Public Support for the Financing of RD&D Activities in New Clean Energy Technologies

Several market failures, as well as other technical, economic and regulatory barriers to the market
penetration of clean energy technologies result in under-investment of private innovators in RD&D.
Therefore, public support is needed in order to induce innovations. Policy tools creating market
conditions that are attractive for the exploitation of clean technologies (market pull) must be combined
with other tools directly supporting the development of these technologies through the provision of
public funds (technology push). Thereby, financing policy instruments should be chosen so that their
characteristics match with those of the specific innovation process being targeted at the same time that
social welfare is maximized. We develop an analytical framework to define the form of public support
and to provide recommendations on the optimal choice of both technology push and market pull
instruments.