Fueling Innovation: An Analysis of The Impact of Fossil Fuel Price on Venture Funding in Clean Technology

Abstract

To achieve the goals outlined by The Paris Agreement, the decisive international agreement focused on climate change mitigation, the United States has explicitly called on the growth of clean technology and both international and domestic political action. This research draws on historical venture capital funding and fossil fuel price data to determine the impact of fossil fuel prices on the level of venture capital investment in clean technology companies. Using four backward-looking manipulations of fossil fuel prices, I identify the statistically significant positive effect of a rise in crude oil price on the proportion of total venture capital funding invested in the clean technology industry. This effect is dominated by investments in early-stage clean technology companies. These findings contribute to a broader conversation surrounding the merit of an oil tax meant to price the negative externality imposed by greenhouse gas emissions, spur innovation, and combat climate change.