(mainly in generation capacity). Generally, it is argued that investment disin-centives are related to uncertainty following the opening of markets to competi-tion. But analysis of the consequences of liberalization on R&D investments inEuropean countries and, particularly, on private budgets, are sparse. We aim to fillthis gap in the literature.Because our understanding of technical change and energy policy is by far incomplete—as argued by A. Sagar and J. Holdren—it is of interest to consider theevolution of R&D budgets in members of the Organization for Economic Co-operation and Development (OECD) where a greater portion of energy innovationtakes place.
Indeed, energy-sector restructuring is now taking place in countrieswell known for their R&D tradition, while innovation in the energy sector nowmust occur under the auspices of a liberalized framework.
In addition, the con-clusion in the article by N. Rose and P. Joskow that ‘‘
large firms and investor-owned electric utilities are likely to adopt new technologies earlier than are their smaller and publicly owned counterparts’’ may not hold under more realistic as-sumptions, namely, that companies compete greatly for market shares and cus-tomer loyalty.
The role of technical change within the field of environmental economics re-cently has been surveyed in D. Popp et al.
The authors provide an exhaustivesurvey of the literature linking technical change with energy and environmentalconcerns for both the theoretical and empirical aspects. They note that:
Because the benefits of environmental technologies tend to accrue to society at large, rather than the adopter of such technologies,
market forces alone provide little incentive fordeveloping environmental technologies.
Instead, environmental regulation or public fund-ing of research and development (R&D) often provides the first impetus for developing newenvironmental technologies. (Emphasis in bold added)
In the energy field, it is first relevant to investigate the trend in R&D investmentfrom private economic agents, which logically should have been limited due toregulation, and then investigate how a decrease in private R&D may have beencompensated for through public funding. That is precisely what we shall do in the present work about energy network industries in Europe following deregulation.We advance a series of reasons explaining why energy R&D budgets have beencut as a consequence of deregulation. One of the reasons is that the competitiveintensity seems to have a non-linear impact on innovation by firms (see P. Aghionet al.).
An inverted-U relationship between product market competition and in-novationcouldexplainaslowdownin R&Dactivityfora sectorlikeenergy,whichinitially is not very competitive (see R. Margolis and D. Kammen).
C. Blumsteinand S. Wiel noted that this consequence from restructuring was ‘‘unintended.’’
Indeed, it was implicit in the reforming process that the pursuit of profit should encourage innovation as well.
In light of P. Aghion et al.’s theory, the surprisingaspect of the evident decrease in energy R&D certainly should be discussed.THE JOURNAL OF ENERGY AND DEVELOPMENT158