What Comes First: Innovation Through Green Patents or Climate Policies? The Role of Businesses and Governments in the Promotion of Strengthened Climate Action

Tackling climate change is impossible without technological change and innovation through patents. This form of voluntary climate action can nurture climate policies and vice versa accordingly. There are two contrasting views regarding the timing of patents as a measure of R&D and their impact on climate policy. First, the directed technological change argument supports the idea that investments in green R&D and green patents, are mandated by the enactment and enforcement of climate policies. This line of argument states that policies happen first and promote patents as a consequence. It necessarily implies that governments lead climate actions and the private sector follows. On the other hand, the first-mover advantage theory implies that patents precede policies which would mean that businesses lead climate actions which policymakers then pick up on. With an OECD time-series analysis from 1990 to today we empirically investigate the timing, sequence and relationship of green patents and climate policies. We show that some countries are more inclined to adopt stringent policies because they are already prepared with technologies. Countries which develop their technologies first and then formulate binding laws or policies benefit from increased trade in green commodities. To conclude, we discuss the implications of the complementary role of the political and private sector in voluntary climate action.