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We estimate the two main drivers of technological innovation in the energy sector: demand mechanisms and supply mechanisms. We study eleven efficient and renewable energy technologies in four countries: Germany, France, Japan, and the United States. Innovation activity is proxied by patent applications. Demand mechanisms, which represent market demand for new technologies, are proxied by energy prices. Supply mechanisms, which represent technological opportunities, are identified by stocks of domestic and foreign knowledge. The results show that high energy prices induce innovation. However, the mechanism is not automatic and gives way to public policies aimed at fostering innovation, since we also find a strong response of innovation to technological opportunities.