The Role of Knowledge: Technological Innovation in the Energy System

Abstract

Technological innovation will continue to be essential in the energy system for both economic and public policy reasons. The process of innovation is typically incremental, cumulative, and assimilative. Innovation may produce revolutionary outcomes through the accumulation of small steps, or because it introduces new performance characteristics that the market values. In some circumstances, public policy intervention to overcome obstacles to innovation may be justified to secure public benefits. One obstacle is that innovators may be unable to capture all of the available economic benefits of innovation. Another is that economic benefits may not be available and the value of the public good has not been internalized in the market. Experience with energy innovation suggests government intervention works best when it is carefully targeted on specific obstacles. Why some government policies have not been successful and suggestions for new policy approaches that might be useful are also discussed.