Fuel Prices and Environment-Friendly Innovations. Evidence from the Automobile Industry

Abstract: This paper empirically examines the relationship between fuel prices and patenting activity in environment-friendly technologies in the auto industry across the OECD countries for the period 1994-2011. Overall, the results suggest that tax-inclusive fuel price affects innovative activity in environment-friendly technologies. More specifically, the analysis shows that the technologies aiming to reduce the amount of fossil fuel combusted by vehicle are induced by fuel prices. Thus, innovations in electric and hybrid propulsion, as well as innovations aimed at the improved fuel-efficiency are fostered by rising prices. At the same time, the estimation results suggest that innovative activity in the integrated emissions control is negatively affected by fuel price and by the stringency of policies. Whereas innovations in post-combustion technologies are insensitive to price changes and are fostered by the toughening regulation.