“ECO INNOVATION”

A Report submitted to Prof. Bala Krishnamoorty as a

partial fulfilment of MBA Core FT Program at
NMIMS, Mumbai

By :

ANVESHA POSWALIA

Roll No. 228

Div ‘C’

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 Introduction

Eco-innovation is a term used to describe products and processes that contribute to sustainable development. It is the
commercial application of knowledge to elicit direct or indirect ecological improvements. It refers to all forms of
innovation – technological and non-technological, new products and services and new business practices – that create
business opportunities and benefits the environment by preventing or reducing their impact, or by optimising the use
of resources. It is closely related to the development and use of environmental technologies and also to the concepts
of ecoefficiency and eco-industries. The common aim is to contribute to more sustainable production and
consumption patterns. Practical examples of eco-innovation include processes to recover valuable substances from
waste water, more efficient food packaging, the production of construction materials from recycled waste, eco-
products and new management methods.
It is often used to describe a range of related ideas, from environmentally friendly technological advances to socially-
acceptable innovative paths towards sustainability In recent decades, expanding economic activity has been
accompanied by growing concerns about climate change, energy security and scarcity of natural resources. While
industries are showing greater interest in sustainable production and are undertaking a number of corporate social
responsibility (CSR) initiatives, progress falls far short of meeting these pressing challenges. Moreover,
improvements in efficiency in some regions have often been offset by increasing consumption in other regions, while
efficiency gains in some areas are outpaced by scale effects. Without new policy action, recent OECD analysis
suggests that global greenhouse gas emissions are likely to increase by 70% by 2050. Annexures 1 & 2 show general
examples of eco – innovation.

Linkages between Eco-Innovation and Corporate Reputation

1. Product design is a critical determinant of corporate environmental impact. In fact, it has been estimated that a full
75% of all the environmental impact a product throws off during its lifetime is determined at the design stage, the
purview of manufacturers.
2. Products and their marketing activities are highly visible to all stakeholders.
3. New products designed with the environment in mind can excite employees, suppliers and other stakeholders,
creating a buzz that signals corporate responsibility, innovation and the potential to increase top line sales.

How innovation can help industries and governments go green

Innovation has long been seen as central to economic performance and social welfare; it is increasingly recognised as
a significant driver of economic growth. More recently, industry leaders and policy makers have also looked at
innovation as the key to making radical improvements in corporate environmental practices and performance. Eco-
innovation is generally the same as other types of innovation but with two important distinctions:
• Eco-innovation represents innovation that results in a reduction of environmental impact, no matter whether that
effect is intended or not.
• The scope of eco-innovation may go beyond the conventional organisational boundaries of the innovating
organisation and involve broader social arrangements that trigger changes in existing socio-cultural norms and
institutional structures.

Three main facets of eco-innovation can be distinguished (Figure 1):

1.Targets, which are the basic focus areas of eco-innovation. These are products, processes, marketing methods,
organisations, and institutions. Eco-innovation in products and processes tends to rely on technological development,
while eco innovation in marketing, organisations and institutions relies more on non-technological changes.
2. Mechanisms, which are how changes in the target areas are made. They can involve modification of practices, re-
design of practices, alternatives to existing practices, or the creation of new practices.
3. Impacts, which are how the eco-innovation affects environmental conditions.

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 Figure1.

Role of the government

Although government regulations and standards have helped to reduce damaging environmental impacts to a large
extent, they typically are not the most efficient way to reduce emissions and do not offer enough incentives to
innovate beyond end-of-pipe solutions. Nor have innovation policies so far focused sufficiently on environmental
concerns. Realising the potential of eco-innovations will require actions to ensure that the full cycle of innovation is
efficient, with policies ranging from investment in research to support in commercialising breakthrough technologies.
Better pricing will be one of the best triggers for the development and diffusion of green technologies. Results from a
survey of ten OECD governments on existing national strategies and policy initiatives show that an increasing
number of countries now perceive environmental challenges not as a barrier to economic growth but as a new
opportunity.
Government policy initiatives and programmes that promote eco-innovation are diverse and include both supply-side
and demand-side measures. Demand-side measures are receiving increasing attention, as governments acknowledge
that insufficiently developed markets are often the key constraint for eco-innovation. For example, green public
procurement provides an opportunity to foster demand for eco-innovation, although such policies need to be carefully
designed as government procurement rules may inadvertently run the risk of harming competition and support
technologies which deliver sub-optimal performance. Current demand-side measures are often poorly aligned with
existing supply-side measures. A more comprehensive understanding of the interaction between supply and demand
for eco-innovation will be a pre-requisite for creating successful eco-innovation policies.

Eco – Innovation Policies in Action

1. Funding for technology deployment: The United States Department of Energy (DOE)’s
Technology Commercialization Fund (TCF) complements “angel investment”, or early stage corporate product
development. The TCF brings the DOE’s national laboratories and industry together to identify technologies that are
promising, but face the “commercialisation valley of death”.
2. Top Runner programme: Japan’s Top Runner programme, launched in 1998, adopts a process of setting and
revising standards by taking the current highest energy-efficiency rate of products in some 21 product groups as a
benchmark, instead of setting fixed targets. This flexible standard-setting creates incentives and competition among
manufacturers to improve product performance without providing financial support.
3. “Carrot and stick” for diffusing eco-products: France introduced the Bonus-Malus (reward-penalty) scheme for
personal cars in 2007 to encourage manufacturers to develop low-emission vehicles by guiding consumer choice.
This scheme provides a subsidy to those who purchase a new car that emits less than 130 grams of CO2 per
kilometre, while imposing a penalty on those who buy a new car that emits over 160 g CO2/km.

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 Examples of Companies that reaped benefits of eco – innovation

1. Toyota: Development of Prius

One of the most high profile of Toyota’s eco-innovations is the Prius, which, along with Honda’s Insight, represents
the first commercially successful marriage of internal combustion engine and electric motor technologies, providing
consumers with the best of both worlds: extended driving range and super high fuel efficiency. Not trapped by
clichéd green marketing attempts marked by the planets, babies and daisies of a decade ago, Prius ads spotlight
superior performance and gee-whiz technology, with environmental responsibility as an important, but secondary
benefit. The payoff: 100,000 hybrids on the road, 39,000 of which are in the U.S., and the company projects annual
unit sales of 300,000 by 2005. Meanwhile, a RAV4 electric car is quickly being snapped up by Budget and other
rental cars firms as well as car sharing services such as ZipCar in the East and Flexcar in the Northwest. In doing so,
they have discovered that a healthy niche exists for pure electric vehicles: shorter driving distances, emission-free
transportation within planned communities, and as feeder vehicles within a larger system of transportation. Most
recently, Toyota caught Detroit unawares with the launch of the world’s first fuel cell car whose only emission is
water. Seizing the opportunities for corporate leadership that these eco-innovations represent, Toyota is currently
running a high profile corporate campaign backed up by tangible examples of specific corporate social and
environmental initiatives.

2. BP: “Beyond Petroleum” corporate campaign

BP’s “Beyond Petroleum” corporate campaign reinforces the image carved out by Chairman John Browne as the oil
company most outspoken in support of renewable energy resources. Putting its money where its mouth is, BP is one
of the largest producers of solar panels, and the company touts significant investments in hydrogen and wind power
—and the green community has taken positive notice. The World Resources Institute points out that BP is one of
only three companies in the oil and gas sector— along with Conoco and Phillips—who mention climate change in
their annual reports. Bold statements in their corporate ads, which get heavy play in the U.S. on TV, in print and on
billboards, set BP apart from its competition, which stand in the company’s shadows with weaker statements on the
environmental commitments.

3. Millican – Travel bags inspired by classic styles, largely made with sustainable materials

Jorrit Jorritsma and his wife own this small company that manufactures bag with sustainable materials. In terms of
the materials we use for our bags, working with RITE (Reducing the Impact of Textiles on the Environment), we feel
that we’ve made some real strides.  For example, using organic cotton rather than its conventional cousin, since the
former involves far less pesticides, insecticides and water in its production.  And, even with synthetic materials, using
recycled polyester rather than virgin polyester, saving 50% on water, 20% on energy, and 60% on air pollution.

4. Xerox: Eco-Friendly Font, Xerox's ColorQube

First, there were greener inks, followed by greener printers, and now, a green font? Yes, indeed it is true. Sure, you
can squeeze more pages onto a single sheet, print on both sides of a sheet, print in draft mode, and now: you can print
with holes in your letters. It's called Ecofont, and their producers promise it will utilize 20% less ink when compared
to normal printing. It is available for Windows, Macintosh, and Linux systems, and closely resembles Arial in
appearance. In other green printing news, printing giant Xerox announced its efforts to make printing greener by
going cartridge-free - their newest printer model series offers the capability to use solid ink sticks. They claim no
stains will be forthcoming. According to Xerox the new printer produces 90% less waste in ink than other printers,
and keeping the Xerox history in mind, their research and development reports are relatively trustworthy. This new
development is called a ColorQube.

5. HP: Going the Green way

In 2006, HP introduced a new line of energy efficient servers: The C-Class blade servers with embedded Thermal
Logic technology use 33% less power than regular rack-mount servers reduce noise pollution by 50%, and the jet-
engine inspired “active fan technology” uses 50% less power than conventional cooling fans.

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Targeting one of the main culprits of battery consumption on mobile devices – the display – HP researchers
developed an energy-aware solution that uses 30% to 90% less energy. And 95% of users said they preferred the new
interface. The new display, which extends battery life by a factor of 20, may be incorporated into future HP products.
Thermal Assessment Services decrease data centre energy consumption by 25% and Dynamic Smart Cooling is
designed to deliver customers 20% to 40% savings in cooling costs.

A plausible eco – innovation: Green Electric Car

Goals of the eco-innovation:

• Continue with the concept of personal mobility, i.e. to fulfil the increasing demand for cars without
increasing the environmental impact.
• Reduce dependence on fossil fuels and GHG emissions by the use of renewable energies
• Reduce local air pollutants.

Drivers and Barriers of the Green Electric Car

This is a project involving the German energy provider RWE AG and the German automobile manufacturer Daimler
AG, however there are similar projects also organised by Renault, Nissan and small and medium sized enterprises
such as ‚Betterplace’ (see www.betterplace.com). E-mobility was started in Berlin and includes all components for
an efficient use of electric vehicles. In the first step, Daimler AG will provide 100 electric cars and RWE AG is
responsible for the supply of the electricity and the development, installation and operation of 500 charging points.
Later on the project will be extended and launched in other cities. The charging points will be installed at the
customer’s home, at the workplace and in public areas. The appropriate charging infrastructure, the affordable prices
as well as an easy payment transaction make the electric car suitable for everyday use, and various customer groups.
The project is supported by the German federal government and shows an innovative example of what can be
achieved if policy makers, energy suppliers and the automobile industry work together in order to contribute to clean
and sustainable mobility solutions.

Possible indicators of eco – innovation

In general, Eco-innovation indicator = (Innovation factor) × (Eco - Efficiency factor)

The following indicators have been suggested:

1. Environmental Sustainability Index: Environmental Sustainability Index (Esty et. al, 2005) is published by the
Yale and Columbia Universities in collaboration with the World Economic Forum and the JRC. It benchmarks the
ability of 146 nations to protect the environment over the next several decades. It does so by
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integrating 76 data sets – tracking natural resource endowments, past and present pollution levels, environmental
management efforts, and the capacity of a society to improve its environmental performance – into 21 indicators of
environmental sustainability.

2. Ecosystem Wellbeing index: Ecosystem Wellbeing index (Prescott-Allen, 2001) combines 51 indicators of land,
biodiversity, water quality and supply, air quality and global atmosphere, and energy and resource use pressures into
an index.

3. Eco-Indicator 99: Eco-Indicator 99 (Goedkoop and Spriensma, 2001) is a damage oriented impact assessment
method for materials and processes, which addresses three damage categories: (a) human health, (b) ecosystem
quality and (c) resources, minerals and fossil fuels. The indicators are normalized using distances from European
reference values, which are used as goalposts.

4. ISO: The International Standards Organization’s International Standard on Environmental Evaluation performance
(ISO 14031). In fact, ISO 14031 is recommended in the framework to be used as the primary approach for selecting
sector or company specific environmental influence indicators.

The Way Ahead

The key barriers to developing countries accessing eco-innovation are:

1. Lack of international policy focus on indigenous eco-innovation capabilities: It is seen as sufficient that
developing countries become consumers of eco-innovations rather than producers and eco-innovators in their own
right. This fails to recognise the central need to foster the development of indigenous eco innovation
capabilities in developing countries.

2. Characteristics of eco-innovation: Eco-innovations are often not yet at commercial stages in their development.
Instead they span the full range of the spectrum thus raising a range of issues that many commercial innovations are
not subject to. These include increased risks to investors, lack of available sources of venture capital, lack of
knowledge of operation.

Incremental costs and market failures: The incremental costs of eco-innovations are exacerbated by the failure
of markets to capture the environmental benefits of eco-innovations, or the environmental costs associated with non-
eco innovations.

Intellectual property: Whilst access to IP might be necessary in some cases, it is unlikely to be sufficient in itself
to enable developing country firms to become producers of eco-innovations. Firms also need access to tacit and other
related knowledge (e.g. trade secrets) which are often not patent protected. These are also important factors in
developing indigenous eco-innovation capabilities. Nevertheless, the fact that evidence suggests patents can
sometimes slow the rate at which developing country firms can become producers of eco-innovations, or produce at
the cutting edge, suggests that international policy mechanisms do need the capacity to be able to address IP in
specific instances.

It is clear that technological development and institutional considerations play an important role in the transition of
the economic system towards sustainability. In other words, technological change is a necessary, albeit insufficient,
condition for achieving sustainability. Institutional changes, including changes in routines, social norms, formal
regulations, and so on, are needed not only to induce the required technological changes, but also to encourage
behavioural changes at all levels of society in more sustainable directions. The nature and scale of present-day
environmental problems and the urgency for change has led to increasing application of eco-innovation in
environmental management and policy. Eco-innovation has the potential to lead to significant economic
opportunities. But investors need a clear and credible price signal and long-term targets now to make the appropriate
investment decisions for a greener future. Even with such a price, the costs of some innovations may be very high
initially, and government will have to share the risk of new technologies with the private sector in some
circumstances. A number of other measures are already being employed by countries to support environment-related
research and development (R&D), as was mentioned in the document.

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 Annexure – 1

Examples of innovation in traditional eco-industries

Examples of eco-innovation
Activity
■ Biomass(electricity a/o heat generation)
■ Geothermal
Renewable energy sources ■ Solar photovoltaic and water - heating
■ Tidal energy, wave energy
■ Wind power - onshore & offshore
■ Management of water resource, upgrading of
infrastructure
■ Demand-side efficiency (incl. Water metering, Gray
water recycling)
■ Rapid analysis of drinking water and waste water
Water management and treatment ■ On-line monitoring networks and automated sensing
technologies
■ Restoration techniques for degraded water resources
■ Disinfection of drinking water, desalination,
■ Wastewater treatment, membranes,
■ Nanotechnologies for water treatment
■ Effluent (incl. landfills leachates) treatment
■ High-efficiency recovery of energy and chemicals, re-
use of off-gas
Waste management and treatment ■ Safe disposal of dangerous substances, especially
Mercury
■ Composting units and biogas processing for
biodegradable waste
■ Collection, separation and treatment for re-use or
recycling of all materials, in particular:
Recycling - plastics, polymers, tires
- batteries and accumulators
- end-of-life vehicles, ships, planes
Soil Techniques of soil remediation
■ Analysis, including life-cycle analysis
■ Environmental surveys and expertise
Environmental services and monitoring
■ Eco-design of products and services
■ Environmental Services (such as energy contracting)

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 Annexure – 2

Examples of eco-innovation in other activities

Activity Examples of eco-innovation

■ Carbon dioxide sequestration
■ Combined heat and power
Conventional energy and energy efficiency
■ Fuel cells (materials, membranes, systems)
■ Radical innovations in production processes
■ Energy storage (Flywheel technology,
superconducting magnetic storage)
■ High voltage direct current (HVDC) transmission to
Energy Distribution and storage
shore
■ Environment-friendly Hydrogen production & storage
■ Intermediate energy vectors (ethanol, methanol)
■ Process optimisation using enzymes
■ Carbon emission management
■ Alternative equipments for motors, heat power &
refrigeration
■ Eco-friendly materials (ceramics, specialist metals)
Industry ■ Process control and intensification – smaller plants
with same capacity, better management of the supply
chain
■ Separation processes (membrane, distillation)
■ Substitution of hazardous substances in industrial
processes
■ Measurement and control of pollution from existing
processes
Information and Communication Services
■ Environmental-friendly “smart metering”, semi-
conductors for remote reading
■ Advanced uses of biomass/bio fuels
■ Fuel cells
Transport
■ High efficiency energy recycling
■ Hybrid engines
■ Passive houses, High Environmental Quality
■ Super insulation, radiant heating and heat recovery
ventilation, local heat generation and cooling, Earth-
Construction sheltering
■ Day-lighting, Calibrated solar orientation and cross-
ventilation
■ Renewable resources and photovoltaic systems
■ Organic farming, low P/protein food production
■ Development of renewable natural resources, bio-
energy, bio-materials
■ Reduction of environmental load, reduction of
Agriculture
herbicide/pesticide use
■ Reduction of water consumption and water re-use
■ Reducing Nitrogen pollution (greenhouse gases,
nitrates, ammonia) in an integrated way.