1. The document discusses challenges in innovation and public policy presented by Professor Gregory Nemet. It addresses four main topics: the characteristics of innovation; technology push and demand pull policy incentives; challenges around fragile demand pull commitments; and bridging the "valley of death" between research and commercialization. 2. It notes that demand pull policies aim to increase rewards for innovation success by increasing market size, but commitments can be uncertain and not fully credible to private actors. Evidence shows targets for US oil imports were not met. This fragility of demand pull can undermine incentives for private investment. 3. Bridging the "valley of death" between research and applied development is challenging due to high costs, risks,

1. Emerging Technologies & Firm
Dynamics: Implications for Green Growth
Challenges in
Innovation and public policy
Prof. Gregory Nemet December 2015

2. Gregory Nemet—innovation and public policy
Characteristics of innovation:
surprise and stationarity
Emergent properties
•Ex ante ignorance
•Skewed outcomes
•Pervasive spillovers
•Combinatorial
•Depreciating knowledge
•Interaction w/ production
Drivers of smoothness
•long lifetimes
•risk aversion
•incremental improvement
•aggregation
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3. Gregory Nemet—innovation and public policy
1. Policy and Innovation:
Technology push and demand pull
Source: Nemet, G. F. (2009). "Demand-pull, technology-push, and government-led
incentives for non-incremental technical change." Research Policy 38(5): 700-709.
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4. Gregory Nemet—innovation and public policy
1. Policy and Innovation:
Source: Nemet, G. F. (2009). "Demand-pull, technology-push, and government-led
incentives for non-incremental technical change." Research Policy 38(5): 700-709.
4
Technology
Push
Demand
Pull
Reduces the cost
of innovation
Increases payoffs
for success
+ knowledge + size of market
• R&D
• tax credits
• education
• Demonstrations
• knowledge networks
• IPR
• price externalities
• subsidize demand
• govt. procurement
• tech. standards
GOVT GOAL
FOR PRIVATE
ACTORS

5. Gregory Nemet—innovation and public policy
Two Policy Challenges
• Fragile demand pull
• Between technology push
and demand pull
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6. Gregory Nemet—innovation and public policy
• Investment depends on expectations
• Low-C: expectations about D-Pull policy
• What happens to investment if
expectations about policy are uncertain?
Do we need additional incentives?
2. Fragile demand pull: government
commitments are not fully credible
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7. Gregory Nemet—innovation and public policy
1970 1980 1990 2000 2010 2020
0
5
10
15
millionbbl/day
Actual
Forecast (1973)
Nixon Target (1974)
Carter Target (1979)
Forecast (2010)
Obama target (2011)
Source: Nemet, G. F., P. Braden, E. Cubero and B. Rimal (2014). "Four decades of multiyear targets in energy
policy: aspirations or credible commitments?" Wiley Interdisciplinary Reviews: Energy and Environment 3(5): 522-
533.
2. Fragile demand pull: Evidence that
commitments are not fully credible
U.S. Oil import targets
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8. Gregory Nemet—innovation and public policy
Nemet question to venture capitalist:
How do you value the benefits of policy in
your decisions to invest in start-up
companies?
“We ignore it.
What the government giveth, it can taketh
away.’’
- venture capitalist in energy sector
“It does not affect profit projections.
It goes below the line.”
– energy finance professional
2. Fragile demand pull: consequences
of not fully credible commitments
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9. Gregory Nemet—innovation and public policy
How did solar PV get cheap?
•Full answer: a combination of factors
•Short answer: expectations
2. Fragile demand pull: importance of
credibility to incentives
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10. Gregory Nemet—innovation and public policy
80 years of PV prices
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11. Gregory Nemet—innovation and public policy
80 years of PV prices
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12. Gregory Nemet—innovation and public policy
2. Fragile demand pull: importance
How did solar get cheap?
…expectations of future demand
Biggest reason: Economies of scale
Nemet, G. F. (2006). "Beyond the learning curve: factors influencing cost
reductions in photovoltaics." Energy Policy 34(17): 3218-3232.
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13. Gregory Nemet—innovation and public policy
2. Fragile demand pull:
A taxonomy for improving incentives
• Strengthen commitment
– Legally binding, drop safety valves, strict adjustment rules
• Maximize flexibility
– status quo(?), technology push, rely on niche markets,
public sentiment
• Enhance credibility via political economy
– Create concentrated winners
– Compensate losers
• Make incentives robust to policy changes
– overlapping policy regime, multi-level governance
– Decentralized governance, uncoordinated governance
• Implementation mechanisms
– Tracking and transparency
Nemet, G., M. Jakob and J. Steckel (in preparation). "Addressing credibility problems in climate policy.”
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14. Gregory Nemet—innovation and public policy
3. In between Tech Push and Demand Pull:
the “Valley of death”
to pay
even ve
that soc
private
private-
particul
imperfe
future p
future m
ered to
typically
change
more ris
Basic
research
Rateofreturn
Social
Private
Applied
research
Demon-
strations
Early
deployment
Diffusion Saturation
Figure 4 Illustrative social and private rates of return on investment at
stages in the process of innovation.
112 Markets/Technology Innovation/Adoption/Diffusion | Technologic
Author's personal
Nemet, G. F. (2013). Technological change and climate-change policy. Encyclopedia of Energy,
Natural Resource and Environmental Economics. J. Shogren. Amsterdam, Elsevier: 107--116.
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• High spillovers
• Large capital required
• High technology risk
• Uncertain market

15. Gregory Nemet—innovation and public policy
3. In between Tech Push and Demand Pull:
the “Valley of death”
Anadon, L. D. and G. F. Nemet (2014). The U.S. Synthetic Fuels Corporation: Policy Consistency, Flexibility, and
the Long-Term Consequences of Perceived Failures. Energy Technology Innovation: Learning from Historical
Successes and Failures. A. Grubler and C. Wilson. Cambridge, Cambridge University Press: 257—273.
U.S. Synfuels Corp. (1979-86) $5b
Goal: 2m bbl/day by 1992 (33%)
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$0.5bThe “Technology Pork Barrel”

16. Gregory Nemet—innovation and public policy
3. In between Tech Push and Demand Pull:
the “Technology Pork Barrel”
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Cohen, L. R. and R. G. Noll (1991). The Technology Pork Barrel. Washington, Brookings.
“American political institutions
introduce predictable systematic
biases to R&D programs so that on
balance, government projects will be
susceptible to performance
underruns and cost overruns.” –
Cohen and Noll
“government should not pick winners”
...but what if scale, spillovers, and
market uncertainty force a choice?

17. Gregory Nemet—innovation and public policy
3. In between Tech Push and Demand Pull:
Bridging the “Valley of death” while
avoiding the “Technology Pork Barrel”
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Nemet, G., K. Neuhoff and V. Zipperer (in preparation). "The valley of death and the technology pork
barrel: support for radical low-carbon innovation in the materials sector.”
1. On what factors does the case for
government intervention rest?
[appropriability, radicalness, scale, markets]
2. How to maximize the effectiveness
of government support?

18. Gregory Nemet—innovation and public policy
4. Future research:
missing perspectives on innovation
1. incentives in bureaucracies
2. knowledge dissemination
3. international cooperation
4. credibility of policy targets
5. public attitudes to novel technologies
6. characterization of the social returns to
innovation
7. near-term metrics to orient innovation toward
longer term human needs.
Nemet, G. F., A. Grubler and C. Wilson (2015). "Re-orienting energy innovation to
address human needs requires new social science." Nature Energy In review.
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19. Gregory Nemet—innovation and public policy
APPENDIX
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20. Gregory Nemet—innovation and public policy
• allow for policy experimentation
• recover from policy mistakes
• make use of new information
• respond to unexpected events
• account for changes in social priorities
2. Fragile demand pull:
is there a case for flexibility?
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21. Gregory Nemet—innovation and public policy
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