The European Commission JRC-IPTS and Enterprise DG The impact of EU regulation on innovation of European Industry

How should we study the relationship between environmental regulation and innovation?

By

René Kemp Keith Smith Gerhard Becher

May 2000

EUR 19827 EN

Contact details: European Commission DG JRC
Institute for Prospective Technological Studies (IPTS) Technologies for a Sustainable Development Unit (TSD)

Per Sørup, Head of Unit Luis Delgado, Head of Sector
W.T.C. Isla de la Cartuja E-41092 Sevilla Tel. Fax. +34-95 44 88 405 +34-95 44 88 339

René Kemp is senior research fellow of the Maastricht Research Institute on Innovation and Technology (MERIT) of Maastricht University, the Netherlands (P.O. Box 616, NL-6200 MD Maastricht, R.Kemp@merit.unimaas.nl, Tel +31 43 3883864).

Keith Smith is Director of the STEP Group (Group for studies in technology, innovation and economic policy) in Oslo, Norway, (Storgaten 1, N-0155 Oslo, Keith.Smith@step.no , Tel +47 22 477317) and Professor at the Norwegian University of Science and Technology.

Gerhard Becher is senior consultant and vice-president of PROGNOS, Basel, Switzerland.

The views expressed in this study do not necessarily reflect those of the European Commission (EC).

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EXECUTIVE SUMMARY
This report offers a conceptual framework and empirical guidelines for understanding the relationship between environmental regulation and innovation. The basic aim is to widen the concepts of innovation which are used in environment-oriented studies, while at the same time challenging the idea that regulation is either a straightforward promoter or inhibitor of innovation. We propose a 'systems' approach, which emphasises the collective and interactive character of innovation, as an appropriate entry point for analysing the complex institutional, social and networking aspects of the sources and impacts of regulation. At the same time we see regulation as a complex process, and we emphasize the importance not just of regulatory rules but of the policy styles which shape compliance cultures and implementation processes, and therefore modify the real impacts of regulation. Taken together, these points lead us to challenge what we call the stimulus-response model of the impacts of regulation on innovation. That is, we contest the view that regulation either stops or starts innovation in any simple way. Rather, we take the view that regulation shapes or modulates innovation across networks of firms, and across groups of related industries.

This view has significance not only for how we should conceptualise the link between regulation, innovation and competitiveness but also for how we should study this link in practice: what concepts, sources, indicators, empirical methods, and so on are appropriate? Much of this report is oriented towards practical methods for the study of regulatory impacts across different types of activities and industries within the economy.

One important conclusion of the report is that innovation should not be seen as an homogenous output, but rather as part of a multi-level process of change – in organisation, knowledge, beliefs and linkages among interdependent actors and sectors. Innovation as an output is much broader than new products and it is often the other aspects of innovation that matter foremost from the perspective of competitiveness. Innovation is about novelty, about doing something qualitatively

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new or different. An important question is therefore how regulation affects the incentives and ability to change: does it act as a constraint, does it accelerate or delay certain developments (like the restructuring of companies, a sector or a cluster) and in what ways does it cause a company to do something new?

Like innovation, regulation is not a simple, definable product. Regulations themselves often lay down complex rules and incentives systems in terms of actual requirements (e.g. in terms of authorisation procedures, emission limit values, times at which compliance is due), long term targets, enforcement practices, and so on. There is usually a difference between what is required by law and the real conditions of compliance, which depend on the discretionary powers of the implementing agency; this permits negotiations with industry. To understand the technological and economic impact of regulations one must pay attention to the organisations responsible for the implementation of regulation, to the relationship between government and industry, and to their regulatory styles (confrontational, collaborative, etc). How do these styles affect technology choices, for example: do they favour incremental change with limited environmental benefit or force industry to invest in more radical options?

There is an assumption current in business and policy circles that regulation leads to reduced competitiveness by hindering innovation. An alternative view, expressed for example by Michael Porter, holds that well-crafted regulation stimulates innovation and competitiveness. We argue that both views are too simple. The link between competitiveness and innovation output is indirect and complex; competitiveness depends very much on industry conditions and on general frame conditions including cultural traits like trust, entrepreneurship and social relationships — determinants of innovation that act separately from regulations, or as a mediating force. From a competitiveness point of view the focus of regulation impact studies should be on the determinants of innovation and the overall changes throughout a value chain that occur under different regulatory policies.

This suggests that single companies may not be an appropriate entry point for regulatory impact studies. Attention should be given to the value chain of which regulated companies are part and to technological linkages: to how product

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government and societal groups. types of equipment. immediate effects there are indirect (‘knock on’) effects. and must be treated (and labelled) with considerable caution. Conventional innovation output indicators and indicators of competitiveness are not good for assessing the efficiency of the productive system in a broader sense. more long run effects are: • • • creation of first-mover advantages for pollution control technologies and environmentally improved products induced by environmental regulation. To assess the long term competitiveness of a sector or the economy as a whole a broader range of indicators is necessary. Seeing environmental innovation as part of a complex social process raises quite basic problems for empirical research. routines and practices within a filière or innovation chain. but that these indicators are likely to be non-standard and ad hoc.innovations are linked with process innovations. Two important impact sectors besides the subject sector are the equipment/capital goods industry and the waste management sector. not just companies but also establishments providing training and further training. development of new competences and linkages with other actors that may constitute a source of competitive advantage and environmental protection in the future. for example. The effects of regulation are variegated and occur at many points of the economy. research institutions. Such indicators may be used for assessing the competitiveness of a sector in the short term. Examples of indirect. • relocation of industry activities to countries with less strict environmental laws v . Our view here is that studies may be able to generate data which is relevant to overall European competitiveness vis-à-vis the Triad. We argue these should incorporate elements of what the French call “le système socioproductive” (socioproductive system): the infrastructures of tangible and intangible resources and the social relationships between economic and social players. And besides the direct. restructuring of a sector through take-overs or the fossilisation of existing structures through the creation of entry barriers.

One important way in which (environmental) regulation influences innovation is by changing the level and nature of competition. For that reason. Environmental regulation translates the general. impact studies should pay attention to them and should seek to go beyond an assessment of direct. When analysing the impact of regulation one should look at competitive pressures that are operating on companies and competition between different environmental technology options. The above insights are translated into a set of 14 guidelines for analysing the impact of environmental regulation on innovation and competitiveness. The incentives are both economic (having to do with payoffs) and informational. These are given at the end of the report. Innovation occurs within wider systems of innovation.It is the indirect. besides a normative content. quite diffuse demand for environmental protection into specific policies that lay down specific requirements that give guidance to polluters and suppliers of environmental technologies in terms of what is actually required. vi . Regulations thus have an informational content. Environmental regulation does not stop or start innovation in a simple way. an overview of examples of environmental regulations and their impacts are given in an appendix. changing directions and modes of innovation rather than just stopping or starting it. All of this leads to a view of regulation acting as a ‘modulator’ of technical change. immediate effects. it influences innovation by changing the incentives and rule system for innovation. of which regulation is a part. long-term effects that are most important.

We especially grateful to Jens for his comments offered on an earlier version of the work. which helped us to substantially improve the report. We also wish to thank Thor Egil Braadland. vii .ACKNOWLEDGEMENT We wish to thank Fabio Leone and Jens Hemmelskamp of IPTS for their help and support throughout this project. Simone de Jong and John Adeoti for their help with preparing the report.

............................................................................ which helped us to substantially improve the report........................................................................................................................................................................................... We also wish to thank Thor Egil Braadland.........................2 Survey indicators of environmental innovation....... VII We wish to thank Fabio Leone and Jens Hemmelskamp of IPTS for their help and support throughout this project.................... Simone de Jong and John Adeoti for their help with preparing the report.............. REVIEW OF EXISTING INDICATORS OF ENVIRONMENTAL INNOVATION ...........1 Traditional indicators........................................................5 Implications for environmental innovation indicators ........................ 43 7..... 12 3............................ 5 3................................................. 50 8................................................................. DEFINITIONS AND CHARACTERISTICS OF INNOVATION ................................TABLE OF CONTENTS EXECUTIVE SUMMARY ....... INTRODUCTION ...............................................2 Policy networks . 45 7................................................................. 16 5.............................................................................. 1 2..................................... 24 5..............2 The production chain: or....................... III 1........... 12 3...............................................................................2 Regulation as modulator of innovation ............ BRINGING ENVIRONMENTAL REGULATION AND INNOVATION TOGETHER: ANALYTICAL ISSUES ................................................................. THE ENVIRONMENT POLICY FRAMEWORK: CONCEPTS AND ISSUES ...... 58 .... VII TABLE OF CONTENTS ............................................................... DETERMINANTS OF ENVIRONMENTAL INNOVATION ...................................................1 Definitions of regulation and operational issues ............... 9 3. 47 7.................................................... 39 7............... the innovating filière .......... 43 7.................... 1 2................................................... PREVIOUS FINDINGS FROM TECHNOLOGY IMPACT STUDIES OF ENVIRONMENTAL REGULATION ..... 53 9............................................................... 15 4... 25 5.................................................... III ACKNOWLEDGEMENT ............3 Literature-based environmental innovation surveys .................. COMPETITIVENESS ................................................................5 Environmental policy principles....................................................................1 A systems approach to innovation ............................... ............................................................ We especially grateful to Jens for his comments offered on an earlier version of the work...................................................6 Areas where environmental indicators are needed ............. 37 6....................................................... FIGURES AND BOXES ..............................4 Governance models ................ 3 2..................................II LIST OF TABLES..................................................................... 9 3................... 49 7....................................................................................................................................... INNOVATION INDICATORS AND MEASUREMENT ...................... 49 7.................................... 14 3........................1 Environmental innovation ..................3 Environmental policy instruments .........4 Sector or technology specific environmental innovation surveys......................

........................................................................... RESEARCH GUIDELINES ................. 68 OVERVIEW OF TECHNOLOGY RESPONSES TO ENVIRONMENTAL POLICIES....................................................... 67 APPENDIX IV...................................................... 68 APPENDIX V .................................................................... 29 Figure 4.................................... Strategic responses to green pressures and the implications for RTD and innovation..................... 72 LIST OF TABLES....................... 10 Table 2: Overview of traditional environmental policies.............. Summary of questions in the environmental innovation survey by Green et al .... 8 Table 1: Typology of regulations pertaining to business ............ 60 APPENDIX I...................................................... 65 APPENDIX II ................................................................................................................................................................................................................... 45 Table 4....................................................................................................... 46 ..................................................... 66 APPENDIX III ............................................................................................................................................................................... 34 Table 3.... 28 Figure 3: Waste reduction management.................................................................................................................................... 33 Box 2: Eco-design as part of an overall environmental strategy by Philips ........................ The building chain and the regulatory framework that governs it.............................. FIGURES AND BOXES Figure 1: The production chain .............................. 13 Box 1: Eco-design for electric household appliances by Bosch-Siemens-Hausgeräte (BSHG)................................... 7 Figure 2.......................................................10................................. Environmental innovation indicators included in the family of innovation surveys based on the Oslo Manual.............................................................................................................. 71 REFERENCES .................................................................

Apart from technical innovations there are also organisational innovations: changes in organisational set ups. in the sense in which Freeman uses the concept. Innovation. A significant constraint is the regulatory environment. and across groups of related industries. is the elaboration of a new technical principle. tasks. Freeman’s definition of innovation basically is about technical innovation. innovation is the introduction of a new product. Rather. procedures and responsibilities. which does not necessarily hinder innovation. system or device—to be distinguished from invention which is a new idea. The basic aim is to widen the concepts of innovation which are used in environment-oriented studies. we contest the view that regulation either stops or starts innovation in any simple way. but rather says that if firms are to innovate then they must do so with respect to certain performance parameters.1. we take the view that regulation shapes or modulates innovation across networks of firms. a sketch. 2. process. According to Freeman (1982). Organisational innovations consist of new or different working routines. A productive way to think about the shaping of innovation is that firms innovate as a method of removing constraints. DEFINITIONS AND CHARACTERISTICS OF INNOVATION There are different meanings to the term innovation. one which emphasises the collective and interactive character of innovation. intra- 1 . product. INTRODUCTION This report offers a conceptual framework and empirical guidelines for understanding the relationship between environmental regulation and innovation. We seek to challenge the stimulus-response model of the impacts of regulation on innovation. We use a 'systems' approach. or constraints in labour supply. administrative procedures. or finance. social and networking aspects of the sources and impacts of regulation. That is. or model for a new or improved device. while at the same time challenging the idea that regulation is either a straightforward promoter or inhibitor of innovation. process or system. and so on. These may be constraints on the size or geographical location of the markets they face. as an appropriate entry point for analysing the complex institutional. policies.

the time-scale and the adoption of an innovation will often depend on the ambition level of the regulation. and this is the reason why it is important to include these in a study on regulation.organisational relationships (like teams). One problem in analysing environmental effects is that it is necessary to bring these two dimensions of innovation together. and effects and impacts of innovation on the other. These distinctions are important in understanding regulatory effects. or wholly new for the world. Changes in organisational systems may also be needed to take stock of new technological possibilities. management practices and relationships with stakeholders. 2 . for example. Innovation is taken to include both technical innovations (which include service innovations such as new banking services) and organisational innovations. So the fact that there is a broad spectrum of potential change must always be borne in mind. it can be new at the level of an industry or production network. In addition. ranging from relatively incremental improvements to existing products or methods. However. Innovation implies novelty. The act of adopting a new product. and to design policies to develop. An innovative product. innovation and competitiveness. system. since the likelihood. can be new for a particular firm (though not new for other firms). there can be many degrees of novelty. on the one hand. to radically new techniques that imply very substantial changes in activities and outputs. device and a change in organisational practices is thus viewed as an innovation. Without the alignment of the organisation to the new technologies the gains from new technologies will be limited or even negative. things can be new for different types of actors. process. Within the literature on innovation there is a strong distinction between work focussing on sources of innovation and the characteristics of innovation processes. The reason for including organisational innovations in our definition of innovation is that they constitute an important type of innovation: as a general rule. adopt and use new and better technologies. the gains from advanced technology depend upon the adoption of appropriate organisational structures and the formation of new skills. Organisational innovations are an important source of productivity improvements. it can be new for a country. In this study we adopt a broad definition of innovation.

The second level is wider. 1999). Networking not only has become but has always been a requirement for innovation. regulation is something which limits the ability to exploit the available technological opportunities."(de Bresson. involving broader factors shaping the behaviour of firms: the social and perhaps cultural context. the institutional and organizational 3 .1 A systems approach to innovation ‘Systems’ approaches to innovation are founded on one of the most persistent themes in modern innovation studies. 2. In the first type of approach there is often a tacit assumption that firms innovate mainly on the basis of technological opportunity . those which take as their starting point the individual innovator. particularly where this involves sustained interaction between users and producers of technology.internal networks of multi-unit diversified firms . Here the argument is that inter-firm linkages are far more than arms-length market relationships .between a firm and its network of customers and suppliers.confirms the rule. From this perspective. The exception . and second those which emphasise the economic. that the rate of innovation is governed by the scope of available technological opportunity. and that the direction of innovation is explained by whatever it is (almost always unexplained) which generates these opportunities.rather. since from a regulatory point of view it is determinants rather than rates of innovation which are at stake. On one level there are interactions between firms .that is. they often involve sustained quasicooperative relationships which shape learning and technology creation: "The coordination of an innovative endeavour almost always requires a network of independent organizations with different competencies. and is therefore something whose effects are mainly to slow down innovation. This of course leaves a major gap in our understanding. Rather. institutional and social system within which innovation occurs.In analysing sources of innovation. namely the idea that innovation by firms cannot be understood purely in terms of independent decision-making at the level of the firm. with the environment being seen on two different levels. innovation involves complex interactions between a firm and its environment. there are again two types of approaches: first.

consumer attitudes. What the above suggests is that we are not simply concerned with individual firms. the development of exchange rates or the situation in the financial and labour markets. such as social stability and cohesion. and so on.framework. it involves marshalling financial and material resources. and in conditions on serious uncertainty. or to bear risk. • • • the availability of an efficient and complete tangible and intangible infrastructure. the processes which create and distribute scientific knowledge. Innovation is a multi-faceted phenomenon. linked to each other in networks of relationships. such as the state of the economy. political determinants such as macroeconomic policy. one which 4 . and so it can be seen in terms of creativity and intellectual effort. or individual isolated decision-making. for instance in the area of consumer protection. often on a large scale. general health and safety. social willingness to endure negative environmental impacts. Moreover it is a dynamic process. financial policy or the vast sphere of regulations. in banking and the transport sector. and on the modes of innovation which are undertaken. economic integration processes and so on. changing technological opportunities. new ideas and solutions to problems. characterised above all by complexity in interactions between people and institutions. But neither of these dimensions of innovation can realistically be seen in terms of purely individual effort. innovation is a distributed process – its inputs in terms of knowledge and resources are distributed among many participants and contributors. On one level it involves new thinking. • influences emanating from society and impacting the economic players. These framework conditions are often seen as specific to regional or national contexts. On another. either by people or by organizations. insurance. in the energy industry or in the field of environmental regulation. Rather. but they are also dynamic: their forms of operation change with political conditions. infrastructures. price stability. This wider framework includes: • the overall economic situation and development. and so on. regulations contained in collective agreements and labour law. The basic argument of systems theories is that system conditions have a decisive impact on the extent to which firms can make innovation decisions. a society's openness for technological innovations and for economic growth in general.

Either way. At the same time. From an empirical point of view the problem is to gain some descriptive overview of the overall process. and may be shaped by many user sectors. Most of these linkages are not 'arms-length' market relationships. 2. From a conceptual point of view. or on the technical characteristics of its end product. in this case.it is represented schematically in the following diagram. which may not correspond to a statistically defined industry). the innovating filière Can we translate these insights into something which is more operational with respect to regulation? One approach might be as follows . In thinking about the impact of regulation on a 'subject industry' (meaning an activity with which we are primarily concerned. the subject industry must respond to demand conditions which affect product characteristics. But we must bear in mind that there is also a range of inputs deriving from other firms across other industries. Clearly. the knowledge required for producing the output of the subject industry is distributed across many input sectors. this input range may be very extensive. but rather are persistent co-operative relationships. So what is necessary is some more descriptive method of looking at the direct and indirect knowledge inputs to production. Second. cost limits. but it is unlikely that input-output data will be available at appropriate levels of aggregation for the study of environmental regulation impacts.2 The production chain: or. and so on. the innovative response to regulatory change may be something that must or should occur in an industrial sector possibly far removed from the 'subject industry'. social acceptability. An important challenge in environmental analysis is to give these ideas an empirical basis. and the research activities and opportunities for achieving environmental improvements at different points of the production chain.involves learning and change within the social and economic spheres. either can be affected by some specific regulatory initiative. and/or to final consumers. 5 . the output of the subject industry may be sold to a wide range of other industries. This implies two things. the impulses to innovation may stem from any point in this overall system of demand and supply. attention has usually focussed either on the production process of the industry. the diagram presented below corresponds to sectors of production and use in an input-output table. Firstly.

Behind the notion of a filière is the idea that technologies are best understood not as individual techniques.and intra-industry flows of technology. That is. institutions. the capabilities of any individual firm are shaped in part by its historical experience and its dynamic development of competence. with interactions between firms in terms of technological capability. but as integrated systems. technologies. This is a systems approach based on the concept of ‘filière’. but as an integrated system shaped partly by the input-output relations between firms. A filière is made up by a specific set of infrastructures. This view of the technology of a firm implies strong interdependence. practices and actors. 6 . because relevant technological knowledges are located in different firms.The approach outlined here is similar to that of Robert Boyer and his colleagues. and partly by intra-firm specialisation of tasks. The development of specialisation. implies that we should think of the technological structure of an economy not as an agglomeration of independent microlevel decisions. but also by accompanying developments in related firms. accompanied by inter.

materials selection. such as separation and treatment of waste. it is important to describe the structure of the production and use links for the sector concerned. It may not require a special technological competence but requires a special attention on the part of the manufacturing company which may or may not be present. Recycling may require special recycling technologies and additional process steps. at least in general terms. productivity. But it is important that. use of inputs. for which the company may have to bring in consultants or rely on other companies.Figure 1: The production chain • Input from Input linkages industry A Input from industry B CAPITAL AND INTERMEDIATE GOODS (Materials. energy use. social acceptability etc. Pollution control technologies and clean-up technologies are usually provided by Environmental Goods and Services (EGS) firms who have specialised knowledge about pollution and how it may be handled. knowledge inputs etc. sub-system technologies. The production chain approach helps to see the inter-industry links and wider systems aspects of achieving environmental benefits. process technologies) DEMAND CONDITIONS (Shape product quality.) • • • • • • Social and cultural constraints regulations standards legal framework etc infrastructures settlement structures infrastructures Input from industry n ‘Subject industry’ Production process PRODUCTION PROCESS (Design. Here the knowledge of achieving environmental benefits is in the hand of companies who have an interest in pollution control rather than prevention. Such aspects differ per type of environmental technology. standards. In general. waste management depends on the waste 7 . Prevention is more of a company internal affair.) END PRODUCT Input to industry 1 Input to industry 2 Input to industry n Final Consumers Output linkages It is clear that a full description of these linkages would be a very major task.

leaching ) •certification •standards (EN. etc. the ease with which the innovations can be incorporated in existing processes or require a change in technology and procedures. treatment.management infrastructure and frame conditions that influence the costs of waste: costs and bans of landfilling. Waste business involves a chain of its own consisting of such activities as the collection. or upstream or downstream of a subject sector.1 1 As an example. recycling and controlled disposal. availability of land fill locations. For example the use of environment-friendly materials manufactured by material suppliers that depends on waste policies and the regulations that govern it. emission standards for incinerators. Innovation responses to regulation may thus occur at various points of product/waste chains. national ) Building supply industry 4 Waste treatment landfill . 8 . national ) Raw material producers 5 Figure 2. This is shown in Figure 2 (taken from the recycling study on construction waste). There are also backward linkages. transport. incin eration 8 Raw material demands •material quality standards (composition . This depends on the innovation capabilities of actors. (1999) and Kuntze (1999)). Commissioner 1 Designer 2 Contractor 3 Maintenance sector 6 Demolition sector 7 Waste regulations : •landfill ban •landfillclassification •landfill tax •acceptance criteria incineration •recycling targets •waste catalogues Waste treatment recycling 8 Construction demands •building decrees •labour H&S regulations •standardized construction rules •environmental demands •building guidelines •standards (EN. regulations on landfilling and incineration spurred innovation in recycling technology such as material detection methods and automatic separation of waste (See Buchinger et al. and the frame conditions. separation. restriction on the transport of waste. The building chain and the regulatory framework that governs it Source: Verheul and Tukker (1999).

and the problems associated with using recent concepts of innovation in empirical analysis. The first definition is the broadest. where regulation refers to “governmental efforts to control individual price. Control policies consist of direct regulation (involving price control. regulation is confined to command-and-control measures to remedy perceived market imperfections. 1985. It also includes stimulation policies. output. social and administrative. quoted in Majone. Selznich (1985) defines regulation as “sustained and focused control exercised by a public agency over activities that are generally regarded as desirable to society” (Selznich. besides control policies. 5) defines regulation as “state intervention in private spheres of activity to realize public purposes”. regulations pertaining to business may be grouped in three categories: economic. as follows: 9 . However there are similar problems in understanding regulation. In what follows. and other types of command and control measures). 1-2). A more specific definition is given by Meyer (1990: 7). plus tax policies which may be viewed as indirect regulation. we have focussed on some of the complexities in innovation processes.3. 3. Similarly. 1990. the use of licenses to operate a plant or introduce a new product in the market. or product quality decisions of private firms in an avowed effort to prevent private decision-making that would take inadequate account of the ‘public interest’”. For purposes of analysis. Francis (1993. THE ENVIRONMENT POLICY FRAMEWORK: CONCEPTS AND ISSUES Thus far. However most definitions involve the idea of a discrepancy between private and public interests. and we turn now to an overview of definitional and analytical issues in this field.1 Definitions of regulation and operational issues There is no commonly agreed definition of regulation. environmental health and safety standards.

3 In some countries (especially federalist ones) environmental policy is very much decentralised. 1976. the ‘within group’ effects (the differential results obtained when the same tool operates under different institutional circumstances) dominate the ‘between groups’ effects (the results of different tools used under approximately equal conditions). 1) provides a list of relevant dimensions of regulatory policies and styles. implemented and enforced. and the resources and powers which are available to them. An overview of regulations that are impacting on the building sectors is given in Figure 2. drawing a distinction between: Brousseau (1998) separates institutional or market organising regulations (such as property rights systems) from economic regulation. to use a statistical image. health and safety regulation employment regulation consumer protection Administrative regulation Fiscal regulation Information provision (about performance of company. And these should not be overlooked as they are likely to have a bearing on compliance responses and accordingly on innovation. It is important to pay attention also to the other aspects of regulation: to go beyond simply the description of regulations.Table 1: Typology of regulations pertaining to business Economic regulation2 antitrust policies price control property rights company law Social regulation environmental. transposed into law. p. into an analysis of how they are implemented. products) Qualification requirements Source: OECD (1997) and UNICE (1995) In general sectors are subject to different types of regulation. and. especially. others (such as Germany) a more fragmented case-by-case approach. These are however only one important aspect of the overall regulatory context.593). 2 10 . Other important dimensions of regulatory approaches are the level of informality and the transparency/secrecy of policy making and implementation processes. Gray (1995.like France . the performance of policy instruments depends even more on the institutional framework in which they are used than on their technical characteristics: “The actual outcomes of environmental policies are affected more by the institutional arrangements emerging from the political process than by the technical characteristics of the instruments employed. In other words. 3 According to Majone. So we must also consider the agencies responsible for making regulations and implementing them. while in others . Some countries (such as the UK and Denmark) take a comprehensive approach to environmental problems. the significant choice is not among abstractly considered policy instruments but among institutionally determined ways of operating them” (Majone.it is more centralised. In and between countries there are commonly found to exist important differences in the ways in which regulations are made.

ELV policies are based on available technologies and combine a balance between economic costs and environmental benefits. They are usually based on the concept of BAT (Best Available Technology) or BATNEEC (Best Available Technology Not Entailing Excessive Costs).Elitist versus democratized approaches .Minimalist versus interventionist approaches .Reactive versus proactive approaches . ELV policies can be further differentiated into those that are based on the use of specific technologies (these may be called “technology type” policies) and those that are not (called “technology uptake” policies by Adrian Smith in a project note for the TEP project).Informality versus formality .Informal versus formalized approaches .Fragmented versus integrated approaches . 11 .Secretive versus transparent approaches .Secretive versus transparent approaches .Decentralized versus centralized . 1982.Pragmatic versus principled approaches .Accomodatory versus legalistic approaches .Tactical versus strategic approaches .Incremental versus comprehensive approaches .Low priority versus high profile approaches Differences in regulatory approaches give rise to distinct policy styles: by this we mean standard operating procedures for making societal decisions (Richardson.Decentralization versus centralization .. p. Other important features of environmental policy are: . The extent to which governments seek consensus is a very important feature for environmental policy.EQO policies versus ELV policies4 4 EQO stands for environmental quality objectives and ELV for Emission Limit Values.Consensual versus confrontational approaches .Fragmentation versus integration .2 ).Voluntarism versus professionalism approaches .

Policy styles encompass both policymaking and policy execution: from formal implementation to practical implementation and enforcement (See Richardson and Jordan. Policy networks consist of policy members. whereas policy-making networks are more open. According to Kelman (1981).5 These differences are likely to have implications for the nature. acceptability and use of policy instruments for achieving politically or administratively determined environmental goals. Countries with high costs and bans on landfills used different types of recycling technologies. Apart from policy making and implementation styles there are also enforcement styles. the second on the use of sanctions. 3.3 Environmental policy instruments A further issue is that of policy instruments for environmental protection. source and timing of technology responses. The first type is based on the use of persuasion. 1982). A good example is construction and demolition waste management practices in different countries. stable or transitory. 12 . Policy networks of pollution control in the UK are described in Smith (1997). The rule system can often be characterised on the basis of the dimensions described above. ways of doing things and a rule system that governs policy interactions. connected with each other through their resources and network rule systems. Policy networks develop a set of roles. 3. Between countries there exist differences in terms of the availability.2 Policy networks Policy formulation and implementation invariably takes place in what we can call policy making and implementation networks. policy practices. involving changing coalitions. Vogel (1986) and Rabe (1994) enforcement styles can be put into two broad categories: ‘Compliance oriented’ versus ‘deterrence oriented’. There was a 5 The goals may also be seen as a policy instrument. involving a policy network appreciative system or a set of different belief systems. Such networks can be open or closed. Implementation networks tend to be closed and stable.

An overview and a typology of environmental policies is given in Table 2. such as innovation waivers and implementation and enforcement activities. The instrument depends on the source of discharge (whether this is an industrial company. in the Netherlands. Covenants are sometimes referred to as voluntary instruments and. Table 2: Overview of traditional environmental policies Direct regulation Product standards pre-market approval product bans process performance standards technology specifications environmental management requirements take back requirements Economic instruments Communicative instruments information provision pollution (effluent) taxes covenants (environmental product charges agreements) emissions trading (tradable technology compacts permits) network creation (‘match making’) environmental subsidies deposit-refund systems environmental management systems environmental labels producer responsibility environmental marketing environmental liability Source: OECD (1989. as they do not fit the typology. more appropriately. an environmental policy to control an environmental problem usually consists of a mixture of policy instruments.strong correlation between the level (type) of recycling and the costs/ban of landfill (see Appendix II). the quality of surface waters is controlled both through the use of standards affecting the composition and volume of discharges and also through the use of effluent charges (both fixed and per rate of discharges). a household. In actual practice. Some instruments. are not included in the table. For example. or a body operating a collective treatment plant) and on the waste water management region. as environmental agreements. Moreover some instruments cross the typology: emissions trading is classified as an economic instrument but has elements of direct regulation too. This is why it is important to look at policy instruments and measures. 1997b) and Kemp (1997) This overview is not exhaustive. An overview of packaging waste 13 . The same is true for covenants which can be viewed as ‘soft’ or de facto regulation. Apart from the control policies there are investment and R&D subsidies for wastewater treatment plants and technical assistance in the form of information provision by water-quality management boards to industrial dischargers.

In the ‘governance on main policy lines’ model. time frame. The fact that there are policy packages rather than separate instruments creates a problem for researchers seeking to disentangle the influence of particular policies on companies’ and industries’ technology responses and compliance behaviour. authority. showing the multitude of (different) requirements. it may be difficult to compare the stringency of the requirements among countries due to differences in the parameter basis. Even if they rely on one particular type of instruments. and differences in enforcement. Implementation of policy is via authorised bodies that operate within a usually hierarchical relationship with central government. 3. In the command and control model national government is the central player. we are moving away from a simple focus on the state. for example direct regulation. Greece.policies in Germany. Derogations (provisios) also complicate a cross-country comparison of the nature and stringency of certain regulation.4 Governance models Behind policy instruments and implementation lies some more general governance system. 14 . Spain and France is given in Appendix V. and responsibility for action and resource allocation. central government designs only the main lines of the policy which are then further specified by other actors according to the circumstances. and are looking towards a more complex system of agencies and actors through which environmental policies may be developed and implemented. By referring to a governance system. Belgium. It defines the problem and the solutions to it in a rather autonomous top-down way. meaning a system of decision-making. instruments are part of governance models. From this perspective. This model is characterised by the setting of framework laws and obligatory framework goals. the Netherlands. Ringeling and Hanf (1998) distinguish between four basic models: • • • • Command and control Governance on main policy lines Selective governance Facilitating governance.

principles that base permit conditions on best practicable means. materials or products. the polluter pays principle. Prevention plays an important role in Denmark and the Netherlands. In France thermal recovery is put on an equal footing as re-use and recycling and in Greece and the UK land filling is not viewed as being the worst option but can be as valuable as recovery. although covenants also fit other strategies. the proximity principle for waste. • Assess the stringency of the requirements. The institutionalisation of prevention differ between countries. With regard to waste. since they differ between countries. These principles describe the underlying concepts of objectives and methods. 15 .5 Environmental policy principles A final dimension of environmental policy comprises environmental policy principles. In both models there is a great reliance of the self-governance capacities of other actors. and so on. Germany has adopted a strict hierarchy whereas Italy has not. outlawing of certain practices. These principles are important for comparative analysis. not so much in terms of what is actually required at the micro level but in terms of the degree of change that is demanded. It does not assume main responsibility.In the ‘selective governance’ and ‘enabling’ model central government intervenes only on certain crucial points. or a combination thereof. as does hierarchy towards waste. 3. In the UK the precautionary principle plays a limited role since environmental policies tend to be based on scientific evidence of actual environmental damage. These include: the prevention principle. the precautionary principle. and for discussion of specific activities. the principle to base environmental policy on environmental quality objectives thus allowing for non-uniformity in emission limits. licensing of activities. The consequence of this for empirical work is that any analysis attempting to analyse the effect of regulation should: • Describe the area of regulation and the nature of the requirements--whether this is price control. Subsidies and covenants are examples of policies that fit the selective governance and enabling model. (See Appendix I for an overview of waste hierarchies). which resides by other actors who must find a way of coming up with acceptable solutions.

not on organisational innovation or changes in environmental capabilities spurred by environmental regulations. both by the regulated industry (mostly for defensive reasons). capital good suppliers and environmental technology suppliers. using for example cost figures. • Describe the styles of regulation. the allocation of responsibilities for implementation. This is not surprising. product reformulation. Technology-forcing standards appear to be a necessary condition for bringing about innovative compliance responses. Klemmer et al. their suppliers and outsiders. The focus of these studies is on technical innovation. incremental changes in processes. PREVIOUS FINDINGS FROM TECHNOLOGY IMPACT STUDIES OF ENVIRONMENTAL REGULATION There exists a small literature on the impact of actual environmental regulations on compliance innovation and clean technology. the orientation towards the target group (impositional. (1999). as well as product substitution and the development of new processes. Jaffe and Palmer (1996). focussing on the influence of regulated industry on the conditions for compliance and the enforcement practices. which means that industry can be reliant upon suppliers. Hemmelskamp (1997 and 1999). and what happens if companies do not comply. It is found that often the new technologies are developed by firms outside the regulated industry. the regulatory principles. the governance models that are used. 1998). see Haverkamp.whether this is high or low. What these studies show is that the technology responses range from the diffusion of existing technology. 4. The studies furthermore show that the stringency of the regulation is an important determinant of the degree of innovation with stringent regulations such as product bans being necessary for radical technology responses. Kemp (1997) and a number of German studies (Hartje (1985). This literature consists of the work of Ashford and Heaton in the 1980s in the US. mediating. The most common responses to regulation are incremental innovation in processes and products and diffusion of existing technology (in the form of end-ofpipe solutions and non-innovative substitutions of existing substances). This happened in the case of PCBs and CFCs 16 . The studies finally show that long before the regulations are promulgated there is a search process for solutions to the problem. monitoring and enforcement.

Noteworthy too are the empirical studies that are done in Germany. the certainty that their product or activity would be subject to regulations was an important factor. This fits with the Abernathy-Utterback product life cycle model which argues that during the life time of a product a sector becomes rigid. Another source of information about technology impacts is an internal OECD report. • Regulatory flexibility toward the means of compliance. • Significant process innovations occurred in response to stringent regulations that gave firms in the regulated industry enough time to develop comprehensive strategies. by the so-called “Innovative Impacts of Environmental Policy Instruments” research 17 . although very amenable to environmental monitoring and process controls that improved efficiency. Of course. are vested in old technologies both economically and mentally. The report findings were that: • High volume. A possible explanation for this is that incumbent firms. especially those sectors that are capital intensive. and compliance time periods were aspects of performance standards that contributed to the development of superior technological responses. summarizing the results of various studies. variation in the requirements imposed on different sectors. et al. There is a trade-off between achieving quick results and radical change. • The environmental goods and services industry provided compliance strategies that were at best incrementally innovative. mature sectors were resistant to change. An alternative explanation might be that such sectors are powerful and able to fight off regulations that require a major change in their process technologies. due to their lack of disruption and acceptability to regulators. but which diffused fast. An overview of findings from various impact studies in given in Appendix IV.. especially the big ones. • Smaller firms and potential new entrants tended to develop more innovative responses.where firms both in and outside the chemical industry were looking for substitutes 10 year before the use of PCBs and CFCs was banned (Ashford. most recently. 1985).

In the business sector this led to already developed innovation projects (which were developed in anticipation of regulation) not being developed any further (Strassberger and Wessels.6 Owing to the special thematic significance and relevance of these studies to the project at hand. Against this background.network . This prompted companies to step up their efforts to find new technical and organisational solutions to plastic recycling problems. See Klemmer (1999). the study regards the translation of environmental policy (with specific goals) into an appropriate regulation as a prerequisite for successful 6 The research network consisted of the following institutes: the German Institute for Economic Research (Deutsches Institut für Wirtschaftsforschung). energy supply and aggregate economic variables. which suggests that they can be effective instruments. 18 . this was visible in intense political debate about the need to further develop recycling strategies. The compilation of these studies showed that through the use of levies—set at appropriate levels—the external costs from environmental use may be internalised. the study showed that regulations and the deliberations about environmental regulations played a crucial role in environmental innovation in recycling processes. From the studies it was unclear however to which extent the levies stimulated innovation and technical progress. the Research Institute for Public Finance at the University of Cologne (Finanzwissenschaftliches Forschungsinstitut an der Universität Köln). Another interesting case study carried out by the German Institute for Economic Research dealt with the recycling of plastics. 1999). the contents and methodological aspects of some of these studies are outlined below. For businesses and industry. especially in the early 1990s. The analysis offered an assessment of the effects of taxes and levies on structural change. One project analysed numerous studies on the effects of energy taxes and levies on innovation and greenhouse gas emissions. For instance in Germany. the Rhenish-Westphalian Institute for Economic Research (Rheinisch-Westfälisches Institut für Wirtschaftsforschung). The statutory regulations planned by the politico-administrative system in the second half of the 1990s however fell far short of the regulations foreseen in the initial discussions and declarations of intent. The levies stimulated environmentally benign forms of behaviour and management. and the Centre for European Economic Research (Zentrum für Europäische Wirtschaftsforschung).

The authors of the study believe that these information bases would not only be an instrument for companies to identify special ecological problems. the study identified some other factors to be interdependently linked to the effects of government regulations. This may help to define proper regulations and reduce business opposition to government regulation. This includes eco-labels. Besides. These factors include: (i) (ii) companies’ cost-cutting efforts. the empirical case study demonstrates that the innovative effects of such regulations not only depend importantly on the way individual environmental policy tools are shaped and employed. 1999). The study also found environmental awareness among the affected public to be an important factor. It found that the shape of environmental policies is an essential determinant for the occurrence and diffusion of environmental innovations.support for environmental innovation processes in businesses and industry. It is found that the conditions for the implementation of environmental innovations in the industry are particularly favourable when new production capacities are being created (Blazejczak and Edler. Added to this. In this regard the study also considers support for environmentally relevant research projects to be conducive to the identification of economic potentials for environmental innovations. In the paper industry the growing environmental awareness 19 . provided they are granted for a limited period and are tied to a catalogue of criteria that is regularly revised and developed further. and environmentally relevant innovation efforts on the other hand. and the degree of environmental awareness on the part of the affected public The study convincingly brings out the connections between the economic framework and investment factors in general on the one hand. and was based on interviews. but also to identify potentials for environmental innovations. In the project of the research network mentioned above. The paper industry case study was done in several countries. but also on the wider economic and political environment. an empirical case study was done for the paper industry – again by the German Institute for Economic Research. Another aspect of this relevant environment is seen in environmental management tools that improve companies’ ecologically relevant information bases.

it is the marked environmental awareness among the Danish people that is an important background variable which serves to explain the economic success of energy-efficient refrigerators in Denmark (Jänicke et al. The authors of the study. labelling of appliances. and the third reviews the innovation activities of a German chemical company. they recommend that by means of appropriate research and technology A good example of an effective and economically efficient environmental policy are the US corporate automobile fuel economy (CAFE) standards which set progressive fuel economy targets for automobile manufacturers in the 1979—85 period under penalty of a fine of $50 per car sold for each mile per gallon of shortfall.. the levy on hazardous waste that has been in existence in Germany for some years. Rather. 7 20 . the second. in the form of a levy) are eliminated or at least limited if these instruments are combined with other regulations in the form of administrative requirements. All three case studies find that the chosen regulations provide strong and positive innovation stimuli. 1990).created a demand for environmentally improved paper products that acted as an important pull factor for innovation. Furthermore. The first case study examines the German wastewater effluent charge. The standards and the rising fuel prices in the 1973-1981 period led the US automobile manufacturers to double the fuel economy of domestic vehicles. 1999).5 mpg in 1988 (for a discussion and analysis of the relative importance of price and regulatory effects see Greene. The significance of regulations as an instrument to protect the environment and as an innovation stimulator is also evidenced in the case studies that were part of a study done by the Research Institute for Public Finance at the University of Cologne. do not put this down to the instrument itself. and that a combination may even reinforce the impact on innovation (Linscheid. but to the way it has been employed and to insufficient capabilities. The study concludes that apart from numerous other factors like the energy tax. Therefore. 1999). the study refutes the often held view according to which the innovationenhancing effects of economic instruments (in this case. The importance of demand as a determinant of innovation also becomes apparent in a case study on the development of energy-efficient refrigerators in Denmark which was drawn up by the Research Centre for Environmental Policy at the Free University of Denmark.7 Innovation impacts of the levies were rather low. however. research subsidies etc. from 14 mpg (mile per gallon) in 1973 to 27. the findings show that both kinds of instruments provide positive innovation stimuli.

and the development of fuel cell technology. Japan and the US. In another study the Institute unveils similar innovation effects of local waste charges. It showed that in the past economic incentives in the form of charges resulted in innovative reactions both in private households and in the municipalities themselves. with the authors consciously distinguishing between effects on the early phases of the innovation activity (knowledge generation) and effects on the later ones (adoption and diffusion). the ifo Institute for Economic Research (ifo Institut für Wirtschaftsforschung) conducted case studies from the automotive industry and some revolving around the development in road traffic to examine the innovative effects of regulations (Springer et al. For instance. which establish a price for the disposal of household wastes (Linscheid and Tidelski. the development of catalytic converter technology in Europe. The innovation potentials for each case study is then analysed.policies. the greater the effects are. in each case study. showed positive innovation effects. What was specifically studied were the effects of regulations from areas that include water-borne car paints in Germany. This way. The effects of these regulations consisted in a decline in the volume of household wastes as well as in an increased diffusion of forms of collecting recoverables separately. and of the environmentally friendly services the municipalities offer. Methodologically. A technology-specific policy may be needed for this. 1999). the various case studies disentangle the positive effects of 21 . The way the study was conceived in terms of its contents and methodology is particularly suited to the objective. 1999). The results are presented in Sprenger et al (1999). The determinants of innovative activity identified in the chosen areas are thus examined. The more the measures are accepted and the greater the awareness. novel environmentally friendly development paths should be initiated and supported. based on ideas of sustainable solutions. it was based on both an evaluation of available data and supplementary in-depth interviews. Finally. taking into consideration the technical and socio-economic variables that may affect innovation. the development of less noisy lorries in Germany and Austria. The importance of regulations to innovative activities is estimated. as a first step the ecological problem areas are described and the environmental policy instruments used are depicted. The study contained an empirical analysis of the way the waste volume developed.

suppliers of environmental goods and services. with customers as an important source of innovation) and the regulatory context with its institutions and specific ways of policy making and implementation. as in most cases it is possible to comply with them using conventional products. product change) and the appropriate context for their use are offered in Kemp (1997). environmental authorities. what kind of issues were discussed. In the impact studies the focus is very much on the technologies being developed and adopted. and the regulations thus fail to provide any incentives. science-based. the studies reveal the basically positive effects that regulations have on the development of environmentally relevant innovation activities. the second looks at the innovative effects of regulations directed at the trend in energy consumption in private households.environmental regulations on innovation activities in a subtly differentiated manner. The achievement of these effects hinges on the appropriate regulation intensity. the framing of issues. politicians) to obtain favourable outcomes for themselves. how the learning process was structured. or about the strategies deployed by various actors (industrial companies. and tip the balance of economic decision-making in order to have a decisive and beneficial effect. Generally. diffusion of existing technology. which are regarded as unsuited to their objective because of the gaps they contain and their characteristics. 8 Suggestions for the purposes for which different environmental policy instruments may be used (innovation promotion. This becomes apparent in two other studies of the research network: one is an analysis of the innovative effects of German environmental liability laws. the studies tell us little about the policy process: who was involved in it. This is a fairly common phenomenon and attests to the need of fine-tuning instruments to the context in which they are applied8. There is little attention to the innovation system and policy context from which the solutions emerged: the production chain (filière) with its innovation pattern (supplier-dependent. 22 . environmentalists. and on an effective implementation and monitoring of the directives which has to fit the techno-economic context. They tend to say little about the problem to be controlled and the alternative solutions available to policy-makers. which are also considered to be fairly unsuited. In general.

with or without consultation with operators. Targets give clarity to what is expected from industry in what time frame. Policies can be implemented flexibly or rigorously. 1996: 14). the search directions being undertaken by regulated industry.unimaas. It is co-ordinated by René Kemp of MERIT.9 In future impact studies.nl/tep/ 23 . more attention should be given to the policy interactions that preceded the choice and design of instruments and. This requires a change in perspective and research method. universities and government laboratories as part of special research programmes) and the policy interactions in the implementation process: the deliberations of what is a Best Available Technology. what solutions were championed by various policy actors. Policy network theory (described in Rhodes and Marsh (1992). the ways in policy instruments are implemented. There is a danger however that co-operative styles promote incremental rather than more radical solutions that yield greater environmental and economic benefits in the long term. This is unfortunate because the policy interactions are likely to have an important impact on the technological outcomes and costs of regulation. and applied to pollution control issues by Smith (1997)) may be used to analyse the links between policy and technology.10 Such a research approach would then examine not only the impact of a particular policy on technology responses but also examine policy interactions over the formulation of an environmental policy or Directive (who were involved in it. One way to overcome this problem is through the use of long-term performance targets (as is done in the Netherlands). and can be more or less dependent on information provided by companies about environmental performance and the appropriateness of particular compliance solutions. Information about TEP can be found at http://meritbbs. the There is small literature on the influence of policy styles on policy outcomes. This is done in the TEP project analysing the implementation of European environmental policies and their impact on technology. and introduces an element of strategic foresight into innovative activity which facilitates and encourages radical innovation rather than incremental improvements (Murphy and Gouldson. innovative solutions to environmental problems (also in areas not subject to environmental regulations). they furthermore induce regulated companies to search for preventive. EGS suppliers. it sets requirements for management at the highest level. 10 9 TEP is a project for the Environment and Climate programme. According to Murphy and Gouldson (1996) and Wallace (1995) interactive and collaborative styles are likely to result in more efficient compliance responses. one that puts a greater focus on actors and systems of interaction. especially.They also tell us little about the influence of policy styles on technology responses.

which is that from the perspective of the producer of such innovations. devices and practices developed or adopted for social performance reasons. Some people will immediate note a problem with the concept of compliance innovation.. For social innovations.. they constitute a normal business innovation. they differ from main business innovations that are developed to provide benefits to the individual users. 1985: 434). For market innovation. 24 . by favouring certain innovation features while limiting others. quoted in Ashford et al. market innovation encompasses products and processes which entail benefits to the individual adopter in the form of cost savings or superior services. Social innovation consists of products. the enforcement practices. 1979: 165). When discussing the innovation effects of regulation it is useful to separate the impacts of regulation on innovation into those which affect innovation for ordinary or ‘main business’ purposes and those which affect compliance (Ashford et al. BRINGING ENVIRONMENTAL REGULATION AND INNOVATION TOGETHER: ANALYTICAL ISSUES This section takes a more analytical approach to the relationship between environmental regulation and innovation. A similar distinction is that between “market” innovation and “social” innovation (Stewart. 1981). Compliance innovations are innovations developed to meet a specific regulatory requirement or public demand. the influence and effects of regulation are more complex.reliance on company data and company environmental protection programmes. processes. and the finding of a compromise as an important element of the implementation network appreciative system and rule of the game. unless there are important gains for the user. Social innovations rely for their development on social regulation. Special attention will be given to definitional and measurement issues. as regulation acts as a brake and stimulus at the same time. 5. regulation may be regarded as ‘the mother of invention’ (Ruttenberg.

1995: 185). A broad definition of environmental innovations thus includes all measures that conserve energy and materials. but also must meet important user requirements. The distinction between market and social innovation is still a useful one. techniques. Non-organisational environmental innovations can usually be grouped into one or more of seven categories: 11 The term environmental technology is quite often more narrowly defined of comprising pollution control. Environmental technologies are defined as production equipment. and minimise the environmental load. with the first referring to products and production processes that are more environment-friendly than their counterparts and the second to organisational innovations that help to make environmental improvements in the products and performance of the company. methods and procedures.1 Environmental innovation Environmental innovation consists of new or modified processes. practices systems and products to avoid or reduce environmental harms. and waste management techniques. clean up. a topic to which we will return. minimise the environmental load of human activities and protect the natural environment (Shrivastava. product designs. and product delivery mechanisms that conserve energy and natural resources. Shrivastava (1995) uses the term of “environmental technologies” as a general term.11 We like to make a distinction between technical and organisational innovations. recycling of waste helps to cut down on the costs of material inputs. even though in some cases it may be difficult to establish the principal aim of the innovation. Social innovation not only must meet social performance criteria. company energy management yields social gains in the form of a reduction in energyrelated emissions. innovations often entail a combination of private and social benefits. 5.In practice. in particular whether this is to obtain social performance benefits or economic benefits to the user. irrespective of whether they are introduced for environmental protection reasons. that is techniques that are specifically designed 25 . For example.

reported in Kuntze. and identification of pollutants are sometimes also categorised as environmental technologies (National Science and Technology Council. 1995). 12 Clean products: products that give rise to low levels of environmental impact through the entire life cycle of design. synonym for "back-to-polymer recycling"). recycling refers to the reprocessing in a production process of the waste materials for the original purpose or for other purposes. Examples are low-weight packaging materials and reusable packages. incineration with energy recovery. Clean technology: process-integrated changes in production technology that reduce the amount of pollutants and waste material that is generated during production. feedstock recycling and organic recycling. 12 Recycling is often used as the general term for the reintroduction and re-use of recovered material into the economic process. e. p. Recycling comprises three methods: mechanical recycling. bitumen. treatment. surface waters or soil (classic end-of-pipe technologies like fluegas-desulphurisation and biofilters). organic recycling (From the EU Directive on packaging and packaging waste.2).• Pollution control technologies that prevent the direct release of environmentally hazardous emissions into the air. naphtha substitute etc. Recycling should be differentiated from reuse and recovery. Organic recycling consists of the aerobic (composting) or anaerobic (biomethanization) treatment of the bio-degradable parts of plastics waste (landfill shall not be considered as a form of organic recycling). Recovery is used as a generic term to cover recycling. only the shape is changed (examples: plastics. Reuse means any operation by which a product is used for the same purpose for which it was conceived. • • Clean-up technology: re-mediation technologies such as air purifiers and land farming Innovations in the packaging and delivery of goods in ways that reduce the overall environmental load. and disposal of waste both on-site by the producer of waste and off-site by waste management firms.g. use and disposal. production. Monitoring and assessment technologies that are used to monitor the condition of the environment. 1994. With mechanical recycling the chemical structure of the material remains unchanged. Strictly speaking. Feedstock recycling refers to a process using chemical techniques to recycle materials to raw materials. 1999. Examples are low-solvent paints and bicycles. • • Recycling: waste minimisation through the re-use of materials recovered from waste streams. to distinguish them from product and process changes. releases of pollutants. Skea. 26 . crude oil substitute. Perhaps environmental equipment is a better term for the above techniques. • • Waste management: handling. for environmental protection purposes.

or a programme to make an existing plant or process more environmentally benign). the use of environmental guidelines. A company engaged in the use of environmental guidelines and LCA is BSHG. They include. Environmental organisational innovation consists of all kind of changes in the organisation that promote environmental improvements. 27 . but also the establishment of inter-organisational networks and partnerships. the allotment of responsibilities. a green design programme. the development of environmental programmes (which may be a training programme.There does not exist a commonly agreed typology of environmental organisational innovation. the introduction of environmental learning techniques (such as Environmental Life Cycle Analysis for products). Results from its eco-design programme are given in Box 1. establishment of communication channels and creation of teams in the company to deal with environmental issues. inter alia. company statements that the company is committed to the goal of sustainable development.

Box 1: Eco-design for electric household appliances by Bosch-Siemens-Hausgeräte (BSHG)
In 1993 the German company BSHG a joint enterprise of Robert Bosch AG and Siemens AG established a system of environmental guidelines for product development. These guidelines pertain to the elimination or avoidance of hazardous substances (those hazardous substances which are not yet subject to regulation are on a special list and should be avoided as far as possible; the definition of this list is strongly influenced by the anticipation of future regulation), the active improvement of the recyclability of products (including the recyclability of materials used, information systems for plastics parts and other materials difficult to identify in the recycling process, standardisation and modularisation, the avoidance of compound constructions, and the use of recycled materials) and the introduction of a product-environment-analysis. The latter may be regarded as the backbone for the development of eco-designed products. It mainly covers ecological balancing, i.e. the analysis of all relevant energy and material flows during the lifetime of a product (from production via distribution and use to recycling or disposition). Based on the results of ecological balancing, potentials for reducing these impacts are analysed and objectives are defined. These objectives lead the development process for a re-design. A first main result of the efforts of BSHG to bring eco-designed appliances onto the market, a dishwasher was developed and produced which requires 10 % less energy, 25 % less water and 20 % less materials, for the same performance as its predecessor. Furthermore, the use of packaging material could be reduced considerably. With respect to recycling, the main effect was the reduction in the number of different parts from 444 to 198.

Source: Buchinger et al. (1999, p. 23)

Pollution control technologies are often referred to as end-of-pipe (or add-on) technologies because they are typically added to manufacturing technologies. They constituted the common response of industry to government pollution control policies in the 1970s and 1980s and according to a study by RDI they still account for the largest share of the environmental technologies.13 Since the late 1980s, when pollution prevention rather than control became the focus of governmental policies, technology responses shifted away from pollution control technologies to production process changes and recycling, aimed at the prevention and reuse of waste material. Another recent development is that of clean products - products that are less environmentally
13

The share of end-of-pipe technologies in pollution control equipment is estimated at 80 per cent in Belgium, 82 per cent in Western Germany and 87 per cent in France (figures are for 1987 from Recherche Développement International quoted in Skea, 1995). The ESTO studies on EMAS

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harmful over the entire life cycle (that is, not just the production phase or at the point of use).

Clean products consist of environmentally improved products such as compact phosphate-free detergents or energy-efficient washing machines and products that are inherently environmentally benign such as bicycles and insulation material. The label ‘clean product’ for the first category is something of a misnomer as the products often continue to have negative environmental impacts. Low-solvent paints still count as chemical waste which may not be disposed without special treatment. It is perhaps better to talk about ‘cleaner’ products.

Sometimes waste management is used as a general term for measures of waste reduction and recycling. Waste reduction covers a wide range of measures: technological changes in production processes (retrofitting and cleaner processes), input material changes, product changes and good operating practice (also known as good housekeeping) (Clift and Longley, 1996).

Figure 3: Waste reduction management
Waste management

Waste reduction at source

Recycling

Good operating practice recycling

Technological changes

Input material changes

Product changes

On-site Off-site recycling

Retrofitting

Cleaner processes

Source: Clift and Longley, (1996)

confirmed that additive solutions constitute still a very important response, despite the increased emphasis on prevention.

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A broader, more widely used definition of waste management includes also the collection, sorting, upgrading, and burning and (controlled) disposal of waste.

As noted, environmental benefits may be achieved with or without the express aim of avoiding or reducing environmental harm. Environmental gains may be a side-effect of other goals such as the goal to reduce energy costs or the goal of enhanced product quality. An example is the use of lightweight materials in products and energyefficient process technologies. In the organisational literature on environmental technology the focus is on innovations that are developed/adopted for environmental protection reasons. An exception is Howes et al. (1997) in Clean and Competitive?, who use a taxonomy of innovation which draws a distinction between • • • • integral process change product design cost-saving investment compliance technology.

The advantage of this distinction is that it makes the connection between environmental technologies and companies’ decision-making structures. This is important because in a production organisation there is a technology-related hierarchy of decisions that has implications for the nature and timing of environmental technology choices. Although environmental improvements may be made across the entire product-production system of a company, the economic opportunities and responsibilities for changing technological parameters differ greatly. Integral process change and product design are typically the subject of strategic business considerations because they are of prime importance to competitiveness and the economic performance of the company. The window of opportunity for making integral process change is limited, being restricted to periods of new investment (the replacement of old plant or the investment in new production capacity), and even then it is difficult to factor in environmental considerations.

The same is true for product design where many of the design parameters are already been set, especially for standardised products; to change these creates considerable costs and potential risks for a company, which managements are understandably

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unwilling to accept. Environmentally improved products must meet important user requirements. It is difficult to sell a product on the basis of environmental advantages alone. The success of the Body shop may be misleading, for example, because the products are bought for health reasons rather than environmental reasons. The market for cosmetics with natural ingredients in which the Body Shop is so successful is still a small one, as is the market for ecological food products (1 per cent in the Netherlands). Environmental products often suffer from scale disadvantages and a poor distribution system. Again this shows the importance of the filière for innovation. Environmental innovation requires changes across the filière. It is only the bigger companies such as the electronics company Philips and paints manufacturers who are active in environmental chain management by putting environmental demands on their suppliers and educating customers.

Most of the opportunities for environmentally benign change, especially in the short term, have to do with adaptation of existing processes, introduction of measures of good housekeeping practices and adoption of compliance technology. Such decisions are made by middle level plant managers rather than top level management. Environmental officers are important for compliance technology and waste management.

The theme of environmental management is taken up in the organisational literature which argues that effective linkages between organisational and technological innovation are crucial to the successful development and application of many different types of technologies. Much of the literature emphasises the need for firms to adopt an environmental consciousness or ‘ethos’, such that their business decisions automatically include environmental concerns. This requires changes to the firm’s organisational practice and capability. For example, Roome (1994) argues that a company must reshape its organisational relationships as well as employ new practices that can introduce environmental concerns into its existing innovative activities. Lenox and Ehrenfeld (1997) refer to a firm’s ‘environmental design capability’: the ability to incorporate environmental concerns into product development. This capability depends on both the integration of diverse knowledge resources and on the firm’s level of commitment to environmental innovation. This

31

Most of the above innovations are knowledge related. In their study on green product development. But knowledge and skills are not enough. the allotment of tasks and responsibilities. One important aspect of organisation is strategy. environmental management and auditing systems. the establishment of communication channels to respond to environmental problems. green product design programmes. Other organisational innovations include the introduction of environmental learning techniques (such as Life Cycle Analysis). The strategy towards environmental issues has implications for technology responses. 32 . Lenox and Ehrenfeld found that resources are insufficient if they are not linked with design teams and embedded in interpretative structures which value and understand environmental information (Lenox and Ehrenfeld. and the establishment of interorganisational networks and partnerships.brings us the importance of organisational innovations for achieving environmental improvements in products and processes. or programmes to make an existing plant or process more environmentally benign. the creation of management teams to deal with environmental issues. Organisational innovations relevant to environmental goals consist of environmental training and education programmes. Green and McMeekin (1995) developed a six-stage continuum model that traces the development of a firm’s policies towards environmental issues. 1997: 195).

the environment is viewed as a threat The company sees the environment as an opportunity Environmental R&D is a strategic activity no response minor product and process changes R&D is focused on new product development R&D programmes used to develop radical alternatives A simplified version of the continuum model of technological response to environmental pressures. is given in Figure 4. companies that take a defensive attitude are unlikely to develop innovative solutions. Strategic responses to green pressures and the implications for RTD and innovation Indifferent strategy Defensive strategy Offensive strategy Innovative strategy The firm pays no attention to environmental issues/contests the evidence The firm takes a reactive approach. 33 . although they could adopt innovations developed outside of the firm.Figure 4. An example of a company following an offensive environmental strategy is Philips a Dutch producer of electric and electronic products (see Box 2). For example. The merit of this model is that it links environmental strategies to R&D and technology strategies. These strategic aspects are important because a firm’s strategy determines the rigour and nature of its innovative activities. using Steger’s taxonomy. Product innovation typically requires an offensive or innovative strategy.

thus closing the material loop.Box 2: Eco-design as part of an overall environmental strategy by Philips Philips has a long history of environmental management. Of the industrial sites that reported on their environmental performance in 1998 compared with 1994. second. glass. Industrial waste has decreased by 28 % while emissions into air and water were lowered by 68 % for restricted substances. The energy saving in manufacturing. called EcoVision. Use of glass. As early as 1970. hazardous substances. From this time on. First results of EcoVision The results for 1998 of the EcoVision Programme show that 32 Philips products were selected as “green flagships” and had been launched as such at the market. consumes less energy on stand-by then comparable fax machines. and plastic parts are marked with official abbreviations for recycling. In 1998 a new environmental policy was established. to urge every business unit to define one “green” product of excellence (“flagships”) and to increase the share of “green” products within the next 3-4 years. Fluorescent tube TL Super 80: This fluorescent tube is nearly 100 % recyclable. Its main purpose was to extend the marketing strategy towards “green” labels and to establish Philips as a strongly environment oriented corporation. which includes an answering machine. The diameter reduction also resulted in greater freedom in the design of lighting fixtures. Fluorescent tube TL-5: This fluorescent tube is a slim 16 mm diameter. In 1987. to reduce packaging. The main measures for realising EcoVision are. - - - - The role of regulation 34 . to introduce environmental oriented aspects into product development (reduction of weight. The increase in the share of “green” products sought to contribute to a significant reduction in the amount of waste. Moreover. compared with the standard 26 mm tube. FAX Magic Vox: This fax machine. metal and even the fluorescent powder can be recovered and re-used. Philips tried to integrate environmental issues into their global strategy and to implement environment oriented guideline at most plants and national branches. the consumption of resources (water. Fewer wires and components mean better recyclability and a significant reduction in total weight. is 23 % and in the case of water it is 34 %. The mercury. and third. first. phosphor coating and mercury is reduced thanks to the 40 % diameter reduction. compared with 1994. Television TV 28PT: This television comprises a large proportion of recycled materials and uses little energy on stand-by. energy) and the elimination of hazardous substances. it contains no hazardous substances. HF operation and more efficient optical/thermal design up to a 25 % energy saving. Increasing recyclability is not a direct aim of this programme. Philips introduced environmentally oriented guidelines. energy consumption. by 39 % for hazardous substances and by 42 % for other “environmentally relevant“ substances. It has a high recyclability because it is fairly easy to disassemble. a comprehensive environmental policy was formulated and in 1991 this policy was up-dated. Examples of “green” products with relevance to recycling - Monitor A 580 BQ: This monitor does not contain any hazardous substances and its energy consumption is among the lowest in the market. 52 % are now managing their environmental performance in accordance with ISO 14001. facilitating recycling).

Source: Buchinger et al (1999. eco-teams. focussing on the design rules and projects being undertaking 2. A firm could adopt an innovative strategy because it is in the market to develop environmental process innovations that are then sold to other firms. needs to pay attention to the strategic aspects of environmental management. But as we noted. but there is no comprehensive adjustment of product innovation processes towards recyclability. This model does not imply a single environmental strategy for all of a firm’s products nor does it imply that a firm will undergo a successive change towards increasing environmental awareness. 1. Research on environmental innovation.e. the level of R&D. p. etc. Environmental innovation may be analysed at different levels. yellow and red list on types of waste are reference points for the orientation of “green” product innovations and the definition of targets. A complication is that the organisational and managerial factors – like the technical ones – defy precise measurement. along with other environmental organisational aspects at the operational level: the use of environmental audits (like ISO 14001. EMAS). This is why they should be included in any study which seeks to understand the link between regulation and innovation. therefore. Improvements for recyclablility seem to be rather an effect of efforts to improve production technologies (i. Environmental innovation may be developed with or without the express aim of avoiding or reducing environmental harm. What strategy a company will adopt will be determined by the market conditions that prevail besides internal goals and tools. The EU regulation 93/259 on waste treatment including the green. they are important for achieving technical improvements. The ongoing discussions on regulations aimed at recycling of end-of-life EEE have stimulated Philips into taking account of this aspect.29) It should be noted however that an environmental ethos is not always needed to reach the highest point. to lower production costs per unit). the level of invention.Regulation plays a major role for product re-design with respect to environmental parameters in the case of hazardous substances. there are different options for achieving environmental benefits. The incentive system for the options differs along the filière and between different types of environmental innovation. (meaning proto-innovations) 35 . To summarise. each with their own costs and benefits for the adopting unit and society. and has been demonstrated by the EMAS studies.

and in particular to the processes by which certain technology options become adopted at the expense of others (and how regulation shapes the relevant choices). looking at how these are affected by regulation. Asking companies about the effects of the effects of regulation or what regulations are most significant for innovation is not a good way of analysing innovation effects. the level of products. one that puts a greater focus on innovation patterns (supplier36 . So attention should not be too focussed on particular innovation outputs. It is the determinants of innovation rather than innovation outputs that should be analysed.3. both upstream and downstream a subject sector. In innovation impact studies of environmental regulation the focus tends to be on the regulated sector: how this sector has responded technologically to regulatory demand for reduced emissions from manufacturing processes and for environment-friendlier products. Important ripple effects of regulation may occur within a chain. Little attention has been paid to the range of innovation possibilities across the chain described above. A company may perceive its own waste management activities as voluntary or driven by normal economic motivations. economic regulations towards waste management). making a distinction between innovation and diffusion 4. as there may be important linkages which are easily missed or under-appreciated in a study of the innovation effects of regulation. the level of organisational arrangements and practices 5. or on how the regulations are based on the technology options available and the strategic actions of technology holders and regulated industry. the level of innovation networks 6. Innovation has many dimensions and aspects. and so may fail to see that the economics of waste management are heavily influenced by the regulations that govern the waste sector at the end of the production chain (such as emission norms of incinerators. the level of technology systems like the energy system or chlorine-based chemistry Attention should be directed to all levels. the level of a filière 7. To know more about these issues attention should be given to the way in which the innovation and policy are linked. processes and systems. This requires a change in perspective and research method.

environmental innovation is very much governed by the same factors as normal innovation. Regulation (by which we mean social regulation) acts as a filter and focussing device for technical change by setting certain performance 37 . For normal innovation regulation is often viewed as an inhibitor. possibilities for retrofitting. as an important contextual factor. It requires in-house technological knowledge. For normal innovation it is just the opposite. 2. not innovation as such. The problem definitions and preferences of policy actors for particular solutions. the influence of industry as an important information holder on the conditions of compliance. their age. 3. So our argument is that empirical studies should pay greater attention to: 1.2 Regulation as modulator of innovation At a general level. the overwhelming influence of regulation on information technology and biotechnology is not the inhibiting of certain innovations but the application of IT and biotechnology for environmental protection purposes. and the willingness of key individuals within an organisation (or unit within the organisation) to embark on and manage a technological project. an ability to absorb external knowledge on the part of an innovating company. in particular. For example. For social innovation regulation is often regarded as ‘the mother of invention’. environmental effects/benefits. The implementation strategies (bargaining processes) over permit conditions that occur within a policy community. 5. R&D-based) and the regulatory context with its institutions and specific ways of policy making and implementation.dependent. preventing companies exploiting technologically opportunities. The technological basis of the regulated sector: the process technologies in use. The research activities by the regulated sector and outside suppliers and the extent to which regulators rely on such research. such as the use of environmental sensors in waste streams and waste-water treatment plants. 4. The solutions available for dealing with an environmental problems at different points of the production chain: the costs (and the distribution of these costs). 5. impact on product quality. Such views are too simple. What is controlled or stimulated are certain innovation features.

it proved to be very difficult to develop phosphate free detergents with equal washing power as the phosphate-based. Water saving shower heads. What this shows is that innovations cannot be elicited by legal fiat (Heaton). Regulations thus have an informative content. changing directions and modes of innovation rather than just stopping or starting it. reported in Hartje. long and costly new substance approval procedures may have this effect. In the case of an environmentally harmful product there will always will be pressures to reduce the harm. the importance of which may vary greatly. there are technical. Regulation acts as a modulator of technical change. The knowledge for such innovations is usually there. social innovations must also meet other types of demand: they should be expendable. Regulation is not the be-all and end-all of social innovation. But regulation is but one of many stimuli. it should be possible to fit them into existing processes. they should meet user requirements in terms of performance characteristics. for example. As a rule. User benefits and social performance benefits must be co-optimised. economic and organisational limits to what can be achieved.standards and focussing the attention of companies on socially desirable aspects. It may in fact not be needed for social innovation. socially desirable shape. and in the case of products. moulded in a pre-defined. As shown by the study by Fleischer for the JRC-IPTS framework programme. Global efforts to find a substitute for phosphates in detergents amounted to 500 million DM until 1973 (a figure reported by a representative of the Henkel company. besides a normative content. Regulations are not defined 38 . For example. by changing the payoffs of innovation unfavourable. For one thing it assumes that social innovation starts with regulation which is most often not the case. The stimulus-response model is too simple. It is this co-optimisation that creates a problem for innovators and for environmental regulators. It translates the pressures into specific policies that lay down specific requirements that give guidance to polluters and suppliers of environmental technologies in terms of what is actually required. 1985). and regulations may provide the leverage or extra stimulus for the exploitation. Environmental regulation (being an important subset of social regulation) is the institutionalised response to public demand for environmental protection. regulations may have a general inhibiting effect on innovation. Of course. should be comfortable and environmentally improved detergents should have good washing performance. Apart from regulatory demands. innovation should not be viewed as something homogenous.

p. Measuring technological change presents a common and well-known problem for innovation output research. in the sense of a available technological solution to problem. (In fact. these have limits in terms of environmental technologies. There is an interplay between innovation and regulation. Environmental permits often rely on the concept of Best Available Technology or Best Practicable Means that are specified in BAT lists or guidance notes. numbers and types of scientific publications direct measures of innovative output: the number of innovations. which have the merit of depth and detail. 6. As we shall see. and so we turn first to available statistical indicators. and the stimulus response model fails to appreciate this. may pave the way and thus be the stimulus for regulation. which suggests that the causality goes either way).independently of what is technologically possible and economically affordable but are based on techno-economic assessments. It is usually agreed that generality of results requires statistical methods. innovation.10). three different types of measures have been used to quantify technological change:14 • input measures: R&D expenditures. and innovation expenditures (with and without intangible investment such as design expenditures and software and marketing costs). 39 . In practice. but which often raise questions about the generality of the results that emerge. and so we then address issues of alternative indicators and alternative descriptive empirical methods. data on sales of new products 14 The classification is taken from Acs and Audretsch (1993. researchers. descriptions of individual innovations. Most studies of environmental innovation are based on case study methodologies. • • intermediate output measures: the number of patents. INNOVATION INDICATORS AND MEASUREMENT In this section we discuss some of the quantitative empirical issues involved in assessing impacts of regulation on innovation. R&D personnel.

They also can be classified according to technological area. not all innovations are patented. Input measures like R&D reflect only the resources devoted to producing the innovative output. sector of use/origin. (ii) counts by expert panels. Unlike the two other methods.15 An advantage of patents is that they can be counted. and (iii) literature-based output indicators. They underestimate the innovative work in smaller firms. As to the significance of the patent. 1993: 11-12). R&D measures also tend to incorporate efforts made to generate innovative activity that are undertaken in a formal way. superior sales services and downward integration into distribution. one way around this problem is to look at patent citations. A clear limitation of using measures an a measure of technological change is that patents measure inventive rather than innovative output. One reason for not patenting an invention is that the information contained in the invention becomes available to imitators. typically within formal R&D laboratories (Acs and Audretsch. Patents are the most commonly used indicator for innovation output. not the amount of innovative output actually realised. 40 . establishing a technological lead and establishing a strong market position through reputation. 1987). Another disadvantage of R&D expenditures is that they do not tell us anything about the nature of the innovations that are produced and the social value of the innovations. which is often done on a more informal basis (Kleinknecht. they measure innovation output rather than innovation inputs (such as R&D expenditures) or an intermediary output measure (such as patent grants). and are gaining influence. Direct innovation output measures can be divided in three categories: (i) those that stem from innovation questionnaires. it is difficult to assess the significance of the patent from patent files (although the description may give an idea of this). The firm may prefer other methods for protecting technological advances such as secrecy. and innovation property because the patent files contain a description of the invention.Each measure has its own disadvantages and is subject to a particular kind of bias. The first method uses 15 An empirical study of the means of appropriating the benefits of innovation is given in Levin (1986). A significant patent is likely to be cited more often. Furthermore. Direct measures of innovation suffer less from most of the above problems.

surveys measure innovative output by asking questions about sales deriving from new or changed products. the number of innovations produced and their significance to the firm. This makes it very difficult to isolate environment-related activities at a detailed level of disaggregation. in this sense such surveys provide good data on the economic significance of product renewal. some questions on the sources of knowledge and means of appropriating the benefits of innovation. 1996: 404). and. PACE. survey about the mechanisms for appropriating the benefits from innovation). For R&D and innovation survey statistics. Patents. firms may decline to provide information for reasons of secrecy. But they do not study the specific technological character and objectives of innovations. questions may be interpreted differently by respondents. Literature-based innovation output (LBIO) indicators are a way of collecting directly information on innovation output. In these questionnaires there are questions about the R&D expenditures of the firm and business units. sometimes (as in the Pollution Abatement Cost and Expenditure. They have not been used very 41 . on the other hand. and their economic significance (Coombs. the underlying data tends to be classified according to some standard industrial classification (either NACE or ISIC) at a fairly high level of aggregation. and it is difficult to ascertain detailed information about individual innovations. A major problem in using the above indicators for analysing environmental innovation lies in the sectoral or technological classifications which are used.. et al. are classified by technological field. their technical features. it makes it difficult to relate patents to specific fields of economic activity. The most important innovation surveys are the Community Innovation Survey and the PACE survey (both for the European Commission). Typically. Problems with innovation questionnaires are well known: they place a heavy burden on the respondent. this leaves one further indicator. the respondent may have only a partial view of the innovation processes. For the analysis of specific fields of activity and innovation.questionnaires that are being sent to firms to ascertain details of specific new or modified products introduced during a particular period. and while this enables the identification of environmental components.

which allows for comparisons over time. The main strengths of LBIO are:16 • • • • • The method is timely. we regard the LBIO method as the most productive indicator-based approach when it comes to the study of environmental innovation. The announcement times are close to the date of commercialisation.often. 1984: 14-15. For the reasons outlined above. Of course. by Tushman and Anderson which 42 . Literature-based innovation counts are generated by sampling new product announcement sections of trade and technical journals. 1993: 15). since the data come from third party sources The method may better capture innovations from the changing population of small firms that tend to be underrepresented in surveys and patent. The method can be extended to the past. quoted in Acs and Audretsch. There is no non-response problem. A more recent publication is Coombs et al. because companies can be asked about well-defined organisational changes. The method can be applied in different countries and allows for country comparisons. but seem to hold great promise. the inclusion of new or improved products depends on the editor’s judgement that the innovation constitutes something innovative and important. An alternative method is to look at advertisements but this has the disadvantage that the innovation claims may be inflated for PR reasons. It also creates a possible bias in that not all firms use advertisements in the same way to promote their products. Organisational innovations are somewhat less difficult to measure. The method does not burden the firm. A good source is the handbook Managing Strategic Innovation and Change. The material may be biased toward the unusual or what the editors considers to be of special interest (Edwards and Gordon. (1996). To circumvent these problems it is better to look at product news columns in trade journals as a more objective source of information. analysts can use the literature on innovation management and organisation. They are the focus of a recent book edited by Kleinknecht and Bain (1993). For this.

the management of innovation. technology alliances. The chapters also contain indicators for innovation-relevant organisational features. 7. the use of total quality management systems. there are very few available indicators of environmental innovation. Kleinknecht (1993) and Acs and Audretsch (1993) This section comes from Kemp and Arundel (1998). that examine the reasons why firms introduce environmental innovations and their organisational response to environmental issues. both of these techniques for learning about environmental innovation have disadvantages. the existence of product champions. such as the existence of structures for generating and discussing new ideas.1 Traditional indicators The most widespread measure of environmental innovation is the amount spent by firms 16 17 Based on Coombs et al. while the management literature does not look directly at technical innovation18. 43 . Changes in the relationships between companies are thus also examples of organisational innovations. informal knowledge exchange. they are very important for recycling activities (see recycling case studies of this programme).contains important chapters on organisational architectures. drawn from the management literature. our knowledge of environmental innovation largely comes from the extensive case study literature and from a limited number of surveys. technology and business strategy. Although of great value. gate keepers. given the widespread interest in the environment and in regulatory and economic instruments to encourage environmental innovation. Case studies are often based on only a few firms. Consequently. linkages and change. which raises problems about generalisability and selection bias. 7. and the management of functional competencies. Most innovation surveys have only included one or two questions on environmental innovation. human resource policies. REVIEW OF EXISTING INDICATORS OF ENVIRONMENTAL INNOVATION 17 Surprisingly. executive leadership. (1996.

Smith (1992). For example. The data also indicate that pollution abatement costs are much higher in several resource sectors such as paper and allied products than for advanced manufacturing such as electronic equipment and machinery (Jaffe et al. The PACE estimates are probably not exactly comparable between countries. The latter is commonly referred to as a ‘win-win’ scenario. and Canada (Olewiler. while Porter and van der Linde (1995) have argued. Clarke and Roome (1995). This ratio has also been subject to strenuous debate. The results of this debate has important implications for the 18 Examples of relevant case studies can be found in Schmidheiny (1992). on the basis of case studies. that were previously discharged into the environment can partly be recouped by selling or reusing the heavy metals. the UK. 1994). combined with properly-formulated regulatory policies. Groenewegen and Vergragt (1991). PACE data have been useful for estimating the effect of regulation on output and competitiveness. could approximate or exceed the costs of pollution control. Despite these disadvantages. In the United States. 44 . France and Germany and on an irregular basis in the Netherlands. and Lenox and Ehrenfeld (1997). 1995). Shrivastava (1995).on capital equipment to reduce pollution. The ratio of the offset to the investment in pollution abatement could form a strong incentive to develop environmental innovations and influence the type of innovation that is implemented. that offsets. with Palmer et al (1995) using the Department of Commerce offset data to show that the offset benefits amount to less than 2% of US expenditures on pollution abatement. investment in a pollution control system to capture heavy metals. and they are more likely to reflect end-of-pipe investments than investment in cleaner technology or technologies that reflect non-environmental goals but which have environmental benefits. the Commerce Department survey asks respondents to estimate their additional capital expenditures due to environmental regulations (Jaffe et al. The PACE estimates also have several other drawbacks. 1995). such as cadmium. The US Department of Commerce has also collected data on cost offsets. These are savings that can result from investment in pollution abatement equipment. These are termed Pollution Abatement Costs and Expenditures (PACE) and have been collected on an annual basis in the United States. Fischer and Schot (1993). The question is partly hypothetical since these additional expenditures can only be estimated on the basis of no regulation. They do not include investment in R&D or other inventive activities.

2 Survey indicators of environmental innovation The family of innovation surveys that have been inspired by the Oslo Manual (OECD. Table 3. Environmental innovation indicators included in the family of innovation surveys based on the Oslo Manual Survey CIS .2 (1997) five-point scale ranging from not important to extremely important Not relevant category plus an importance scale of 1 to 3 45 .1 (1993) Question Importance to the firm of developing and introducing innovations to lower production costs by: 1. 7. Reduced capital requirements 3. regulations. Reducing materials consumption Measurement scale five-point scale ranging from insignificant to crucial “ “ Canada (1993) “ “ “ Yes or no five point scale from not important to crucial “ Yes or no MERIT-PACE (1993) CIS . with the exception of the MERIT-PACE study. The questions on regulation as a barrier to innovation are much less relevant to environmental regulation because they rarely. standards and taxation as a barrier to innovative success Government standards or regulations as a factor of particular significance as an impediment to innovation Importance of factors in the firms general development strategy: 1. 1997). Using existing materials more efficiently 2. The questions focus exclusively on two issues: the importance to the firm’s innovative goals of reducing inputs and the effect of regulations as a barrier to innovation. The former is of immediate significance to environmental innovation. reducing materials consumption 2. Reduced energy requirements 2.formulation of environmental regulation (Howes et al. The format of the question avoids the motivational issue. Reduced material requirements Importance of environmental regulations as an obstacle to the ability of the firm to profit from innovation Importance to the firm’s innovative objectives of: 1. These are summarised in Table 3. reducing energy consumption Importance to the firm of developing and introducing innovations to reduce environmental damage Importance of ‘legislation. focus on environmental regulation alone. norms. 1992) only include a few questions of relevance to environmental innovation. since innovation to reduce materials use could be in response to regulation or simply to reduce production costs. Reducing energy costs Effects of the firm’s most economically important innovation: 1.

The survey was sent to a sample of 800 firms that had expressed an interest in the UK Department of Trade and Industry (DTI) Environmental Technology Innovation Scheme (ETIS). 3. new technologies) External pressures (environmental campaigns) Internal pressures (company policy) Products Production processes To what extent during the last five years has your company made the following ‘environmentally- 19 Williams et al (1993) and Garrod and Chadwick (1995) conducted small-scale interview surveys. for a relatively low response rate of 21. Table 4.1%. A larger survey of 592 German firms by Steger (1993) examines the importance of several motives for introducing environmental protection measures. whereas a study by Steger (1993) for Germany finds that social responsibility is the most significant factor. Reducing energy consumption Reducing environmental damage Only a few surveys have focused on environmental innovation19. The focus of the sub-questions is on the inputs and information sources required to develop these innovations. companies could receive a subsidy for industrial R&D that might improve environmental standards. Responses were received from 169 firms. These questions are similar to the CIS questions on the inputs into general innovative activities. The third question is related to pollution abatement costs. except that the version used by Green et al covers all environmental activities and not just pollution abatement. One example which is discussed here is the 1993 survey by Green et al (1994). such as by Doyle (1992) and by IJlst et al (1988) only survey environmental equipment manufacturers and are of less interest here. Other surveys. (1993) and Garrod and Chadwick (1995). Existing UK/EC regulations show up as the most significant factor. The fourth question is limited to a specific product and process innovation that is selected by the firm. but it does not explore the firm’s own innovative activities. The first question asks about the motivations for developing environmental innovations20 while the second asks about several broad categories of potential applications of environmental redesign. both for product and process innovations. closely followed by environmental regulation. This result is confirmed by two other UK studies by Williams et al. Under the scheme. 20 46 .2. Summary of questions in the environmental innovation survey by Green et al Main Question What factors prompted your company to develop environmentally-friendly new products/processes (or redesign existing products/processes) Response categories Regulations Market factors Inputs (cost savings. The survey questions are summarised in Table 4.

over 25% increase Is this a modification to an existing technology or a major change in technology? Resources required to develop these two innovations: expenditures. and investment Estimate the change in resources (staff and money) to considering and tackling the environmental aspects of your products and processes Specify a product and a process innovation undertaken in response to green pressures. The problem with these conclusions is that they only apply to a small self-selected group of firms with a proven interest in environmental issues. with over a quarter claiming more than a 25% increase. For example. skills. and contacts with major industrial associations. up to 10% increase. The survey results indicate that firms are increasingly integrating environmental concerns in their activities. The study selects environmental innovations developed by Italian companies between 1970 and 1995. 47 . 7. A database of 192 innovations from 168 companies was constructed from diverse information sources: entry forms for environmental awards. by Malaman (1996). collaboration. Information on each innovation was obtained from published sources and from brief interviews with company representatives. about the same. while 36% claimed that they had made a large change towards making ‘personnel motivation and training’ more environmentally-friendly. technical.3 Literature-based environmental innovation surveys A second survey of environmental innovation. three-quarters of the companies reported an increase in environment-related R&D expenditures. This highlights the need for an environmental survey based on an unbiased sample of firms. articles in the most important trade journals. 10-25% increase. research projects by Italian companies for international technological cooperation programmes (EC and Eureka). projects that were submitted to a subsidy scheme for environmental innovations. uses the Literature-Based Innovation Output (LBIO) method.friendly’ Distribution & transport Supplier policy personal motivation general operations Five categories: decrease. as shown by their interest in ETIS. surveys of successful environmental innovations.

0%). The study also inquired into the proactive nature of companies with respect to environmental issues. which suggests that offsets are relatively frequent. Between 1984 and 1988 there was an increase in environmental care systems. their responsibility was regulatory compliance. 22 Large companies in the chemical industry are found to be the most pro-active.6%).7% of the innovations had a development time of less than 5 years). they also have the knowledge. Groenewegen and Vergragt (1991) distinguish three overlapping phases. The most mature technologies are recovery and recycling technologies. end-of-pipe technologies and energy-saving technologies with 62.5%). at all levels in the organisation. The development stage for each innovation was also assessed. The differences in development reflect the different stages in environmental policy: in the mid seventies and early eighties (when prices for energy had risen sharply) the orientation was on energy saving. prototype. end-of-pipe technologies (3. products which modify production processes (8. input substitution and energy savings. and environmental diagnostic and monitoring (1. and being a knowledge and capital-intensive industry tend to be more forward-looking. recovery and recycling technologies (23.0% being in the mature stage.e.1% and 50.3%). with production process changes leading to cleaner products.3%). with relatively short development times (86. energy-saving technologies (8.21 The study finds that most technologies are based on available knowledge. some large firms are thinking increasingly about environmental issues in a strategic way. 57. in the late eighties and nineties on prevention. Before 1980. in terms of threats and opportunities to the business. cleaner production processes (25. Links with company strategies are broadly explored.. capabilities and resources to deal with environmental problems.4%).2%.6%). One explanation for this are that chemical companies more than any other industry have been subject to environmental pressures. which includes training. 21 48 . in the 1980s on pollution.. Most process innovations (55%) led to a reduction in production costs. by making a distinction between defensive and pro-active strategies22. There also exist cross-media synergetic effects: 26% of the innovations led to benefits in multiple environmental media. these units were small and their activities were mainly restricted to reaction on government regulation. Finally. i. etc. first application. and to follow a proactive and preventive course. or in the stage of maturity. using four stages: R&D. There also has been a development of the environmental units inside large industrial corporations. and recovery and recycling.The innovations were classified into seven categories: cleaner products (28. Typically. education. the study found that product and process innovations are often linked. Since the late 1980s. and more recently on product innovation.

The variety of interesting results from this study stress the usefulness of a LBIO approach.5 million US in annual sales and in 17 industrial sectors if they currently use. This is suggested by the finding that 41.5 Implications for environmental innovation indicators Two broad classes of environmental indicators need to be developed. An example is the question group on the sources of information for the firm’s innovative activities. for example on the types of environmental innovation undertaken by the firm. The first class consists of indicators that are unique to environmental innovation. An example is a 1996 Statistics Canada survey of the use of biotechnology (Arundel.4 Sector or technology specific environmental innovation surveys Another option for environmental innovation surveys is to focus on a specific industrial sector or on the adoption of a defined set of environmental technologies. Users of one or more of these technologies are then asked a series of questions on investment. Some of the information can only be acquired through a direct question. their reasons to adopt the technology. one of five carefully-defined environmental biotechnologies. or plan to use. This is a very high figure that is highly unlikely to represent actual conditions in Italian industry as a whole. although this is not pursued further in this report. This was probably biased towards the most successful environmental innovations and towards the most environmentally active firms. 49 . but which need to be adjusted for environmental innovation. Other results can be obtained indirectly by analysing different types of questions. 1997). results from their use. For example. 7. The survey asks all firms with over 3. The second class consists of indicators that are similar to those proposed in the Oslo Manual and used by the CIS. The main disadvantage of the LBIO method concerns the selection of innovations. the environmental strategy of a firm can partly be estimated on the basis of its answers to questions on the organisation of environmental innovation and on the types of innovation.8% of the Italian firms in the database have adopted a proactive environmental strategy. The next section briefly summarises the types of indicators that are needed. difficulties with implementation. and the principal internal and external sources of information to assist the adoption of environmental biotechnologies. 7.

The purpose ranges from pollution reduction. point of use). The taxonomy of environmental technology given in a previous section can be used for this purpose. if it should be gathered for each innovation separately or for all environmental innovations together. Empirical research has shown that incremental improvements are an important source of cost reductions and product improvement (Enos. Large-scale innovations. best obtained indirectly. and if it is obtained. a fundamental need is for indicators of the different types of environmental innovation. improved durability. The problem is how to measure incremental versus radical innovation.Some types of answers are. Another useful question is to ask if the firm has plans to phase out environmentally unfriendly products and processes. This means that firms could give biased responses to direct questions that would overestimate the amount of effort that they actually expend on environmental innovation. This is because environmental innovation and pro-environment policies are often seen as ‘good’ whereas an anti-environment policy would be seen as ‘bad’. 1962 was an early and important study). One possible approach is to obtain information on the cost of the innovation. substitution of depletable resources and harmful substances. and so on. and on the sources of 50 . This is a problem that requires careful attention in the design of environmental innovation surveys. provide greater options for marked improvements in environmental sustainability. 7. waste reduction (during production. transport. either through the replacement of an entire production process or the development of a new product. It is unclear whether or not a detailed break-down on the purpose of environmental innovation is necessary. This taxonomy also provides information on the firm’s activities in developing product versus process innovations. energy saving. The purpose of environmental innovation is closely related to indicators on the type of environmental innovation. Another question on the type of innovation is whether or not it is large-scale (radical) or incremental. recyclability. Yet a focus on incremental innovation could lead to limited environmental gains.6 Areas where environmental indicators are needed Type of environmental innovation: Although general indicators on environmental innovation can be of value. in fact. on R&D spending. and whether this is induced by environmental policy.

contacts with public authorities.information. Many of the questions on strategic innovation can be formulated as innovation goals. since 51 . to pre-empt possible future regulations. and visions of environmental sustainability. or use best available technology (BAT) guidance notes and lists for industry-specific processes? Environmental strategies and motivations: Indicators of the organisational and strategic aspects of environmental R&D and management could help to identify the conditions that favour environmental innovation and help identify the circumstances in which environmental management operates as a self-propelling force. Life Cycle Analyses (LCAs). and the inclusion of environmentalists and citizens in the development of firm policy. and to capture a market for a new product. In addition. These could include the role played by government technology development programmes. This type of information will provide useful data on the firm’s motivations for environmental innovation. This requires indirect analyses of environmental innovation indicators. social responsibility. Internal organisational structures: Firms can be asked if they have adopted various organisational innovations to support environmental innovation. two important questions concern the main drivers for environmental innovation. Is it in response to regulation or to the firm’s own innovation goals? Are the beneficial environmental effects deliberate or fortuitous? The types of questions used to study strategies and motivations should also be useful for testing the continuum model of Green and McMeekin (1995) or Steger’s simpler version. These include environmental mission statements and long-term goals for emissions reductions.do they use LCA or some other assessment method. collaboration with suppliers and users over environmental issues. From a policy perspective. These include to comply with current regulations. it would be useful to have measures of the processes that lead to radical responses to environmental challenges. Are such tools viewed as useful for identifying and achieving environmental improvements? How do firms determine which solution is best from an environmental point of view . and environmental product improvements. This will provide some insight into the types of innovation underway. current and future regulation. and eco-design principles. eco-audits. make use of the company’s own environmental knowledge base and information system. energy use.

Another example is the replacement in industry of chemical and physical methods by biological processes such as bio-catalysis. The internal factors may be divided into technical ones (having to do with knowledge and skills) and organisational ones (human resource policies. An example of system innovation studied in the regulation and innovation programme is end-of-life vehicle recycling. provided the information is linked to the system innovation being analysed (say biotechnology). An example of a qualitative measure is whether companies are engaged in chain management or product stewardship. technologies and practices. Qualitative measures are probably best suited for analysing this area. It may be reduced when environmental R&D crowds out other R&D. 52 . structures for generating new ideas. They very much influence the ability to absorb external knowledge and new production processes and the ability to use in-house knowledge. As systems innovations require collaboration and new skills. as it depends on a host of factors. It is thus important to know more about how environmental regulation affects companies’ knowledge and capability to innovate. Is this enhanced or reduced through regulation? It will be enhanced when companies have obtained new knowledge and contacts with knowledge actors. Offsets: Indicators for cost offsets from environmental innovation are required to determine the usefulness of offsets as an incentive for environmental innovation. The external factors consist of the education system and the demand for new and innovative products in a country.direct questions could lead to biased results. It also includes regulation and opposition to particular products. It is difficult to measure this ability. Good indicators are hard to come by. although one can ask about the share of biological methods in production. information about collaboration and skills may be used as possible proxy. internal and external to a company (industry). etc). The ability to innovate is really what counts the most for innovation and competitiveness. Capability and knowledge: Companies’ competences constitute a key resource for competitiveness and innovation. Systems innovation: These consist of clusters of linked innovations producing environmental benefits.

A third possible measure is the size and number of environmental laws and regulations passed in a country or area. To structure and simplify the discussion. DETERMINANTS OF ENVIRONMENTAL INNOVATION The above sections show that the determinants of environmental innovation are varied. A discussion of the various measures for environmental policy is provided in Hemmelkamp (1998). we grouped the factors governing environmental innovation in three categories: 53 . Most environmental studies are focussed on highly detailed activities. 8. Regulation does not limit innovation is a simple way. other important dimensions are: the interpretation made by enforcement authorities and the arbitration actually performed among the conflicting rules and enforcement bodies (Brousseau. As the previous discussion made clear. Brousseau argues for the use of expert opinion. 69). case studies based on literature -based indicators. there are many other factors. regulatory frameworks cannot be described by examining only the wording of law. And innovation is not a simple response to regulation. 1998. and this means that 'mainstream' innovation indicators are rarely available. p. and interviews which draw on the ideas underlying other indicator statistics are likely to offer the best route forward. and the corresponding aggregation level of the appropriate statistics.The relevance of the above innovation indicators for environmental studies is likely to depend heavily on the detail of the study. In the studies of Jaffe and Palmer (1996) and Lanjouw and Mody (1996) the rate of environmental investment and running costs are used as proxy for the strictness of environmental policy. In our opinion this will prove to be even more difficult. given the various dimensions of regulatory frameworks. In this context. This has been tried in a German study published in Hemmelskamp (1999) where environment officers from the German chambers of commerce were asked to estimate the strictness of environmental policies for individual sectors. It is also useful to have indicators for regulation. As noted by Brousseau. A visual representation of the many factors influencing the recycling of electric and electronic waste is given in Appendix III.

processes and systems. organisational units and resources) and the institutionalisation of leadership (Van der Ven. energy prices. 1999). 54 . by prompting them to rethink their current activities and to establish new relationships with knowledge actors. the incentives to innovate: which depend on the intensity of competition. lower insurance rates for companies that produce environmentally safe products) and. Managing innovation processes requires. managerial capability to manage the process of innovation within a company and between companies within a chain and other stakeholders. The part-whole aspects are very important for recycling and for achieving environmental improvements throughout a product chain (through (environmental) chain management). of managing part-whole relationships (integrating functions.23 The above effect of 23 This effect was reported in the EMAS studies. the prevailing cost and demand conditions (for example the costs of waste disposal. In the case of the incentives for innovation this is plain: regulations alter the incentives for innovation by creating markets for new products. while limiting markets for regulated products or substances (such as CFCs). Each of the three types of innovation factors may be affected by regulation. of riding ideas into currency. But besides changing the economic incentives to innovate regulations may also influence the capability of companies to innovate—by telling firms what to do technologically. Regulations may also empower certain people or voices in the organisation who are championing environmental values and environment-friendly investment. in the case of marketable innovations. 2. the appropriability conditions (the extent to which an innovation is able to capture the economic benefits from its innovation). Likewise managerial capability for change may be influenced by regulations. this knowledge consists of both technological knowledge and knowledge about markets.1. which is necessary for producing a new process or product. demand for environmentally improved products. especially the German study. according to the Minnesota study of Van de Ven. 3. the ability to assimilate and combine knowledge from different sources (within and outside the company). A good example of this is the requirement in the Netherlands for large firms to have an environmental management and auditing system. a special type of management: the management of attention.

The institutional matrix defines the incentives (pressures) and opportunity set for innovation. A major element of the rule set or rules of the game is competition. working in different directions. At the same time. together with the prevailing cost and demand conditions. product standards and process technologies of a sector. and the contracts of municipalities with incinerator companies. For example. They are part of the overall institutional matrix of a sector or filière. and negatively by high costs of collecting. 1993). processing of packaging material. Regulations are more than a set of constraints. non-hazardous substances are available). provides the incentives that dictate the kinds of knowledge. There exists a long literature on the influence of market structure on innovation. In some case the incentives of regulation are very strong in other cases they are very weak. This matrix. sorting. a reduction in the number of different materials used and in the elimination of certain hazardous substances (if alternative. For waste management the incentives are varied and complex.enhancing management attention and capability for change is believed to apply mostly to social regulations and less to administrative (‘red tape’) regulations that can lead to a diversion of management time to less productive matters. Innovation is thus rule-governed. engineering practices. skills and innovations to be developed and acquired (North. the recycling of packaging waste is positively affected by national and EU packaging policies setting standards for the amount of packaging material that must be recycled. 55 . which was partially achieved by standardisation of product components. The incentives created by different type of regulations operate alongside with other incentives. however. but not in an unqualified way: it forces them to be innovative in ways that are valued positively in the market. competition induced firms to increase product differentiation and introduce new products both which increased the product variety having a negative impact for the promotion of end-of-life EEE-recycling.24 When analysing the impact of regulation one should look at competitive pressures that are operating on companies and competition between different environmental technology options. Competition forces companies to be innovative. it is governed in particular by the rules of the market but also by the rules contained in regulations. Competition prompted firms to implement a continuous reduction in production costs. But this is a topic that is very 24 In the DG ENTR-IPTS study on recycling of waste of electric and electronic equipment competition was found to have different effects on innovation.

This is why it is important to pay attention to environmental innovation-relevant institutions and adopt a more systemic view. Regulations define desirable performance characteristics and things that are acceptable. When doing such an assessment it is important to pay attention not only to the short term effects of costs and investment but also to the long term effects. but also informational. Like prices they are an informational device. We also like to reiterate the point that the incentives from regulations are not only normative and economic. so this literature may not be very useful. 56 . According to North the institutional matrix defines the opportunity set. giving rise to high costs. The opportunity set is thus not technologically defined. having indirect and unintended outcomes. guiding investment decisions in research. Understanding the incentive/rule system for environmental innovation is needed to comprehend why certain innovations were developed and used (or not used) and should be the starting point of any impact study of regulation on innovation. A main task for researchers doing an analysis of the impact of regulation on innovation is thus to describe the incentive/rule systems as a precursor of an assessment of the impact of Environmental. products and processes. The long term effects consist of: • • the creation of first-mover advantages for pollution control technologies and environmentally improved products induced by environmental regulation. the restructuring of a sector through take-overs or the fossilisation of existing structures through the creation of entry barriers. This is only partially true: it creates a disincentive for waste treatment in the waste sector but a positive incentive to prevent and re-use waste upstream in the chain. at the manufacturing level. Safety and (Occupational) Health (ESH) regulations. which creates a disincentive for waste management activities. and usually fails to correct for technological opportunities and other determinants of innovation such as the appropriability conditions.complex. The system of incentives created by regulations may thus be quite complex. It is often stated that there is too little competition in the waste market which is too much controlled.

the packaging of goods as an environmental problem). the way in which their sector will be going. emerging threats and specific business opportunities). It is the long-term effects that matter most. 3. 5. Another indirect effect is the relocation of companies to countries with lax environmental laws. especially between 57 . These long-term effects are of course far more difficult to assess. Change the terms of competition. Change the cost and demand conditions in a sector. Signal environmental needs and wants. 8. Communicate environmental (societal) values. The direct effects consist of reductions in pollutants through process and product changes. The diversion of R&D away from productive activities is an indirect. What they do (or might do) isto: 1. • The relocation of industry activities to countries and areas with less strict environmental laws. 2. Shape business expectations (about their place in the world.• the development of new competences and linkages with other actors that may constitute a source of competitive advantage and environmental protection in the future.. Attention should further be given to the ways in which environmental policy exercises an influence on technical change and economic activity. 4. Define problems (for example. Environmental policies give rise to direct and indirect effects. by creating entry barriers for new companies or products or causing the restructuring of a sector. unintended effect. Secondly the differences between regulations are not great. Firstly. Set limits to permissive practices and products. The ways in which environmental policy exercises an influence on innovation and economic development are varied. Relocation might not occur for various reasons. There is little evidence however that this is happening. for most industries the compliance costs are a relatively small fraction of total costs (usually between 05%). 6. involving a element of speculation. 7. Lead to a diversion of management time and R&D resources. the recycling or re-use of waste material and products and the use of (compulsory) environmental management systems.

The data that are used usually relate to performance in international trade: total exports or net exports.developed countries. 1995: 158). These are likely to be difficult indicators to use at the level of environmental studies. such measures can be used (albeit with caution). It is a different matter at the level of regions and nations. Even so. levels and growth rates of real incomes. but they are readily available from firm profit and loss accounts.. In analysing the impact of environmental regulation on competitiveness at the industry level it is important to bear in mind not only the impact on those industries where environmental regulation is likely to have a direct effect. Competitiveness may also be analysed on the basis of sector data. Some analysts treat trade balances. 11). as national measures of competitiveness. and partly because performance can change radically over quite short periods. 9. cash-flow statements and balance sheets. via innovation. normalised to yield measures of Revealed Comparative Advantage. to competitiveness? At the level of firms. p. 1997). for the reason noted throughout this report: the studies are 58 . but also to take into account the competitive position of new industries that emerge producing pollution control and monitoring equipment (Jenkins. partly because of the impact of different accounting conventions. An alternative approach is to use data on investment flows (Jenkins. they need to be treated with caution. This may be difficult because data for new industries may not be available. How these measures of competitiveness are used depends on context. COMPETITIVENESS To what extent can we relate environmental regulation. But given that most environmental studies are happening at a very disaggregated level. and so on. to sustain independent existence or to sustain 'normal' levels of profitability and returns. competitiveness can be made to have unambiguous meanings: it can refer to the ability to sustain market share. and thirdly such differences are not really exploited by transnational companies who often build state-of-the art plants that embody more pollution control than is required in these countries (Jaffe et al. 1997.

by significant patenting activity. For example it is often argued that Europe exhibits some kind of innovative failure because it has a lower R&D intensity that other Triad members. These indicators are sector specific. Without going into detail it is important to remember that these indicators give a very limited view of the nature and extent of innovation activities and outputs. and that is not available for this notion. or by related scientific publication. and so on. In general we have no Triad-wide indictors that might indicate differences in innovation activities and outputs across industries. But in this analysts and policymakers are often far too affected by the availability and quality of indicators. Against this background it is important to remember that Europe is characterised by a preponderance of low and medium R&D-intensity sectors. Such indicators may be used for assessing the competitiveness of a sector in the short term. or because it patents less. It should however be noted that there are many who challenge the whole idea that competitiveness has meaning. patenting data results from a legal process which is to do with appropriability conditions. and a consensus on conceptual content. and at very disaggregated levels. policymakers fall back on existing measures. Often. Nevertheless it may be possible to gather data on shares of global output and trade from trade journals and similar specialised sources. 59 . and indicates at best an invention. Part of the problem in all this is that it implicitly assumes that innovation is something which only or primarily occurs in sectors which are characterised by high levels of R&D input. not an innovation. and not necessarily a good one. This has been a particular problem for innovation policies. In general. and that indicators such as R&D and patents are not good for measuring performance in these sectors. and using them simply privileges some sectors at the expense of others. Innovation output indicators and indicators of competitiveness are not good indicators for assessing the efficiency of the productive system in a broader sense. R&D is an input indicator. we have no good indicators of national-level competitiveness because any reliable indicator requires a good conceptual background. since we have been confined to such sources of data.often conducted outside existing statistical categories. As we have argued above.

Our view here is that impact studies may be able to generate data which is relevant to overall European competitiveness vis-à-vis the Triad. which incorporates elements of what the French call “le système socio-productive” (socioproductive system). R&D spending. 10. inward and outward investment. This includes the infrastructures of tangible and intangible resources and the social relationships between economic and social players. RESEARCH GUIDELINES We will end this report by offering some general practical guidelines for studying the relationship between environmental regulation and innovation. This is done in the World Competitiveness Report which identifies 224 criteria which it groups under eight factors. many are measures of inputs rather than output (Jenkins. not just companies but also establishments providing training. p. pressures from public. willingness to pay from users for environmentally beneficial products or technologies. but that these indicators are likely to be non-standard and ad hoc. government and societal groups. hard to measure concept. These criteria include: unit labour costs.13).to assess the long-term competitiveness of a sector or the economy as a whole a broader range of indicators is necessary. They are: 1. This requires a major research effort because the incentive system is usually quite complex (involving regulations. education levels. 1997. for example. any measure is likely to be a poor proxy. However. The flux in the ranking of countries also casts some doubt on the usefulness of overall indices to measure competitiveness. and must be treated (and labelled) with considerable caution. research institutions. competition from 60 . infrastructure. Competitiveness is an elusive. growth rates. although these measures are all measures which in some way contribute to national competitiveness. Look at institutional matrix and incentive system for (different types of) environmental innovation (including those environmental innovations that are not designed for environmental protection purposes).

3. moment at which compliance is due). given the important link between innovation and knowledge. liability for environmental hazards. Attention should be paid to actual and impending changes in the competitive. regulatory and sociotechnical landscape (due to globalisation. shifts in demand). players. privatisation. university and research institutes). the competition process and the rules of the game (what it takes to be successful in the market). the regulations themselves often lay down a complex rule and incentives system in terms of the actual requirements (in terms of authorisation procedures. things that are exchanged (goods. key technologies. Important questions are: What are the main technical components of production activity within the sector concerned? What must a firm do to be a viable operator in the industry? What are the techniques which the firm must master in order to be able to undertake the activities described above? What are the codified knowledges with which the technical operations are designed. Describe the knowledge base of an industry. and on what resource basis? 5. Describe the environmentally relevant research activities and responses undertaken by various actors (suppliers. It is importance to focus on knowledge. long term targets. 4. analysed. In addition. advances in knowledge and technology. The innovations should be categorised in terms of type of innovation. The research directions should be mapped. Their environmental and economic 61 . and produced? And who develops the relevant knowledge inputs. Describe the existing innovation pattern and innovation network of an industry in terms of the actors. significance and motivation (environmental or non-environmental). and son on. This helps to assess the capability for change and to identify actors that may become important change agents. regulated industry. enforcement practices. emission limit values. find information about products and product appraisals). liberalisation.alternatives. Describe the filière and markets within a production chain: the activities. 2. appropriability conditions). knowledge). There is usually a difference between what is required by law and the real conditions of compliance. (An example of a change in the sociotechnical landscape is the emergence of the internet which allows customers to select producers. knowledge dependencies.

62 . capabilities and the economic and political frame conditions. Stated differently. also pay attention to the organisations responsible for the implementation of regulation and the relationship between government and industry. This may be done on the basis of costs. strategies. Look at the synergetic relationship between organisational (institutional) innovation and technical innovation. strategies. having various dimensions. Assess their relative influence. the openness of the policy process and the role that technological expectations play in it. Look at the ways in which demand for environmental improvements is exercised: through regulation.significance should be assessed. environmental benefit and (expected) sales. 9. customers. how these shaped further interactions and outcomes by changing actors’ expectations. the threat of product boycotts and other type of actions. research money. 6. Look for examples of conflicting and sub-optimal regulations and how they came to be formulated and implemented. banks. 8. the coalitions and their problem definitions and positions with regard to policy proposals and technological solutions but also at the interactions and the outcomes of the interactions. orientation. Policy network and implementation theory may be used to study policy interactions. mind sets. Were the regulations based on specific technological solutions? Were the technology responses prescribed in some sort of way? How did particular solutions came to be favoured? Attention should be paid to the ways in which technology choices are embedded in the policy process. 7. routines and practices within a filière or innovation chain. Attention should also be given to the ways in which innovations are linked: how product innovations are linked with process innovations. Regulatory systems are more difficult to measure. This is not easy. Make sure that you measure innovation output and regulatory systems correctly. We propose that in doing statistical analyses people use a set of different indicators and take into account the characteristics (value) of the innovation. 11. don’t only look at the actors. They are very heterogeneous. 10. When describing the regulatory system. When looking at the policy formulation process look at problem definitions. The value or significance of identifiable innovations may be obtained through trade journals or technology experts. types of equipment.

They may be more important than the short-term. The latter include: creation of new competencies and tools.and inter-company linkages that facilitate further change. Did the regulatory process favour certain options. Pay attention to the competition between environmental technologies/clean solutions. immediate effects. One could try to derive an index which combines the various aspects by for example asking companies to rate on a five or seven point scale how important environmental regulations are as influences on the way in which companies can carry out their production activities. 14. 13. such as end-of-pipe solutions? A related topic is the optimality of the technology responses. Again one should draw a distinction between intended and non-intended effects. intra. it takes time before an invention leads to a tradable product which produces real profits. analysts. This provides an additional reason for using different sources of expertise: industry operators. assessing the long-term effects involve an element of speculation. The interplay of regulations oriented to different goals is likely to produce perverse or sub-optimal results. For example. a greater focus on environmental issues and orientation towards environmental protection. Try to assess also the long-term effects of regulatory and technology developments. Assess 1st and 2nd order effects. Look at the interaction between different types of regulation (for example between national policies and EU regulations/directives.Important dimensions are: the nature of the control measures. suppliers of EGS and policy makers at 63 . new knowledge. which may be assessed through life cycle analysis. 15. when asked about the strictness of environmental policy firms may overstate the strictness for strategic reasons. and the influence of regulations on the terms of competition. bearing in mind that the outcomes of such studies tend to accord with the desires of the commissioning party. 12. and between economic and ESH regulations)—looking at how such interactions influence search directions and activities and innovation (identification of synergies and conflicts). For example. Remember that answers with respect to regulatory issues can be sensitive and prone to strategic bias. the stringency of control policies and the styles of regulation. Of course. between different environmental regulations controlling different pollutants and substances.

different levels. Interactive workshops may be used to deal with the problem of differing interests and perspectives. 64 .

APPENDIX I Waste hierarchies in different EU Member States Source: INSTRUFECT project of Ringeling and Hanf 65 .

3 means 2 plus sorting. technological level 2 means 1 plus metal removal and more complex sieving and sorting.25 EURO/tonne ~16 EURO/tonne 12-13 EURO/tonne ban on mineral demolition waste ban on waste that can be recycled tax: 50 EURO/tonne Legend: Technological level 1 consists of the use of mobile crushers and sieving plants. plant and facilities for recycling other waste streams such as wood Source: Symonds (1999).APPENDIX II Correlation between technological level of recycling and landfill possibilities country Spain Italy United Kingdom France Germany The Netherlands Denmark technological level 1 1-2 2 2 3 3 3 cost/ban of landfill 2-5 EURO/tonne (in Catalonia) 2. reported in the recycling study on construction and demolition waste (Verhuel and Tukker. 1999) for DGENTR-IPTS research programme “Impact of EU regulation on innovation in European Industry” of which this project is part. 66 . washing.

il ne it ls asc ies Recyclers of EEE hin . Specialised Movements. Political Parties) (selected) EEE-Waste Knowledge Flows ate aw Fa rM Ra ial M cilit ate w s ac Fes i ria hiM ac. Oppposition Ecological Problems. Co-operation-Incentives Demand-Policy Material Flows within the Production. Initiatives. Economic. New Organisation Concepts. Authorities Intermediaries Public National and standards committee) Supra-national Governments) and (industry associations. M po tnris ts. Recyclers of EEE End Distributors of EEE ife -off-l (Retail Trade. Programmes. Social. Supports. Political Parties) (Media. Materials Activities Claim for (Political) New Materials Activities Research Institutions Public Climate (Universities. Disposal and Recycling/Re-use of EEE Material Flows within the Production. Information Systems. Commercial Users of EEE Firms. Supports.APPENDIX III Major Drivers for the Recycling of Electric and Electronic Equipment Major Drivers for the Recycling of Electric and Electronic Equipment (EEE): A Systemic Perspective Major Drivers for the Recycling of Electric and Electronic Equipment (EEE): A Systemic Perspective Intermediaries Public Authorities (industry associations. Private Firms) Not Re-usable Waste Awareness of Ecological Problems. End-of-life EEE Raw Materials Raw Materials Repair and Re-use. Economic. Regional. (Recycling Materials) Not Re-usable Waste (Public Services. End-of-life EEE Damaged Goods. Social. Oppposition against Financial Regulation Approaches. Private Firms) and Management Reprocessing of Raw Materials) (Public Services. EE life Mail-order Houses) dE En EEE (s ) Mail-order Houses)le EE e ct t ed ed E-W (se ) l ec s t e (se -Wa cted) e EE s lect aEt e E t -e d ) EE (sele Was W as t Ee EE(selected) EEE-Waste Users of EEE (Households. Distribution. Public Institutions) End-of-life EEE End-of-life EEE Source: Buchinger et al. Awareness ofagainst Financial NewNew Organisation Concepts. Standards. Social Material Flows Knowledge Flows Research Institutes) Movements. Disposal and Recycling/Re-use of EEE Ra w C Ra om Mat w po eri M Co ac ne al M a m hi e n s . New Process Technologies. (Local. ne s . Public Institutions) (Households. of EEE e EE Enlife d-o Distributors E d-ofEn EEE of-lif (Retail Trade. ac ne e als hi nt . Process Technologies. Distribution. Legislation. (1999) 67 . Standards. Regional. Taxation. Demand-Policy Programmes. Use. Commercial Firms. Claim for (Political) Burdens. Use. s Producers of EEE (Electric and Electronic Producers of EEE Industry) (Electric and Electronic Industry) Damaged Goods. (Local. Political and Technological Environment Norms. Social Material Flows Public Climate Research Institutes) (Universities. National standards committee) Supra-national Governments) Taxation. Initiatives. Co-operation-Incentives Information Systems. Political and Technological Environment Norms. Specialised Research Institutions (Media. es (Recycling Industry. Legislation. Repair EEE end-of-life EEE New EEE New EEE Other Industries Other Industries M R Waste Collection and Waste Collection Management Reprocessing of Raw Industry. Burdens. end-of-lifeand Re-use. NewRegulation Approaches.

ban of use of CFCs in 1978 by Consumer Product Safety Commission and EPA under TSCA • • various countries international agreement in 1987 in Montreal to reduce production and use of CFCs by 20 per cent in 1994 and 50 per cent in 1998 measured against 1986 levels followed by London protocol in 1990 in which countries agreed to end the production and use of fully halogenated hydrocarbons (including 3 halons) by year 2000 (and use of methyl chloroform by 2005) • • • • Lead Paint U.S.S. more biodegradable PCB mixture for use in capacitors together with a new capacitor design reducing PCB use by two-thirds development of PCB substitutes by outsiders product substitution in the form of a non-fluorocarbon propellant (CO2) by non-CFC manufacturers development of new pumping system without propellant by outsider firms use of HFC-134a in domestic refrigerators and of HCFC-22 (being a 'soft' CFC) in professional cooling systems CFC recycling in foam industry plus shift to CFC-free foams (for example. the use of rock wool as insulation material) use of CFC-free cleansing and degreasing agents such as water and soap non-innovative substitution of lead by paint industry • • CFC aerosol U. Type of Regulation prohibition of the manufacture of PCBs after January 1. 1980 by Environmental Protection Agency (EPA) under Toxic Substances Control Act (TSCA) after 12 years of regulatory surveillance Technology response • voluntary restriction by PCB manufacturer of PCB sales to closed electrical systems 10 years before prohibition of PCBs introduction of a new. Limitations of lead content of household paint in 1970s under various acts that effectively prohibited the use of lead pigments after 1973 and the use of lead driers in 1977 68 .S.APPENDIX IV OVERVIEW OF TECHNOLOGY RESPONSES TO ENVIRONMENTAL POLICIES Substance PCB Application all Countr y U.

worker isolation and improved work practices use of new direct smelting process development of new process technologies that reduced lead exposure acceleration of development of smaller batteries containing less lead relying on lead-calcium rather than lead-antimony alloys acceleration of incremental process innovations Vinyl chloride (VC) Mercury all manufacture chloralkali U.S.S.S.28 gr per 1000 kg of products per day by July 1977 under Federal Water Pollution Act plus promulgation of emission standards limiting mercury under the Clean Air Act introduction of differing exposure limits for cotton dust in 1984 under OSHA the setting of regulations for the maximum concentration of phosphates in detergents of respectively 22 and 50 per cent in 1981 and 1984 under the Detergent Act being the outcome of a regulatory process which started in 1973 in Germany and as early as 1969 in the U.S. 23 other countries followed suit when they signed the 1991 UN • U. • • • • • • separation of process and cooling water treatment of process water and cleaning of sewer pipes series of housekeeping improvements modernization of textile industry through diffusion of superior textile technology search for more environmentally benign phosphate substitutes with comparable washing performance substitution of zeolite and other substitutes for phosphate Cotton dust Phosphates all manufacture detergents U.all manufacture U. Germany Volatile organic compounds (VOCs) all manufacture U.S. setting of VC exposure limits under OSHA in 1970s plus emission standards for VCM and PVC after 1976 under Clean Air Act establishment of effluent standards for chloralkali plants limiting mercury discharges to maximum of 0. • • • • • control equipment to collect and destroy paint emissions development of compliant paints with lower solvent content acceleration of development of low-solvent and solventfree paints and coatings use of pollution control technologies introduction of housekeeping improvements all manufacture Netherla nds and various other countries 69 . permissible exposure limits to lead of 50 µg/m3 in working site under Occupational Safety and Health Act (OSHA) with ten year exemptions for primary smelting and five year exemptions for secondary smelting and battery manufacture • • • • combination of source-reducing controls.S. adoption of Rule 66 in Los Angeles County limiting VOC emissions followed by formulation of acceptable levels of ambient ozone by EPA in 1977 start of KWS-2000 project in the Netherlands to reduce VOC emissions in 2000 by 50 per cent compared to 1981 levels based on a covenant between VOC-emitting sectors and Ministry of the Environment.

Economic Commission for Europe protocol to reduce VOC emissions by 30 per cent in 2000 Metals all manufacture Netherla nds setting of effluent standards by water quality control boards under "Wet Verontreiniging Oppervlaktewateren (WVO)" limiting discharge of metals in waste-water supplemented with effluent charges in 1970 and 1980s use of effluent standards under WVO limiting discharge of organic pollutants in waste-water and use of effluent charges in 1970s and 1980 • widespread use of ONO effluent treatment systems at the expense of preventive solutions such as membrane technology use of biological waste-water treatment systems by industry Organic pollutants all manufacture Netherla nds • Sources: Ashford et al. (1985). Hartje (1985). Bonifant (1993) and Kemp (1997) 70 .

APPENDIX V Policy on Packaging Waste in Different EU Members States (Source: INSTRUFECT project of Ringeling and Hanf) 71 .

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