Drivers of environmental innovation - Vinnova

oth in the regulated industry and outside with, for example, suppliers. Often
firms outside the regulated industry develop the innovations (Kemp,
Forthcoming).
Product regulations tend to call forth product innovation, whereas component
or pollutant regulations elicit process regulations. Process regulations can
stimulate process as well as product innovation (Ashford et al, 1985). Standards
can stimulate innovation to reduce energy consumption (Hemmelskamp,
Forthcoming).
A distinction in the regulating pressure placed upon the firms can be made
between Permit Based Regulation (PBR) and Incident Based Regulation (IBR).
PBR firms are those that release certain amounts of regulated substances and
have to seek permission from environmental regulators before releasing
polluting media to the atmosphere, land or water. IBR firms are the majority of
firms and they have very limited interaction with environmental regulators.
They will only come in contact with the regulators if an environmental problem
has been traced back to the firm in question. A British study showed that IBR
firms lag behind PBR firms in all of the key motivators to environmental
innovation. PBR firms are likely to be stimulated by both external and internal
motivations, whereas IBR firms are more likely to be prompted by external
factors alone such as legislation which do not significantly affect them.
Generally the PBR firms surveyed could see more benefits from making
environmental improvements than IBR firms could (Connell and Flynn, 1999).
Theoretical observations associate several disadvantages with regulation.
Mostly it is pointed out that requirements constitute the most expensive option
for society, since all polluters are treated on an equal basis, irrespective of their
individual avoidance costs. Thus emissions below the fixed level do not result
in costs for the emitter, and consequently the emitter is no longer interested in
the more far-reaching emission-reducing measures. Tightening of the standards
makes steady development possible (Hemmelskamp, 1997).
There are other disadvantages. Inefficiencies arise out of the varying costs of
individual firms and from increasing marginal costs of avoidance. Lock-in
effects may also be a result, if new production installations are subject to lower
limiting values or to new technology standards adjusted to the current level of
development that may also entail increased costs. This will decrease firms'
incentives to invest in new equipment. Updating state-of-the-art technology
lists is a lengthy procedure and there is a risk of the lists lagging behind new
technology developments (Hemmelskamp, 1997).
On the other hand, there are also theoretical advantages. As long as there is
adequate monitoring and enforcement, regulatory instruments provide
certainty of the policy outcome. This is necessary in case of toxic pollutants,
which should be banned or rigorously controlled. Another advantage is that the
authorities have longstanding experiences of this approach (OECD, 1994).
31