Drivers of environmental innovation - Vinnova

positive environmental effects although they are not explicitly targeted at
achieving environmental goals. Also, the broader range of transport,
agricultural, financial politics etc will be important. This study is, however,
restricted to environmental policy.
This chapter discusses the drivers of innovations without trying to estimate
whether the innovations will contribute to firm competitiveness or not.
Competitiveness is discussed in appendix 2.
3.1 There are limits to the price mechanism as a driving force
Price is an important, but insufficient, mechanism in governing the economic
efficiency as well as the environmental innovativeness of firms.
To the extent that prices reflect environmental costs, the price mechanism
should induce firms to optimise their behaviour and thereby reduce their
environmental impact. Historical data show that energy efficiency improves
more dramatically during times of economic crisis than during periods of
growth. These observations are consistent with the belief that high prices on
energy lead to a demand-pull model of technological change, triggering
structural change and innovations that can improve the efficiency of energy
use. However, in the course of studying energy investments Azar and
Dowlatabadi found that energy costs are only one factor influencing corporate
R&D efforts and technological development. To the extent that energy costs are
significant, efforts to improve existing technologies are often directed to
improve energy efficiency. But, if energy costs are low, then other
characteristics, for example performance, may play a more important role.
Technology clearly has the potential to improve energy efficiency, but energy
costs or efficiency standards have to prominently appear in economic activity
for technological change to deliver improved energy efficiency and reduced
energy intensity (Azar and Dowlatabadi, 1999).
For many energy users, energy is not a dominant cost factor. Industrial energy
users, except for raw materials processes, rarely have energy as a significant
component of their operating costs. In households, the costs of accumulating
and processing the appropriate information to optimise energy (or indeed any
resource) are too high. Simon 6 coined the term ”satisficing” to describe the
notion that, once a decision-maker satisfies the constraints that are faced, the
extra steps needed to refine this activity and achieve the optimum resource use
are rarely undertaken. The pattern of most energy investments is better
explained by satisfying constraints than by optimising investments in
technology and energy consumption (Azar and Dowlatabdi, 1999).
6 Simon HA., 1982, Models of bounded rationality, Cambridge, MA: MIT Press, 336 pp
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