The asymmetric effects of oil price shocks on green innovation

Abstract

Given the global resolve to transit away from traditional energy sources toward a low carbon economy, companies are under increasing pressure to grapple with the tension between long-term business sustainability and short-term energy threat. To assess how companies react to this intertemporal choice, we investigate whether and how green innovation, measured by green patent count and value, is affected by oil price shocks when the energy threat is most acute. Over an extended sample period from 1976 to 2018, we find that oil demand (supply) shock spurs (dampens) the intensity and economic value of green patenting activity. This evidence is attributable to energy efficiency improvement and environmental control. Further, firms with access to finance and those in highly competitive industries are most sensitive to oil price shocks. Finally, distinct from companies that rely on crude oil as energy inputs, oil producers curtail green innovation in wake of oil demand shocks, despite the increased profitability.