Drivers of environmental innovation - Vinnova

4 Environmental policy instruments as drivers
In the previous chapter environmental policy was shown to be an important
driver of environmental innovations. This chapter reviews the environmental
policy instruments used and what is known about their effects on innovation.
These are drawn from neo-classical economics as well as from innovation
systems research. The text comprises both theoretical and empirical results.
The relationship between policy makers and industry is not a one way relation,
and policies can be seen as the result of a negotiated process. This contributes to
explaining why the dynamic effects of environmental policy instruments in
practise differ from the ideal instruments analysed in theory. One reason for
this may be that a political process in which legislators, industry and other
actors interact influences the real design of the instruments. Another reason is
that environmental policy instruments is but one of many determinants of
innovations. The impact of the policy instrument strongly depends on a wide
range of other factors, such as technological opportunities, market structure,
and appropriability opportunities (Hemmelskamp, 1997). Nevertheless there
are many studies on environmental policy taking an instrumental view, and
this will be the perspective in the following sections.
4.1 Types of policy instruments used
Some public interventions in the field of industrial environment have adopted a
command and control approach, through regulations and a market-based
approach that includes the use of economic instruments such as incentive taxes
and tradable permits. A third option has emerged during the last years which is
based on co-operation with firms and incorporates new criteria such as
prevention and polluters-pays-principle and new instruments such as
voluntary agreements (Aggeri, 1999). Three principal categories of
environmental policy instruments can be discerned 7 :
Regulatory instruments can be described as institutional measures aimed at
directly influencing the environmental performance of firms by establishment
and enforcement of laws and regulations. These laws and regulations proscribe
objectives, standards, and technologies that polluters must comply with. Their
main feature is that the choice is left to the polluter to comply with, or to face
penalties through judicial and administrative procedures.
7 Based on similar typologies presented in OECD, Applying Economic Instruments to Evironmental
Policies in OECD and Dynamic Non-member Economies and Kemp, 1998.
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