Beyond Technology-Push and Demand-Pull: Lessons from California's Solar Policy

Abstract:     
The scale of the technological transformation required to reduce greenhouse gas emissions to "safe" levels while minimizing economic impacts necessitates an emphasis on designing climate policy to foster, or at least not impede, environmental innovation. There is only a weak empirical base for policy-makers to stand on regarding the comparative innovation effects of various climate policy options, however. Empirical scholarship in environmental innovation is hindered by the complexity of both the innovation process and the interactions between the dual market failures of pollution and innovation that are in play, and it appears that the field would benefit from the structure provided by a common lexicon. This paper focuses on the issues related to policy categorization in this field; these issues have received little attention in the literature despite their importance to making insights gained from empirical studies generalizable. The paper reviews the origins, strengths, and weaknesses of the dominant policy typology of technology-push versus demand-pull instruments. Its primary contribution, however, is to assemble a comprehensive chronology of solar policy in California and its impacts on innovation, where known, and then use this as a basis for building a new policy categorization that takes advantage of the intuitive resonance of the dominant typology, while encompassing the broader range of policy instruments that are employed in practice in order to stimulate environmental innovation. The most noteworthy aspect of the new categorization is that it introduces a third category of environmental innovation policy instrument that focuses on improving the interface between technology suppliers and users. This reflects developments in the economics of innovation literature as well as considerable evidence in the domain of distributed solar energy technologies that opportunism by some of the actors that work at this interface can be a barrier to innovation.

Keywords: Policy, Innovation, Technological Change, Solar

JEL Classifications: Q55, Q58, O3

Working Paper Series