Environmental Policy’s Impact on Innovation Behaviour of Businesses

A current study carried out by the Centre for European Economic Research (ZEW) in Mannheim contradicts with the view, that it is, above all, government regulations that contribute to environmental protection. In fact, the study shows that the innovation impact resulting from the implementation of economic instruments – e.g. environmental taxes – and regulatory instruments – e.g. environmental standards – strongly depends on the conditions in the respective sectors. Depending on the economic sector, the very same instrument may produce different effects. The type of innovation is likewise a determining factor. According to the ZEW study, eco-innovations are innovations that are aimed at the prevention and reduction of pollution caused by anthropogenic activity, while at the same time they also contribute to remedy such damage already done and facilitate the diagnosis and control of environmental pressure.

According to the ZEW study, economic instruments apparently have a stimulating effect, particularly on innovations aimed at the development of environmentally compatible products, while on the contrary, the implementation or tightening of regulatory instruments turn out to have rather inhibitory effects.  So far, neither economic nor regulatory instruments have had an impact on the efficiency of innovation activities aimed at the reduction of the quantity of materials used and the improvement of working conditions in companies. Furthermore, the ZEW study reveals that eco-innovations are of great importance particularly in small and large companies. In mid-sized companies, however, such innovations are of minor importance. One reason for the major role of eco-innovations in large companies is the fact that these companies are to a greater extent subject to close public scrutiny as well as to strict control by state environmental authorities.

In the past years, the intervention of environmental policy regulations into economic activity has become increasingly important. As a result, policy-makers will have to face the challenge of a growing linkage between environmental policy, international competition strategies and the promotion of innovation. These coherences have so far been neglected in the scientific discussion. Further investigation on the topic will continue at ZEW.  New results are due in the coming months.

Contact

Katrin Voss, E-mail: voss@zew.de