Determinants of Technology Innovation in the Transportation Sector: Oil Endowments

by Russell Salazar

The development of energy-efficient technologies is becoming increasingly necessary in a warming world. How can countries encourage firms and individuals to innovate more eco-friendly technologies in an effective manner? Kim (2014) takes a closer look at the socio-economic motivators for the development of energy-efficient technologies, with a primary focus on the transportation sector. The study presents empirical evidence to support the claim that smaller oil endowments result in a greater incentive for the development of more eco-friendly vehicles and energy-efficient designs. These findings, combined with explanations from related economic theory, provide insight into potential sustainability schemes for policy makers around the world.

Kim closely examines the number of oil extraction patents and energy efficiency patents within countries of different crude oil endowments. The findings show quite clearly that given a large supply of crude oil, a country and its firms are much more inclined to engineer better oil extraction technologies, diverting attention away from energy efficiency. The study utilizes economic theory of complementary and substitute goods as a basis for explanation. Since crude oil and gasoline-fueled vehicles are complementary goods, an abundance of oil supply in a country–and hence lower relative oil prices–results in higher demand for gasoline-fueled vehicles. This, in turn, results in a proportionally lower demand for energy-efficient cars and thus a miniscule incentive to innovate green technologies.

The study also suggests social and cultural ties regarding innovation incentives. Given scarce oil resources, a fuel-saving and energy-conscious culture develops within the community. It follows, then, that the engineers and scientists living within this community face more day-to-day influence with regard to green living, and innovate to suit their needs and aspirations.

These findings extend to public policy by providing a potential focus: gasoline prices. Kim states, “an increased domestic gasoline price results in more innovation activities that move energy use away from fossil fuel,” suggesting that using a tax–while politically controversial–could encourage technological growth. Furthermore, Kim suggests that such tax revenue could boost green innovation further through R&D funding and support.

Essentially, this study highlights a key stress point with regard to climate change mitigation. This kind of knowledge could lead to more effective policymaking strategies with regard to climate change mitigation in industry.

Kim, J. E., 2014. Energy security and climate change: How oil endowment influences alternative vehicle innovation. Energy Policy 66, 400–410.

#InnovationMotivation: Kim presents empirical evidence to suggest that #OilEndowment is negatively correlated with #EnergyEfficiency – related #patent productivity



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