The impact of oil shocks on innovation for alternative sources of energy: Is there an asymmetric response when oil prices go up or down?

Abstract

Do lower oil prices translate into less innovation more than higher oil prices translate into more innovation? Is a long-run sustainability transition taking place or are countries just encouraging innovation in alternative energies in a short-run approach, given the conditions of fossil fuel markets? In this paper we apply negative binomial regression to a panel data set of the 10 most innovative countries concerning alternative energy technologies, in order to assess the impact of oil price variations on this innovation, using counts of patent applications as a proxy. The data includes the declining prices period after 2014. The results show that the impact of oil prices on patent applications for alternative energies is asymmetric: when prices are decreasing the reduction in innovation is more pronounced than the expansion when prices are rising. This result may denote some absence of commitment to find sustainable alternatives to the use of fossil fuels.