The Complementary Effects of Environmental Policy Stringency and Oil Prices on Green Innovation : An Empirical Analysis for OECD Countries

This paper examines the single and the joint influence of environmental policy stringency and oil prices on green innovation, admitting the possibility of different magnitudes of the response of innovation depending upon whether oil prices are increasing or decreasing, and accounting for endogeneity of policies. A panel data set of OECD countries is used over the period 1990-2016. The results suggest that environmental policy stringency and oil prices are effective drivers of environment-related technology innovation, and that commitment to international climate agreements also spurs green innovation. Exploiting these complementarities requires an interdependent use of environmental and energy policies, through dynamic adjustments of subsidies and taxes on oil prices alongside reasonable levels of stringency in environmental policy