q4; Q42; Q55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rise of unconventional gas and oil (L71) | shift in innovation focus from clean energy technologies to fossil fuel technologies (Q55) |
| increased availability and lower prices of natural gas (Q35) | influence type of innovations being pursued in the energy sector (O35) |
| rise of fossil fuels (L71) | decrease in clean energy innovation (Q55) |
| regulatory environment (weakened regulations) (G18) | dampened incentives for innovation in clean energy (Q48) |
| regulatory changes (G18) | declines in clean energy patenting (Q48) |
| higher energy prices (Q41) | increased patenting activity in clean technologies (Q55) |
| energy prices (Q41) | influence on innovation (O36) |