Drivers of environmental innovation - Vinnova

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Table 3 Summary of innovation effects of economic instruments Effects on innovations Theoretical pros & cons + cost-effective + large freedom of firms to choose strategy + continuous incentive + easy to introduce and modify + give revenue to government - affect international competition - uncertainty of outcome - firms may be unresponsive to the cost - too weak co-ordination of firms Recommendations Taxes Effluent levies have been charged in Germany since 1981, and were complemented in 1990 by a state-of-the-art technology based standard regulation. The mere announcement of the levy laws initiated responses by firms. Compliance problems were related to difficulties in obtaining information and uncertainty about the costs for small and medium sized firms. Some firms changed their product range or externalised areas of production. The combination of levies and standards has been criticised by several researchers, claiming that taking into account state-of-the-art technology mitigates the effects of the levy (Hemmelskamp, 1997). Environmental taxes can stimulate a reduction in the environmental impact arising from the production and development of environmentally friendly products, whereas standards would have no or a negative impact, according to a German study. Standards, on the other hand are shown to stimulate innovation to reduce energy consumption. Taxes hamper such innovations. These results should be interpreted with caution as the experience of environmental taxes in Germany in 1991 was very limited, and the results may, 36
according to Hemmelskamp (Forthcoming), reflect the lively debate on environmental taxes at the time. The results seem to show that economic instruments have advantages in the case of environmental product innovations, but that there are no general advantages of one type of instrument over another related to environmental process innovations (Hemmelskamp, Forthcoming). A common criticism against environmental taxation is that countries, which unilaterally adopt such policy measures, lose competitiveness. Carraro and Galeotti have reviewed studies that provide additional critical remarks. On the grounds of efficiency, emission permits have been shown to improve on emission charges when the inter-temporal decisions of agents, particularly on innovation, cannot be neglected. Moreover, when more than one externality has to be accounted for, environmental taxation must be combined with other policy instruments to achieve the social optimum. Information asymmetries (such as in non-point source pollution problems) invite policy interventions that are far more complex than environmental taxation (Carraro and Galeotti, 1997). A tax and its related revenue can be directed to foster technological innovation, but Carraro and Galeotti point to some recent analysis that shows that environmental taxes or emission permits are likely to be sub-optimal instruments for achieving an adequate level of technological innovation. Studies have shown that, in a dynamic framework, taxes or permits can lead to the over investment in environmental innovation (Carraro and Galeotti, 1997). Charges Charges stimulate voluntary and individual adaptations in order to prevent or reduce environmental impacts. Quite simply, the bigger the cost advantage of innovating as compared to paying the charges the greater the incentive to innovate. The political process of fixing the rate of the charges is, however, difficult. Finding the most effective level presupposes information on the marginal avoidance costs of all polluters, information that in real life does not exist. Rather trial-and-error methods are used, and this hampers efficiency (Hemmelskamp, 1997). Tradable permits The term tradable permits refers to deliberately created markets where actors buy and sell “rights” or permits for actual or potential pollution. There are two basic models on how to construct a system of tradable permits/reductions: the cap and trade model and the baseline and credit model. The cap and trade model defines a total ceiling of pollution from polluters included withn a system. The total amount of pollution in the pollution cap is divided between the polluters. The shares allocated to the polluters could be given out free of charge or be auctioned off. At the end of the period that is to 37
Page 1 and 2: Drivers of environmental innovation
Page 3 and 4: Drivers of environmental innovation
Page 5 and 6: Preface Innovations such as new pro
Page 7 and 8: Sammanfattning Denna rapport är en
Page 9 and 10: Övergången mot ett mer marknadsdr
Page 11 and 12: Summary This study aims to provide
Page 13 and 14: 1 Introduction ”7KH# RQO\# SDWK#
Page 15 and 16: But there are also problems with a
Page 17 and 18: 2 Environmental innovations in firm
Page 19 and 20: ”sustainable development is a key
Page 21 and 22: was in general no larger change in
Page 23 and 24: positive environmental effects alth
Page 25 and 26: That location also plays an importa
Page 27 and 28: adapted, with the latter indicating
Page 29 and 30: 4 Environmental policy instruments
Page 31 and 32: oth in the regulated industry and o
Page 33 and 34: Table 1 Summary of innovation effec
Page 35: marginal cost of abatement is lower
Page 39 and 40: The Dutch studies looked for the pr
Page 41 and 42: Kemp claims that the effectiveness
Page 43 and 44: Table 5 Summary of innovation effec
Page 45 and 46: There is clearly a need for more em
Page 47 and 48: conditions. These perspectives are
Page 49 and 50: This study shows that the way envir
Page 51 and 52: Hemmelskamp, J. (Forthcoming) “En
Page 54 and 55: Appendix 1 Theoretical approaches t
Page 56: and their interaction. It opens up
Page 59 and 60: efficiency nor on optimising within
Page 61 and 62: on the theory of terms of trade. A
Page 63 and 64: egulation may lead to increases in
Page 65 and 66: average productivity increases. Thi
Page 68: VINNOVA, SE-101 58 Stockholm, Swede

Drivers of environmental innovation - Vinnova

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