Environmental Innovation in the Brazilian Industry Environmental Economics Group (GEMA – IE/UFRJ) Carlos Eduardo Frickmann Young (coord.) Vivian Mac-Knight Alexandre Oliveira

Introduction Objective: Examine the reasons for the adoption of environmental innovation and clean technologies within the Brazilian manufacturing sector. Main questions: What are the main determinants of the diffusion of environmentally related innovation? How regional factors affect this relationship? Is there any connection between the environmental behaviour of the firm and its propensity to innovate? How environmental public policies affect the diffusion of innovations?

Methodology Literature review on the adoption and diffusion of environmental/clean technologies in Brazil, highlighting the importance of environmental policy issues for that. Empirical analysis of the determinants of environmental innovation in the Brazilian manufacturing sector, based on new empirical evidence that has recently became available (PINTEC – research on the determinants of innovation, and PIA – annual industrial survey) including specific questions concerning: (a) diffusion of innovation for environmental reasons (b) the level of environmental protection investment

Environment and innovation Hypotheses for the different behaviour presented by the firms concerning environmental innovations (Lustosa and Young ): Innovative firms are those with higher R&D investment, higher level of qualified personnel, higher size and level of information. The adoption of environmentally friendly production techniques is not a priority, despite of the growing conscience and social pressure (Kemp e Soete, 1990). Firms with high level of competitiveness are more inclined to answer positively to environmental questions. External factors affect the decision to create and adopt environmental innovations. Institutionalisation of environmental issues, Macroeconomic stability, Development of the NSI, Competition in the markets where firms are inserted in.

Main findings PAEP/SEADE (1996) Highest degree of understanding environmental considerations as business opportunities was demonstrated by firms with global interests. Firms which modify the most their production processes for environmental reasons are the ones which invest the most in R&D. The strategy of environmental preservation as a way to induce innovation is much more present in companies which attribute higher importance to their own R&D department.

Results PAEP/SEADE (1996) Firms that are more concerned about their environmental action tend also to invest more in the adoption of innovations. The adoption of pro-environment action is becoming a competitive tool within external markets. Environmental policies are helping the economy to achieve more competitiveness. Seroa da Motta (2004) found similar results, but with a main difference. If the effect of the size of company is statistically controlled, there would be no evidence that export-oriented companies present a different pattern of environmental concern.

Issues of PAEP/SEADE (1996) Regional differences and how it would affect the diffusion of environmentally motivated innovations throughout the productive sector was not examined. BRICS are also characterized by strong regional differences and, possibly, of enforcing environmental policies. On the other hand, this leads to the question of clusters and local productive arrangements – how do they react to the environmental factor? The use of a national database, instead of a state-based database, could provide important insights for this.

BRICS Is there any connection between the level of investment in environmental protection and the innovation behaviour in Brazilian industrial firms? Hypothesis to be tested: innovative firms tend to invest relatively more in environmental protection. Is there any connection between environmental investment and export-oriented behaviour in Brazilian industrial firms? Hypothesis to be tested: export-oriented firms tend to invest relatively more in environmental protection. Is there any connection between the degree of potential pollutants emission in one sector and the innovation behaviour in Brazilian industrial firms? Hypothesis to be tested: firms in sectors that have more pollution potential have different innovative behaviour than those from more “clean” sectors.

BRICS Is there any connection between the degree of potential pollutants emission in one sector and the level of environmental protection investment in Brazilian industrial firms? Hypothesis to be tested: firms in sectors that have more pollution potential tend to invest more in environmental protection. Is there any connection between employment and the environmental innovation behaviour in Brazilian industrial firms? Hypothesis to be tested: “clean innovative” firms tend to employ more/less than the rest of the industry. Are the results above differentiated according to the regional distribution of the firms? Hypothesis to be tested: firms in states/regions with tighter environmental control are more likely to adopt environmental innovation/ invest more in environmental protection.

PIA Results Proportion of the investment in environmental control according to industrial characteristics, Brazil

PINTEC – Results: Innovative firms are green 0% 5% 10% 15% 20% 25% 0%10%20%30%40%50%60%70% R&D Investment Inovation in environmental management

PINTEC – Results:Size matters Figure 5. Innovation in environmental management and size of the firm, ,00% 5,00% 10,00% 15,00% 20,00% 25,00% 0,00%5,00%10,00%15,00%20,00%25,00% % of firms with employees with postgraduate degrees Innovation in environmental management

PINTEC – Results Size matters. Larger companies tend to present higher degree of environmentally related innovative behaviour than small companies. Question: larger firms tend to export more than smaller ones. What happens with the “size effect” if the export bias is controlled?

Preliminary Results Size: Inovation Behaviour Implementation of Environmental Management Advanced Techniques Reduction of HSE (Health, Safety and Environmental) impacts (Yes)HighMean Low/not significant Total

Preliminary Results Size: Implementation of Environmental Management Advanced Techniques Reduction of HSE (Health, Safety and Environmental) impacts (Yes)HighMean Low/not signific ant Total1,96%7,56%4,63%21,08% ,57%6,65%3,79%19,99% ,38%6,89%5,05%22,27% ,22%8,65%5,27%21,02% ,22%11,22%7,82%24,75% ,87%12,79%10,36%24,82% ,49%23,33%11,93%37,29%

PINTEC – Results: Region matters? Region matters, but not that much. Most of the innovative firms are in the richest states of the country. But in relative terms, “late comers” (such as Amazonas, Pernambuco, Bahia and Espírito Santo) may present higher degree of environmental innovative behaviour according to different parameters. What does it mean? It is possible that they reflect the fact that the new industries that are being established outside the more traditional present a more pro-environment behaviour. If true, this hypothesis would mean that the ongoing industrial decentralization process is creating the basis of “clean” local productive arrangements or even local “green” innovation systems.

Implementation of Environmental Management Advanced Techniques Reduction of HSE (Health, Safety and Environmental) impacts (Yes)HighMean Low/not significa nt Brazil1,96%8%4,63%21,08% Amazonas0,18%11%7,55%19,39% Pará1,43%8%1,79%24,42% Ceará0,30%4%6,24%23,06% Pernambuco3,51%7%3,59%17,92% Bahia1,44%8%6,46%18,39% Minas Gerais3,25%9%4,28%21,99% Espírito Santo2,76%6%5,12%25,35% Rio de Janeiro2,58%4%4,25%16,45% São Paulo1,46%7%3,71%20,68% Paraná2,87%11%5,68%20,02% Santa Catarina1,57%6%6,00%24,05% Rio Grande do Sul2,05%11%5,08%23,79% Goiás2,08%5%4,83%23,62%

BRICS Hypotheses can be tested in other countries!