International innovation and diffusion of air pollution control technologies: the effects of NOX and SO2 regulation in the US, Japan, and Germany

doi:10.1016/j.jeem.2005.04.006

Journal of Environmental Economics and Management

Volume 51, Issue 1, January 2006, Pages 46-71

https://doi.org/10.1016/j.jeem.2005.04.006 Get rights and content

Abstract

Using patent data from the United States, Japan, and Germany, this paper examines both innovation and diffusion of air pollution control equipment. Whereas the United States was an early adopter of stringent sulfur dioxide (SO₂) standards, both Japan and Germany introduced stringent nitrogen dioxide (NO_X) standards much earlier than the US. Nonetheless, in both cases, tightened standards in the US led to more domestic patenting, but not more foreign patenting. Overall, the data suggest that inventors respond to environmental regulatory pressure in their own country, but not to foreign environmental regulations. Moreover, any technology transfer that occurs appears to be indirect. Domestic innovation occurs even for technologies that have already experienced significant innovative activity abroad and utilities purchase pollution abatement equipment from domestic firms. However, patent citation data from the US do show that earlier foreign patents are an important building block for NO_X pollution control innovations in the US.

Introduction

Technological change has the potential to play a key role in limiting the effects of long-term environmental problems such as climate change. As such, environmental economists have increasingly paid attention to the links between environmental policy and technology. These links traditionally come in one of two ways. First, environmental policy may induce new innovations by increasing the potential value of producing environmentally friendly technology. Second, environmental policy may encourage the diffusion of existing environmentally friendly technologies. However, few studies of technological change, either in the environmental or broader economics literature, link both aspects of technological change. This paper begins to bridge this gap by looking at how differences in environmental regulations across countries affect innovation levels in each country and the transfer of knowledge across countries.

In this paper, I use patent data to investigate flows of technologies designed to reduce electric utility nitrogen oxide (NO_X) and sulfur dioxide (SO₂) emissions between the United States, Japan, and Germany. Most previous empirical studies of innovation and adoption of environmental technologies have focused on a single country, and the majority focus on US data. In general, this is appropriate, as the US traditionally has been among the first countries to enact strong environmental regulation and has also been among the first to develop relevant pollution control technologies. However, this is not true in the case of NO_X. Other nations, particularly Japan and Germany, adopted stringent NO_X regulations earlier than the US. As a result, these nations also developed NO_X pollution control equipment faster than the US. A study of the innovation and diffusion of NO_X technologies in the US thus offers an opportunity to study the international diffusion of environmental technologies. In comparison, the US was an early adopter of strong SO₂ regulations. Thus, trends in SO₂ patents will serve as a useful control, to check whether differences in international patenting of pollution control technologies are truly due to differences in international environmental regulation.

I use the patent data to answer two related questions. First, what role does environmental policy play in inducing environmentally friendly innovation? Do domestic environmental regulations spur innovation by foreign inventors, as well as domestic inventors? Second, using patent citations, I examine the role of international knowledge spillovers, asking what contribution patents from foreign inventors make to innovation by domestic inventors in the US. The results suggest that international transfer of these technologies occurs indirectly—via influencing domestic inventors—rather than directly. This finding suggests that for countries adopting environmental regulations similar to those already in place elsewhere, domestic R&D will be needed before technology transfer can occur.

Section snippets

Motivating theory/literature review

The goal of this paper is to understand how environmental policies both at home and abroad affect the technologies available within a country. International transfer of environmental technologies is important for several reasons. Many proposed policies addressing global problems such as climate change include the transfer of technologies across countries (particularly to developing countries) as part of the solution. Yet, the mechanisms by which such technologies are transferred, as well as the

Regulation of NO_X and SO₂²

Table 1 summarizes NO_X and SO₂ regulations for coal-fired power plants in Japan and Germany. For both NO_X and SO₂, both Japan and the US were early actors, while Germany did not enact specific emission limits until 1983.³

Patent data

This paper uses patent data from the US, Japan, and Germany to study trends of innovation and technology transfer in response to NO_X and SO₂ regulations. This section introduces the use of patent data for this paper. A description of patent citation data is presented in Section 6. Appendix B, available on-line, provides a more detailed discussion of the construction of the data for this paper.⁷

Pollution control innovations across countries

Using the patent data described above, this section examines innovations in pollution control technologies designed to reduce emissions of NO_X or SO₂ from coal-fired power plants. I briefly describe the technologies used to control these emissions, and look at patenting trends across the three countries.¹⁶ Of particular interest are the links between

Do knowledge spillovers occur?

A cursory look at the patent data suggests any spillovers that do occur across countries in these technologies are indirect. In each country, firms respond to stricter environmental standards by increasing innovation. This remains true even for countries that are latecomers to regulations, such as the US for NO_X and Germany for SO₂. This suggests that these latecomers are not simply adopting innovations done elsewhere. As further evidence of this, note that the suppliers of both NO_X

Conclusion

This paper uses patent data from the US, Japan, and Germany to study international technology transfer of pollution control technologies. Inventors respond to domestic regulatory pressures, but not foreign regulatory pressures. There is little increase in foreign patents in either the US or Germany in response to increased domestic emissions standards for NO_X or SO₂. There are, however, increases in patents from foreigners when regulations in the respective home countries increase.

Thus, foreign

Acknowledgments

The author thanks Skip Laitner, Fiona Murray, participants at the 2004 APPAM Fall conference, two anonymous referees and the Associate Editor for helpful comments, Neelaskhi Medhi, Miki Ouchi, Jacob Brower and Yonghong Wu for excellent research assistance, and Eric Welch for help obtaining environmental regulation data from Japan. The author is responsible for any remaining errors. Financial support provided by DOE grant DE-FG02-ER63467.

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View full text

International innovation and diffusion of air pollution control technologies: the effects of NOX and SO2 regulation in the US, Japan, and Germany

Abstract

Introduction

Section snippets

Motivating theory/literature review

Regulation of NOX and SO22

Patent data

Pollution control innovations across countries

Do knowledge spillovers occur?

Conclusion

Acknowledgments

J. Environ. Econ. Manage

Resource Energy Econ

Res. Pol.

J. Environ. Econ. Manage.

Res. Pol

J. Environ. Econ. Manag.

On the theory of induced innovation

Econ. J.

The microeconomics of induced technical change

Issues in modeling induced technical change

A microeconomic approach to innovation

Econ. J.

How high are the giants’ shoulders: an empirical assessment of knowledge spillovers and creative destruction in a model of economic growth

Innovation and learning: the two faces of R&D

Econ. J.

Engineering-economic evaluation of SCR NOX control systems for coal-fired power plants

Proc. Ameri. Power Conf.

Econometric Analysis

Patent statistics as economic indicators: a survey

J. Econ. Lit.

Issues in assessing the contribution of research and development to productivity growth

Bell J. Econ.

R&D and absorptive capacity: Theory and empirical evidence

Scan. J. Econ.

International innovation and diffusion of air pollution control technologies: the effects of NO_X and SO₂ regulation in the US, Japan, and Germany

Regulation of NO_X and SO₂²

Engineering-economic evaluation of SCR NO_X control systems for coal-fired power plants