The impact of pilot and demonstration plants on innovation: The case of advanced biofuel patenting in the European Union

The objective of this paper is to investigate how pilot and demonstration plants affect innovation in the empirical context of advanced biofuel technology. Patent counts are used as a proxy for innovation; we employ data for eight EU Member States over the time-period 1980-2011, and negative binomial regression techniques. The focus is on plant investments that have received public co-funding. The results are overall robust to alternative model specifications, and show that the knowledge generated through past investments in pilot and demonstration plants has had positive effects on advanced biofuel patenting activities. This result is particularly valid for so-called experimental plants, i.e., aiming at testing the technical viability of new technology. The empirical analysis does not indicate the presence of any positive interaction between investments in experimental plants and biofuel blending policies, i.e., in the sense that more stringent blending requirements can raise the rate-of-return on additional pilot tests. Moreover, advanced biofuel innovation is also affected through knowledge spillovers across the selected EU Member States. The paper ends by outlining avenues for future research on the role of pilot and demonstration plants in technology development.