1. Empirics of the Innovation and Diffusion of Green Technology 1.1. Empirical Analysis of Innovation

There has been exceptionally little empirical analysis directly of the effects of alternative policy instruments on technology innovation in pollution abatement, principally because of the lack of available data.

Newell et al. (1999) generalized Hicks’ (1932) concept of induced innovation (in terms of factor prices). such as labeling requirements that might increase the value of certain product characteristics by making consumers more aware of them. Innovation means the offering for commercial sale of a model that was not previously offered for sale. He assessed the changes in energy prices and in energy-efficiency standards in stimulating innovation, and found that energy price changes induced both commercialization of new models and elimination of old models.

Pakes, et. al (1993) investigated the effects of gasoline prices on the fuel economy of motor vehicles offered for sale, and found that the observed increase in miles per gallon (mpg) from 1977 onward was largely due to the consequent change in the mix of vehicles on the market. Fewer low-mpg cars were marketed, and more high-mpg cars were marketed.

1.2. Empirical Analysis of Diffusion Diffusion: is a successful innovation which gradually comes to be widely available for use in relevant applications through adoption by firms or individuals.

One of the great successes during the modern era of environmental policy was the phasedown of lead in gasoline, which took place in the United States principally during the decade of the 1980's. Kerr and Newell (2000) used a duration model to assess the effects of the phasedown program on technology diffusion.

They found that increased stringency (which raised the effective price of lead) encouraged greater adoption of technology that substitutes for lead in increasing octane. They also found that larger and more technically sophisticated refineries, which had lower costs of adoption, were more likely to adopt the new technology.