How regulation influences innovation: an indicator based approach for the case of renewable energy technologies

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Walz, Rainer
Schleich, Joachim
Ragwitz, Mario
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Regulation is especially important for infrastructure systems which are characterised by a triple regulation challenge in the fields of spillovers of R&D, environmental protection, and access to monopolistic bottlenecks. The paper starts from a system of innovation approach and distinguishes different innovation functions. The effect of regulation on innovation depends on how regulation influences these functions. An important role can be assigned towards regulation at the demand side of the technology markets. This paper analyses the relationship between regulation and innovation on an indicator based empirical base. Patents as an intermediate innovation indicator, and the success in international trade as an output-oriented indicator are used for measuring innovations. The results show an above average innovation dynamics of the renewable energy technologies. The technological capabilities of the countries differ, depending on the technology analysed. This underlines the need for a technology specific analysis. In general, countries use both traditional technology policies on the supply side such as R&D subsidies but also demand oriented policies such as feed-in-tariffs or quota systems. Proxies for regulatory indicators are developed indicating the level of regulatory activity for each country. Furthermore, a policy indicator of innovation friendliness of regulation is constructed, which reflects expert opinions on how the regulation in the countries affects additional innovation functions. An econometric analysis which matches the re-sults of the policy analysis with the outcome of the innovation indicator analysis shows that R&D subsidies, diffusion of the technologies as a result of demand side regulation, capabilities in complementary sectors and the policy indicator are important determinants for the development of the innovation activities.
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