Policy-Induced Innovation in Clean Technologies: Evidence from the Car Market

This article analyzes the effects of fuel economy and greenhouse gas emission standards on the direction of innovation. We develop an intuitive measure of standard stringency that captures the policy’s most important attributes for the incentive to innovate. To test the role of standards, prices, and taxes for the innovation decision, we construct a firm-level panel of patents in clean and dirty automotive technologies for the years 2000–2016. Our results indicate that standards are a robust driver inducing zero emission technologies in the car market, while taxes also play a role. The effect of standards is driven by patenting for electric vehicle and hydrogen fuel cell technologies. We find no evidence that these policies negatively impact dirty innovation.