Financing Energy Innovation: Internal Finance and the Direction of Technical Change

Abstract Achieving the goals of Paris Agreement and climate neutrality by 2050 in European Union will require mobilizing financial investments towards clean energy innovation. This study examines role internal finance (cash flows cash holdings) financing constraints for innovation technologies. We construct a dataset 1,300 firms combining balance-sheet information patenting activities renewable (REN) fossil-fuel (FF) technologies estimate sensitivity to firms’ finance. use count estimation techniques control large set firm-specific characteristics market developments REN FF find that specialized are significantly more sensitive shock than specializing Hence, our results emphasize innovative may be particularly vulnerable constraints. discuss implications these transition policies aiming redirect R&D.