E.T. and innovation - science fiction or reality? An assessment of the impact of emissions trading on innovation

This discussion paper reviews the literature on experiences with innovation under the existing emissions trading schemes in the USA. The basic result from this review is that the innovation effects triggered by emissions trading have been limited because a) targets were not constraining in the beginning, especially under the RECLAIM program, and b) developments outside the permit markets have been exploited to an extent that was previously unexpected. The latter finding can, however, also be understood in part as a result of market forces finding creative solutions. A further result is that methodological approaches that measure innovation behaviour appear to be at least as important for the understanding of the issue as those looking for actual observed innovation.