Environmental policies
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Sustainable development and technologies
1. Eco-efficiency and resource efficiency and their
relationship to sustainable development, including the
development of indicators that can be applied to countries,
sectors and technologies
II. How innovation systems and the design of environmental
policies and regulations can best provide the conditions and
incentives needed to promote environment-related innovation
III. Specific technologies and their contributions to sustainable
development (nuclear power? Biotechnology?)
IV. Case studies of how enterprises incorporate
environmental objectives into their management strategies,
including investments in clean technologies
V. Means for facilitating international collaboration in
research and development on environmental problems and
technologies
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The role of technology
Technology is crucial in de-linking economic growth
(GDP) from environmental degradation.
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Significant reduction in energy and materials intensity and
polluting emissions requires technological advances in:
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Products and processes
As well as organisational and behavioural changes
Economic theory and technological change (1)
Traditional growth theory
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New technology is an exogenous variable appearing from outside at
the right time and right price
In reality, market failures in terms of information deficiencies and
inappropriate pricing risk suffocating rather than stimulating green
technologies capable of enhancing sustainable development
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Producers and consumers may lack knowledge about environmental
impacts of different products and activities.
Prices often do not reflect resource use or environmental externalities
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Therefore, new substitutes tend to be more expensive than
conventional technologies
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Providing proper price signals would increase investment in
clean technologies
Economic theory and technological change (2)
Endogenous growth theories
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Technological change occurs as a result of identifiable
processes such as corporate investment and public policies
Governments play an important role in getting prices right
Economic, legal and physical infrastructure determine levels of:
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Market factors, such as consumption trends, and government
regulation are important influences on the innovation climate.
Governments have a more direct role in developing and
diffusing green technology…
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R&D
Education and training
Investments (etc.)
…and in the financing of the basic research that underlies innovation.
Creating an innovation climate for
sustainable development
Promoting incorporation of environmental and social
criteria into innovation systems
Reforms may concern:
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Intellectual property regimes
Competition polices
Education and training policies
Financial and fiscal policies (enhance capital)
Communication policies
Policy coherence
New insights into the nature of the innovation process have
changed perceptions about the appropriate role of
governments
Policies to promote research collaboration, facilitate firm
networking and clustering, encourage institutional ties, diffuse
technology and increase personnel mobility are taking on new
significance.
the success of these approaches depends on the overall policy
environment, encompassing both macroeconomic and
structural conditions.
Policy coherence also implies improved integration of
environmental and technology policies and better coordination among environmental and technology agencies.
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Formulating environmental policies
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Environmental innovation takes place mostly in industry,
where environmental policies and regulations are an
important influence.
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PROBLEM: traditional forms of environmental regulation
have not generally led to radical technological change,
although they have contributed to significant pollution
abatement over the years
OPEN BOX 1 – General Purpose Technologies
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Environmental policy (preliminary concepts)
Command and control (CAC) approaches have been a
predictable stimulus to small, incremental improvements
along established pathways, often in the form of end-ofpipe technologies.
More dynamic environmental policies that promote
prevention rather than abatement, and the development
of clean technologies and integrated approaches including economic instruments - are needed
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Developing and diffusing environmental
technologies
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Governments should assure a continuing basic research
and development (R&D) effort on broad enabling
technologies to support sustainable development goals.
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Forming Public/Private partnership
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Governments also play a role in developing technology and are
increasingly conducting applied research in partnership with
industry
They can enhance linkages among enterprises, and between
enterprises universities and public research institutions, and
foster interactions that are crucial to the innovation process
PPP: ‘any long-term association between distinct legal and
administrative entities in the public and private sector for the
pursuit of ends they would not be able to attain efficiently,
effectively, economically, or equitably on an individual basis’
Many OECD governments are involved in partnerships aimed
at developing technologies that can contribute to both
sustainable development and industrial competitiveness.
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Forming Public/Private partnership (PPP)
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Public-private stakeholder platform for water
management in Jordan. A pilot public/private
stakeholder platform, the Jordan Business Alliance on
Water, has been formed with initial USD 100 000 funding
from the US Agency for International Development
(USAID). One project involves establishing a plant at a
cost of USD 910 000. Approximately 60% will be financed
by the public sector and 40% secured from private sector
funds. A similar model was agreed for another slightly
smaller scale project, costing USD 380 000. The initial
USD 100 000 investment in this partnership thus brought
in total project finance of approximately USD 1.3 million,
a leverage ratio of 1:13 (World Economic Forum, 2011).
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Forming Public/Private partnership (PPP)
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Climate public private partnership for developing
countries. The UK Government, in collaboration with the
International Finance Cooperation and Asian Development
Bank, launched the Climate Public Private Partnership in 2012.
For every pound provided by the UK taxpayer, this initiative
will leverage up to 30 times the amount in private capital using
two new commercial funds. This initiative will help support
projects to deliver clean, renewable and efficient energy, new
technology and protect natural resources in emerging and
developing countries. It is estimated that the initiative could
generate more than 7GW of clean, reliable energy – equivalent
to 66% of current UK renewable energy capacity – and create
40 000 jobs (DFID, 2012).
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Environmental Policy Characteristics
(Jonhstone et al., 2010)
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It has long been recognized that the characteristics of the
environmental policy can affect the rate and direction
of innovation in pollution abatement technologies.
Different policy measures are likely to have different
impacts on innovation.
There is a large body of literature which assesses the role
of environmental policy instrument choice on the rate of
innovation, with the common finding that market-based
instruments are more likely to induce innovation than
direct forms of regulation
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Environmental Policy Characteristics
(Jonhstone et al., 2010)
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PROBLEM: Two market-based instruments (i.e. a tax on
carbon emissions relative to environmentally-motivated
product tax differentiation) may be as different from each
other as each is in relation to some forms of direct
regulation
The stark juxtaposition between market-based
instruments and direct forms of regulation is somewhat
misleading
SOLUTION: It is more helpful to think in terms of
attributes of characteristics of different policies, and what
effect each of these characteristics has on innovation.
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Environmental Policy Characteristics
(Jonhstone et al., 2010)
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ATTRIBUTES: stringency; depth; incidence; flexibility; and
stability
KEY POINT: correlation between instrument types and
policy design attributes is imperfect.
 Any incentives for innovation arise out of the underlying
policy attributes and not the broad policy type per se.
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Environmental Policy Characteristics
(Jonhstone et al., 2010)
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– Stringency – i.e. how ambitious is the environmental policy
target, relative to the «baseline» emissions trajectory?;
– Predictability – i.e. what effect does the policy measure have
on investor uncertainty; is the signal consistent, foreseeable,
and credible?;
– Flexibility – i.e. does it let the innovator identify the best way
to meet the objective (whatever that objective may be)?;
– Incidence – i.e. does the policy target directly the externality,
or is the point of incidence a «proxy» for the pollutant?; and
– Depth – i.e. are there incentives to innovate throughout the
range of potential objectives (down to zero emissions)?.
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Environmental Policy Characteristics
(Jonhstone et al., 2010)
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Different environment-related taxes may have very
different attributes.
EXAMPLE:
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A differentiated tax for «environmentally friendly
products» is not very flexible, targeted or deep.
Depending upon how the tax rate is determined, such a
measure may actually have more similarity with
technology-based standards than with an emissions tax
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A tax on CO2 is flexible, targeted, deep, and often predictable
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Environmental Policy Characteristics
(Jonhstone et al., 2010)
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STRINGENCY:
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The effect of stringency on innovation is a correlate to the
Hicksian notion that a change in the relative prices of factors
of production will motivate firms to invent new production
methods in order to economise the use of a factor which has
become relatively expensive.
By imposing a price (whether explicitly or implicitly) on the
costs of pollution emissions, or by otherwise changing the
opportunity costs associated with environmental assets,
environmental policy is likely to induce innovation − because
firms seek to meet the policy objectives at least cost.
The stringency effect on innovation is difficult to measure
Environmental Policy Characteristics
(Jonhstone et al., 2010)
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STRINGENCY:
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Pollution abatement and control expenditure (e.g., Lanjouw
and Mody, 1996; Brunnermeier and Cohen, 2003)
Frequency of inspection visits (e.g., Jaffe and Palmer, 1997)
Measures based on the point of policy implementation (e.g.,
Johnstone et al., 2010 and Johnstone - Labonne, 2006)
Environmental Policy Characteristics
(Jonhstone et al., 2010)
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PREDICTABILITY:
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Can reduce uncertainty for investors
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Market uncertainty
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Economic uncertainty can be a significant «brake» on
investment (see Pindyck, 2007; Dixit - Pindyck, 1994).
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This may be particularly true of investments in R&D, which are
by nature risky and with uncertain outcomes
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Investments are irreversible ( sunk costs)
Environmental Policy Characteristics
(Jonhstone et al., 2010)
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PREDICTABILITY :
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Policy uncertainty
 «stability» of the policy framework, as well as of the signals provided
by the policy itself
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Predictable signals and «irreversible » investments give rise to
great option values, implying strong incentives to postpone
investments
Governments which do not provide clear signals about
policy intentions over the duration of firms’ planning
horizons will retard investment in innovation
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In particular, if the future trajectory of the costs associated
with policies is uncertain
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Timing matters (long-term investments and climate
change)
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Environmental Policy Characteristics
(Jonhstone et al., 2010)
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PREDICTABILITY :
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EXAMPLE:
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US - uncertainty concerning the annual renewal of the federal
production tax credit (PTC), discouraged investment in renewable
energy.
Environmental Policy Characteristics
(Jonhstone et al., 2010)
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FLEXIBILITY
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if more «prescriptive» policies are applied, technology
invention and adoption decisions are constrained by the
precise characteristics of the standard
in order to induce search for the optimal technology to meet a
given environmental objective governments should seek to
allow for more flexibility in their policy regimes when this can
be achieved at reasonable administrative cost
Environmental Policy Characteristics
(Jonhstone et al., 2010)
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FLEXIBILITY
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US - Clean Air Act Amendments (CAAA) of 1990 which sought to
reduce SO2 emissions by implementing a tradable permit system in
place of direct regulations
The industry is allocated a fixed number of total allowances, and the
firms are required to surrender one allowance for each ton of
sulphur dioxide emitted by their plants. Firms may transfer
allowances among facilities or to other firms, or bank them for use in
future years.
BEFORE CAAA: plants were required to use the best available
technology for pollution control, which was a scrubber. As a result,
while there were incentives for innovation that would lower the cost
of installing and operating scrubbers, there would be little incentives
for innovation to improve the efficiency of the scrubbers
AFTER CAAA: freedom to search for all possible technologies to
reduce SO2 emissions (see Burtraw, 2000).
Environmental Policy Characteristics
(Jonhstone et al., 2010)
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Environmental Policy Characteristics
(Jonhstone et al., 2010)
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Environmental Policy Characteristics
(Jonhstone et al., 2010)
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Environmental Policy Characteristics
(Jonhstone et al., 2010)
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Environmental Policy Characteristics
(Jonhstone et al., 2010)
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Environmental Policy Characteristics
(Jonhstone et al., 2010)
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