Innovation can also contribute to resolving environmental challenges, such as
climate change, when the right incentives are given.
The use of flexible instruments
including environmentally related taxes, emissions trading and technology
-neutral
performance
standards should create incentives for innovation and enhance the
international diffusion of clean technologies.
To take one example,
innovation in energy technology is becoming increasingly
important to meet growing demand for energy amidst
concern about the security of
energy supplies and calls for greater environmental protection. Governments across
the OECD are investing considerable sums in R&D on new energy technologies, such
as fuel cells, and seeking ways to speed their deployment and
smooth the transition
to a more sustainable, hydrogen
-based economy. Recent OECD work on hydrogen
fuel cells (OECD, 2006e), has reviewed national efforts in this area and has found
that, innovative activity in this area is on the rise (Figure 12). But the
level of
investment in energy
-related R&D may need to increase further, due to the growing
importance of renewable energy since the return of high oil prices and the
environmental objective of shifting away from fossil fuels