Drivers of environmental innovation - Vinnova

marginal cost of abatement is lower than the charge rate, and prefer paying the
charge when the marginal costs of reducing more emissions are higher than the
charge rate. In this way, economic instruments always offer incentives for
environmentally adapted behaviour because of the possibility of both
abatement cost and charge payment savings. This creates a constant demand for
innovation. Firms, however, are not always responsive to price signals. The
price incentive must be sufficiently high to induce firms to develop and
implement new technologies (Kemp, Forthcoming).
From the policy makers viewpoint economic instruments also have advantages.
They are easily introduced and therefore engender lower decisional costs
(Kemp, Forthcoming). Once introduced, they can also easily be modified.
Economic instruments are also revenue raising for the government.
Disadvantages are the uncertainty of how the polluters respond and the total
costs (abatement costs and tax payments), which are likely to be high. Tradable
pollution quotas do not suffer from the latter disadvantage. There are also
problems with international competitiveness (Kemp, Forthcoming).
The overall theoretical conclusion is that economic instruments like levies are
more likely to prompt innovations than juridical measures such as
requirements. Juridical measures favour end-of-pipe technology innovations,
whereas economic instruments mostly prompt innovation in the field of
integrated technologies (Hemmelskamp, 1997; Kemp, Forthcoming).
However, economic instruments or regulations are better suited than voluntary
agreements to stimulating the diffusion of end-of-pipe technologies, but less
suited than voluntary agreements to stimulating integrated innovations.
Diffusion of end-of-pipe technologies does not require co-ordination of firms as
much as strong individual incentives and/or sanctions. In line with this there is
an extensive use of economic instruments and regulations in process sectors,
like in energy efficiency, plant emissions, waste incineration plants etc (Aggeri,
1999).
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