The Public Budget in Energy RD&D Within OECD Countries: Some Policy Recommendations

Having observed both emissions and energy consumption variables, we will analyze the evolution of expenditures in the public budget on energy research, development and demonstration (RD&D) undertaken by the OECD economy (Fig. 4). This variable complements the influence of other variables that influence the evolution of intensity energy in these countries. So, it is important to recognize that a public budget for energy RD&D strengthens the technological capacity of the company as well as its capacity for innovation and learning, thus enhancing value-added strategies (Balsalobre et al. 2015).

Figure 4 presents the evolution of public budgets for energy RD&D since 1974 for different countries and sources of the OECD. Figure 4 shows a positive evolution of this variable; however, during recent years these efforts have been reduced,

Public Budget in RD&D

Fig. 4 Public Budget in RD&D (in Million USD 2014 prices and PPP) in OECD Countries (1974-2014). Notes energy RDD by sources (Main axis); Total energy RDD in OECD countries (secondary axis) (Source OECD 2016)

probably for reasons linked to the economic cycle. Regarding the nexus between technological innovation and energy efficiency, technological innovation increases the quality of production by augmenting energy efficiency (Brock and Taylor 2005). In fact, OECD countries experience greater energy efficiency gains due to the magnitude of their technological innovation compared to other developing countries (Wong et al. 2013). Technology may reduce energy efficiency marginally; however, in absolute terms, it may produce a rebound in overall energy use (Greening et al. 2000).

These investments in energy RD&D are hindered by different factors, such as high upfront costs, risks, and uncertainty regarding long-term viability of the technology, long payback periods, high regulatory and infrastructural dependency as well as public acceptance (Mtiller et al. 2011). Therefore, policy makers have to promote public policies that help to reduce these risks, by, for example, reducing the capital costs of creating more efficient technologies; this should be linked with reduction in demand for fossil sources that have been heavily subsidized in the past (Szabo and Jager-Waldau 2008). However, based on the results of some studies (Friebe et al. 2014; Ltithi and Prassler 2011; Ltithi and Wtistenhagen 2012), relevant decision criteria have been identified, including the assumption of regulatory measures linked with streamlining of the administrative process. Chassot et al. (2014) confirm these statements by highlighting the perceived risk of policies as the main determinant of investment decisions. Furthermore, Szabo and Jager-Waldau (2008) propose reducing the costs of capital for sustainable energy projects to promote the progress of more efficient capital markets and to promote competitiveness in the energy sector.

In other words, a blend of supportive financial regulation and energy regulation policies would help to positively extend energy improvements (Ltithi and Wtistenhagen 2012; Wtistenhagen and Menichetti 2012; Bergek et al. 2013). Otherwise, whether policy adoption determinants are similar in industrialized countries is questionable, given the differences in political systems, international commitments to mitigating climate change, and economic development. For example, rapid income growth rates during periods of high oil prices may have encouraged the search for alternative energy sources. Furthermore, less affluent countries may need international financial and capacity building support to implement energy technologies with high investment costs. Consequently, we can expect that international climate costs will help to establish new policies. However, we consider it necessary to promote national-level policy development in support of climate change mitigation.

Finally, sustainability measures are even more relevant when the focus is on particular impacts, such as climate change, that are brought about by economic activity. Rather than pretending that the inclusion of climate costs generates overall economic optimality, the sustainability of capital maintenance provides a quantifiable benchmark for tackling climate change: the idea is to reduce greenhouse gas emission to maintain the absorptive capacity of carbon sinks.

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