Abstract The present document provides the take of innovation economists on the COVID-19 pandemic. It targets the general public and focuses on questions related to the Science, Technology, and Innovation ecosystem. It provides a reading of current real-world developments using economic reasoning and relying on existing economic research.

We use machine learning algorithms to construct a novel news-based index of US environmental and climate policy uncertainty (EnvPU) available on a monthly basis over the 1990-2019 period. We find that the EnvPU index spikes during the environmental spending disputes of the 1995-1996 government shutdown, in the early 2010s due the failure of the national cap-and-trade climate bill and during the Trump presidency. We examine how elevated levels of environmental policy uncertainty relate to investments in the low-carbon economy. In firm-level estimations, we find that a rise in the EnvPU index is associated with a reduced probability for cleantech startups to receive venture capital (VC) funding. In financial markets, a rise in our EnvPU index is associated with higher stock volatility for firms with above-average green revenue shares. At the macro level, shocks in our index lead to declines in the number of cleantech VC deals and higher volatility of the main benchmark clean energy exchange-traded fund. Overall, our results are consistent with the notion that policy uncertainty has adverse effects on investments for the low-carbon economy hindering progress to address the urgency of climate action.

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After a boom and bust cycle in the early 2010s, venture capital (VC) investments are, once again, flowing towards green businesses. In this paper, we use Crunchbase data on 150,000 US startups founded between 2000 and 2020 to better understand why VC initially did not prove successful in funding new clean energy technologies. Both lackluster demand and a lower potential for outsized returns make clean energy firms less attractive to VC than startups in ICT or biotech. However, we find no clear evidence that characteristics such as high-capital intensity or long development timeframe are behind the lack of success of VC in clean energy. In addition, our results show that while public sector investments can help attract VC investment, the ultimate success rate of firms receiving public funding remains small. Thus, stimulating demand will have a greater impact on clean energy innovation than investing in startups that will then struggle through the "valley of death". Only with demand-side policies in place should governments try to plug funding gaps by targeting clean energy startups with low potential for outsized returns that will continue to find it hard to attract private capital.