Eco-innovation Francesco Nicolli

Definition “Eco-innovation is the production, application or exploitation of a good, service, production process, organizational structure, or management or business method that is novel to the firm or user and which results, throughout its life cycle, in a reduction of environmental risk, pollution and the negative impacts of resource use (including energy use) compared to relevant alternatives” (Kemp and Pearson, 2008)

Three foundamental points it is based on a subjective view of innovation (i.e. the innovation has to be new for the firm), it only considers implemented innovations (rather than activities targeted at reducing environmental impacts) it relates environmental impacts to the state of the art.

Differences with respect to stanard definitions it deviates somewhat from the traditional economic notion of innovation introduced by Schumpeter (1934) which typically regards an innovation as the first introduction of a new product, process, service or organizational structure into the market. It means speaking about: Creation Adoption Do you know the differences among these concepts?

This definition emphasizes results (as opposed to motivation) According to this definition it does not matter if environmental improvements have been the primary goal of a new product or process, or came about as a by-product or simply by chance. Eco-innovations can thus be the result of other economic rationales such as increasing market share or reducing costs.

Two types of eco-innovation End-of-pipe technologies Cleaner production (complex innovation activity with more than one aim)

Comunity innovation survey See attached questionnaire

Determinants Fonte: J. Horbach et al. / Ecological Economics 78 (2012) 112–122

DETERMINANTI: Regulation With regulation we mean here all these environmental policies which influence product of process, like: Taxes Standards Trading schemes Subsidies

Feed-in Tariff (specific for renewables) Instrument Brief explanation Investment incentives Capital Grants and all other measures aimed at reducing the capital cost of adopting new technologies. Tax Measure Economic instruments used either to encourage production or discourage consumption. They may have the form of investment tax credit or property tax exemptions, in order to reduce tax payments for project owner. Incentive tariff Price systems that guarantee above market tariff rates. In such cases, the Environmental authority generally sets a premium price to be paid for power generated from renewables. Feed-in Tariff (specific for renewables) Guaranteed price that may vary by technology. (Wind, Solar, Ocean, Geothermal, Biomass, Waste, Hydro). Voluntary program These programs generally operate through agreement between government, public utilities, service suppliers, and all other stakeholders that agree to adopt green solutions.

Public Research and Development Obligations (for renewable and energy) Obligation and targets take generally the form of quota systems that place an obligation on producers to provide a share of their energy supply from renewable energy. These quota are not necessarily covered by a tradable certificate. Tradable Certificate Renewable energy Certificates (REC) are used to track or document compliance with quota system and can generally be traded in specific markets. Public Research and Development Public financed R&D program disaggregated by type of technology Production standard or process standard Established the first shared framework for the promotion of electricity from renewable sources at European level.

Static effect of Env policies Until twenty years ago, the economic discipline was dominate by the idea that being the firms profit maximising, any attempt conducted by environmental regulation in abating pollution, would necessarily traduce in an increase of internal costs for the compliant firm. In this framework of analysis in fact, if there were profitable opportunities of reducing pollution, an optimizing firm would certainly already have adopted it. Moreover, many theoretical studies during the 1970s give support to the idea that a country comparative advantage could have been affected in a negative manner by a stringent environmental regulation.

Static effect of Env policies - 2 For instance, the works of Pethig (1975), Siebert (1977) and McGuire (1982), stress as environmental Policies increasing firms’ internal costs affect countries competitiveness, decreasing exports, increasing imports, and lowering the general country’s capacity to compete in an international market. Moreover, in the long-run, if the production factors are free to move across countries, a more stringent environmental regulation can produce movement of the manufacturing capacity from more regulated countries to less regulated ones (which are often called “Pollution Haven” in modern environmental and trade studies).

Porter Hyphotesis First, regulation signals companies about likely resource inefficiencies and potential technological improvements second, regulation focused on information gathering can achieve major benefits by raising corporate awareness third, regulation reduces the uncertainty in environmental pollution activities fourth, regulation, posing pressure on firm cost function motivates costs saving innovations fifth regulation makes free riding behaviour in the transition phase through an innovation based equilibrium more difficult

Porter Narrow Porter Hypothesis = is based on the idea that only certain types of environmental regulations, such as market-based (flexible) environmental regulations (e.g. tradable permits), can foster competitiveness. Policy design matter, standards are for instance less efficient than market-based instruments (taxes) in promoting innovation. Weak Porter Hypothesis = environmental regulations (of any kind) can foster innovations, with no a priori expectation about the net effect on competitiveness and productivity. Strong Porter Hypothesis = environmental regulations, either market-based or standard-based, can lead to improved competitiveness and productivity through innovation induced by the regulation, allowing as a consequence, to more than offset compliance costs.

Double externality problem Output of R&D suffer of the known issue of appropriability Negative environmental externality Un policy mix deve tenere conto di entrambi gli aspetti

Market factors Being environmentla protection a normal good, its demand increases with income positive demand shock are expected to stimulate innovation due to higher expected returns from research investments Income and Market size matter (e.g. renewables)

DETERMINANTI: Fattori Technology Push e Fattori Firm Specific Absorptive capacity (a firm's ability to recognize the value of new information, assimilate it, and apply it to commercial ends – Cohen & levintal, 1990) Complementarity among environemntal innovation and organisational innovation