The relationship between environmental regulation and

The relationship between
environmental regulation and
innovation
Environmental Economics and Policy
Nicolò Barbieri, [email protected]
Technological change
What is technological change (TC)?
 Invention
 Innovation
 Diffusion
Basic concepts in innovation
What is innovation?
 “In an essential sense, innovation concerns the search for,
and the discovery, experimentation, development, and
adoption of new products, new production processes and
new organizational set-ups” (Dosi, 1988, p.222)
Innovation vs. technological change (TC)
 TC is always innovation: innovation strictu sensu
 Innovation can also be non-technological: new
organizational set-ups, … or new products and processes
with existing technology
The linear model of innovation
Research and creativity - Research: basic and applied Creativity as a process
Invention – Generation of new ideas patents etc.
Development and design – development specifying ideas;
design an extra product dimension
Innovation
Imitation
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The linear model of innovation
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The linear model of innovation
The linear model is the “mainstream” view but:
 not all the steps necessary: e.g. “serendipitous
innovations”
 some steps never reached: e.g. “strategic patents”
 innovation is not only one-way (linear): e.g. feedbacks
from costumers to innovators
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Innovation and technological change
Innovation ≠ technological change
Technological change is always an innovation
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Whilst
Innovation can also be non technological:
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new organizational set-ups;
new products or production processes implemented with
already existing technology
Types of innovation
Product - Process
Product: a new or improved product for sale, with the samep roduction
process. It includes:
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Service innovations
Product proliferation
Innovative pricing
…
Process: a new way to make the same product. It includes:
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Organizational innovations;
Merketing innovations
…
Having clear that:
The same innovation could be both
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Types of innovation
Product vs. process innovations:
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Product: a new or improved product for sale, with the same
production process (from desk to portable PC)
Process: a new way to make the same product (from making
packages to packaging)
A difficult distinction in practice:
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The same innovation could be both: e.g. the PC
Product and process innovations are of different kinds:
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Product innovations: service innovations, product proliferation,
innovative pricing;
Process innovations: organisational innovations, marketing innovations,
supply chain innovation, business innovations, strategic innovations, …
Types of innovation (cont’d)
Incremental – radical
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Incremental: an improvement to a particular product or process which does not
alters it fundamentally (from 3G to 4G communications)
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Radical: an improvement that alters the product or process fundamentally (from portable
PC to tablet)
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A difficult distinction in practice:
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Incremental and radical does not necessarily mean, respectively, “small” and “large”: e.g.
touch-screen monitors
Having clear that:
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The same innovation could be both: “new with respect to?” in the innovation
surveys (e.g. the Community Innovation Survey)
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How to measure innovation?
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Input proxies
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R&D expenditure; R&D personnel, R&D intensity
Source: Eurostat;OECD; Istat
Having clear that it measures:
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Innovation efforts, not yet innovations
Innovation as an uncertain process: not all R&D become inventions
and not all inventions become innovations
Only “formal” innovation efforts, which is only a part of the
innovation process (e.g. training, learning)
High sector heterogeneity
High country heterogeneity
How to measure innovation? (cont’d)
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Output proxies:
Patent applications; patent granted; patent citations
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"Possono costituire oggetto di brevetto le nuove invenzioni atte ad avere un'applicazione industriale,
quali un metodo o un processo di lavorazione industriale, una macchina, uno strumento, un utensile o
un dispositivo meccanico, un prodotto o un risultato industriale e l'applicazione tecnica di un principio
scientifico, purché essa dia immediati risultati industriali. [...]“ Codice Civile, art. 2585
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Art. 45 comma 1 DL 30/2005: “Possono costituire oggetto di brevetto per invenzione le invenzioni
nuove che implicano un'attività inventiva e sono atte ad avere un'applicazione industriale”
Sources: EPO, USPTO, WIPO
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Having clear that it measures
Inventions, not yet innovations
Only patentable innovations (see above) and formal ones
High sector heterogeneity
High country heterogeneity
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How to measure innovation?
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Innovation counts and innovation surveys –
Community Innovation Survey for Europe
International trade of high-tech commodities to
capture “embodied innovations” in trade
“Technology Balance of Payments”: technology sells
and purchases across countries (surplus and deficit?)
Composite innovative proxies: weighted average of
more indicators as the Summary Innovation Index –
Innovation Union Scoreboard
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Patents as a proxy for innovation
Patents as a proxy for innovation provide:
 Technological field of each invention
 Description of the invention
 Identity and other information of the assignees
 Links to earlier inventions
 Triadic patent families
Related empirical literature that use patent data:
 Hascic et al. 2009; Popp and Newell, 2009; Lee et al., 2011;
Dechezleprêtre et al., 2012; Popp, 2002; Trajtenberg, 2001;
Popp, 2005; Johnstone and Hascic, 2011; Johnstone et al.,
2010
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Patent data drawbacks
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Not all inventions are patented
There may be differences on the commercial value of
patents
Correlation between R&D expenditure and patent count
Heterogeneity between sectors
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Environmental R&D expenditures
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Triadic Patent Families
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Technological specification
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Trend in patent application
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What is an Eco-innovation
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What are we talking about?
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What are we talking about?
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What are we talking about?
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What are we talking about?
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What are we talking about?
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Eco-innovation
What is eco-innovation?
 “the production, assimilation or exploitation of a product,
production process, service or management or business
method that is novel to the organisation (developing or
adopting it) and which results, throughout its life cycle, in
a reduction of environmental risk, pollution and other
negative impacts of resources use (including energy use)
compared to relevant alternatives” (Kemp and Pearson,
2007; pp.7).
Eco-innovation
Why is eco-innovation important?
 long-term climate policy analysis,
 market failures
Eco-innovation
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Technological innovation can allow for the realisation of
environmental objectives in a manner which is less costly
than would otherwise be the case.
Eco-innovation can play a pivotal role in achieving
environmental objectives  important for policy debates
With actual technology endowment, environmental
objectives cannot be reached (or at least they can be
reached at a higher cost)
EI and «standard» innovations
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EI follow the same logic presented for innovations in
terms of measurement issues, but:
EIs differ from standard technological innovations
(Rennings, 2000):
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3.
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Double Externality
Regulatory push-pull effect
the increasing importance of social and institutional
innovation
Double Externality
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Pollution is a negative externality
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Innovation is a positive externality
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Since elements of the assimilative capacity of the environment
are public goods.
Since elements of the information generated by innovation are
public goods
Public policies should be designed to overcome these two
market failures
Without policy maker intervention firms pollute too
much and innovate too little compared with the social
optimum
Double Externality
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Solving environmental problems normally goes along with diffuse public
benefits but concentrated private costs.
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Gainers from a certain environmental innovation are not so easily organized while
the losers can effectively pose resistance to it.
As for “standard” innovation firms might not fully appropriate the returns
of investing in innovative activity (knowledge spillovers) (first order
externaliy)
 Plus: EI lead to a reduction in production/consumption environmental
externalities
As for standard innovation: risk of underinvestment in eco-innovation
 Crucial role for POLICY to create the conditions for EI uptake (more
than for standard technological innovations)  leading to regulatory push
pull
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Regulatory Push-Pull
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Market pull
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It is often not a lack of research, but a lack of demand
that limits technological progress as well as a lack of
correct pricing.
It is a matter of incentive and market rewards
Public policies should seek to accelerate these trends and
strengthen market pull
Improving framework conditions
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Governments can:
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Implement mandatory and voluntary product standards
Use taxes to influence consumption (batteries)
Support eco-labelling
Encourage reporting on emissions and environmental
implications of firms’ activities
Etc…..
Regulatory push – pull effect
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This is why we talk about regulatory push – pull effect
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Induced Innovation Hypothesis (Hicks 1932): changes in the relative price of
production factors (K & L) induce technological change (cost reduction)
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«Green» Induced innovation Hypothesis (induced innovation in climate change) a
stringent environmental policy, changes (in a sense) the relative factor prices,
inducing technological change.
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Tax on air emissions raises p, inducing emission saving technologies to be developed
Regulation can push innovation for supply and pull demand for green products –
regulatory push-pull effect
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Types of EI
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Again product – process
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Again incremental (more efficient car engines) – radical
(electric vehicles)
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On the environmental point of view: is every
technological innovation capable of launching a new
industrial dynamics towards a pathway of sustainable
development?
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Answer: NO (Faucheux and Nicolai, 1998)
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Types of EI
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EI is usually factor-saving rather than quality-improving
(van den Bergh, 2012)
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In some cases, there is no observable difference in the
functionality of alternative technologies for consumers; e.g.
‘green and gray’ electricity
Which EI do we care about?
Add on measures (end-of pipe) - incremental changes to
existing technology - frequently shift the environmental
problem from one place to another instead of eliminating it
Integrated technologies - new production or service
methods whose conception is to reduce environmental harm
1.
2.
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ecological structural change allows a delinking of economic growth
and environmentally harmful factors. “only integrated technologies can
generate a new impulse to innovation in favour of genuinely sustainable
development
However few of them are radical building on new knowledge and
causing breaks in the technological pathway (e.g. organic fuels,
photovoltaic energy generation)
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How to measure EI?
Through the same measures available for innovations, with
the same limitations (and some more)
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Input proxies: Green R&D expenditures – Rare collection,
some exceptions:
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PACE Pollution abatement Costs and Expenditure survey - Q on amount of pollution
abatement costs and expenditures.
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conducted annually from 1973 to 1994 (excluded 1987). reinstated for 1999 with periodicity
of 2-5 years. Last year 2005. On manufacturing, mining and electric utility sector
Department for Environment Food and Rural Affairs (DEFRA) Government Survey of
Environmental Protection Expenditure by Industry – firms are asked to report
environmental R&D (UK)
Center for Economic Performance survey on ETS - firms are asked to indicate the
fraction of their Research and Development expenditure towards climate change ( 6
EU countries)
How to measure EI? (cont’d)
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Output proxies:
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Patent applications, patent granted, patent citations in
environmental technologies
Use of correspondence tables to establish whether a
technology is environmental.
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OECD Indicators of Environmental Technologies
http://www.oecd.org/env/consumption-innovation/env-tech-searchstrategies.pdf
WIPO IPC Green Inventory
http://www.wipo.int/classifications/ipc/en/est/
Practical examples
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Have a look into a patent
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www.epo.org
Search by text : «Waste»
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WIPO and OECD
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WIPO IPC GI
OECD EnvTech
Agriculture and Forestry
Alternative Fuel Vehicle Technology
Alternative energy production
General Environmental Technology
Energy conservation
Improved Energy design technologies
Transportation
Improved Vehicle Design
Waste Management
Waste Management and Recycling
Nuclear Power Generation
Local air pollutant Emissions Control
(EMC) technologies
How to measure EI? (cont’d)
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Innovation counts
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Introducing into an innovation survey an explicit question on the adoption
of environmental innovations by firms
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Community Innovation Survey (CIS), conducted every 2 years voluntarily
by European Commission to measure innovation activity in enterprises
provides information on the different types of innovation and on various
aspects of the development of an innovation, such as the objectives, the
sources of information, the public funding and innovation expenditures.
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In the 2006-2008 wave, a section on Innovation with environmental
benefits, in which firms were asked to report the adoption of different types
of environmental innovations and the motivations behind this choice.
http://ec.europa.eu/eurostat/documents/203647/203701/CIS_Survey_form_
2008.pdf/e06a4c11-7535-4003-8e00-143228e1b308
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