International Innovation and Diffusion of Air Pollution Control Technologies: The Effects of NOX and SO2 Regulation in the US, Japan, and Germany

Using patent data from the United States, Japan, and Germany, this paper examines both the innovation and diffusion of air pollution control equipment. Whereas the United States was an early adopter of stringent sulfur dioxide (SO2) standards, both Japan and Germany introduced stringent nitrogen dioxide (NOX) standards much earlier than the US. Nonetheless, in both cases, tightened standards in the U.S. led to more domestic patenting, but not more foreign patenting. Overall, the data suggest that inventors respond to environmental regulatory pressure in their own country, but not to foreign environmental regulations. Moreover, any technology transfer that occurs appears to be indirect. Domestic innovation occurs even for technologies that have already experienced significant innovative activity abroad. Moreover, utilities in countries that adopt regulations later nonetheless purchase pollution abatement equipment from domestic firms. However, patent citation data from the U.S. show that earlier foreign patents are an important building block for NOX pollution control innovations in the U.S., suggesting that American inventors build on technological advances made in countries that adopted stringent regulation earlier.