The author uses U.S. patent data from 1970 to 1994 to estimate the effect of energy prices on energy-efficient innovations. Using patent citations to construct a measure of the usefulness of the existing base of scientific knowledge, the author considers the effect of both demand-side factors, which spur innovative activity by increasing the value of new innovations, and supply-side factors, such as scientific advancements that make new innovations possible. The author finds that both energy prices and the quality of existing knowledge have strongly significant positive effects on innovation. Furthermore, the author shows that omitting the quality of knowledge adversely affects the estimation results.