Do Technology Standards Induce Innovation in Environmental Technologies When Coordination is Important?

If further decarbonization of electricity systems is to continue, a next generation of innovation in transformative grid modernization and renewables integration technologies will be needed. Few studies have investigated the policy determinants of innovation in this sector to glean insights on how government may support the development and deployment of these technologies. We argue that policies that were successful at supporting the first wave of renewables innovation may not be sufficient to produce similar results in the next wave of green innovation since those face higher coordination bottlenecks. We investigate the effects of interoperability standards - an instrument that may facilitate coordination - on patenting using smart grid as an example of a technology that has high interoperability requirements. We find that standards decrease patenting at the extensive and intensive margins, but these results vary across types of firms. We find that this negative effect is driven by large firms, whereas standards increase entry by firms without prior smart grid innovation experience. We interpret this result as an information effect: standards provide useful information to new entrants and may help diversify the range of players innovating in this space.