Regulação e inovação, 2000

8/2/2019 Regulao e inovao, 2000

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The European Commission JRC-IPTS and Enterprise DG

The impact of EU regulationon innovation of European Industry

How should we study therelationship between environmental

regulation and innovation?

By

Ren Kemp

Keith Smith

Gerhard Becher

May 2000

EUR 19827 EN


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Contact details:

Eur opean Com m ission DG JRCInstitute for Prospective Technological Studies (IPTS)Technologies for a Sustainable Development Unit (TSD)

Per Srup , Head o f Un i tLu is Delgado, Head of Secto rW.T.C. Isla de la CartujaE-41092 Sevilla

Tel. +34-95 44 88 405Fax. +34-95 44 88 339

Ren Kemp is senior research fellow of the Maastricht Research Institute on Innovation and

Technology (MERIT) of Maastricht University, the Netherlands (P.O. Box 616, NL-6200 MDMaastricht, [email protected], Tel +31 43 3883864).

Keith Smith is Director of the STEP Group (Group for studies in technology, innovation and

economic policy) in Oslo, Norway, (Storgaten 1, N-0155 Oslo, [email protected] , Tel

+47 22 477317) and Professor at the Norwegian University of Science and Technology.

Gerhard Becher is senior consultant and vice-president of PROGNOS, Basel, Switzerland.

The views expressed in this study do not necessarily reflect those ofthe European Commission (EC).


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iii

EXECUTIVE SUMMARY

This report offers a conceptual framework and empirical guidelines for understandingthe relationship between environmental regulation and innovation. The basic aim is to

widen the concepts of innovation which are used in environment-oriented studies,

while at the same time challenging the idea that regulation is either a straightforward

promoter or inhibitor of innovation. We propose a 'systems' approach, which

emphasises the collective and interactive character of innovation, as an appropriate

entry point for analysing the complex institutional, social and networking aspects of

the sources and impacts of regulation. At the same time we see regulation as a

complex process, and we emphasize the importance not just of regulatory rules but of

the policy styles which shape compliance cultures and implementation processes, and

therefore modify the real impacts of regulation. Taken together, these points lead us to

challenge what we call the stimulus-response model of the impacts of regulation on

innovation. That is, we contest the view that regulation either stops or starts

innovation in any simple way. Rather, we take the view that regulation shapes or

modulates innovation across networks of firms, and across groups of related

industries.

This view has significance not only for how we should conceptualise the link between

regulation, innovation and competitiveness but also for how we should study this link

in practice: what concepts, sources, indicators, empirical methods, and so on are

appropriate? Much of this report is oriented towards practical methods for the study of

regulatory impacts across different types of activities and industries within the

economy.

One important conclusion of the report is that innovation should not be seen as an

homogenous output, but rather as part of a multi-level process of change in

organisation, knowledge, beliefs and linkages among interdependent actors and

sectors. Innovation as an output is much broader than new products and it is often the

other aspects of innovation that matter foremost from the perspective of

competitiveness. Innovation is about novelty, about doing something qualitatively


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new or different. An important question is therefore how regulation affects the

incentives and ability to change: does it act as a constraint, does it accelerate or delay

certain developments (like the restructuring of companies, a sector or a cluster) and in

what ways does it cause a company to do something new?

Like innovation, regulation is not a simple, definable product. Regulations themselves

often lay down complex rules and incentives systems in terms of actual requirements

(e.g. in terms of authorisation procedures, emission limit values, times at which

compliance is due), long term targets, enforcement practices, and so on. There is

usually a difference between what is required by law and the real conditions of

compliance, which depend on the discretionary powers of the implementing agency;

this permits negotiations with industry. To understand the technological and economic

impact of regulations one must pay attention to the organisations responsible for the

implementation of regulation, to the relationship between government and industry,

and to their regulatory styles (confrontational, collaborative, etc). How do these styles

affect technology choices, for example: do they favour incremental change with

limited environmental benefit or force industry to invest in more radical options?

There is an assumption current in business and policy circles that regulation leads to

reduced competitiveness by hindering innovation. An alternative view, expressed for

example by Michael Porter, holds that well-crafted regulation stimulates innovation

and competitiveness. We argue that both views are too simple. The link between

competitiveness and innovation output is indirect and complex; competitiveness

depends very much on industry conditions and on general frame conditions including

cultural traits like trust, entrepreneurship and social relationships determinants of

innovation that act separately from regulations, or as a mediating force. From acompetitiveness point of view the focus of regulation impact studies should be on the

determinants of innovation and the overall changes throughout a value chain that

occur under different regulatory policies.

This suggests that single companies may not be an appropriate entry point for

regulatory impact studies. Attention should be given to the value chain of which

regulated companies are part and to technological linkages: to how product


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innovations are linked with process innovations, types of equipment, routines and

practices within a filire or innovation chain.

Seeing environmental innovation as part of a complex social process raises quite basic

problems for empirical research. Conventional innovation output indicators and

indicators of competitiveness are not good for assessing the efficiency of the

productive system in a broader sense. Such indicators may be used for assessing the

competitiveness of a sector in the short term. To assess the long term competitiveness

of a sector or the economy as a whole a broader range of indicators is necessary. We

argue these should incorporate elements of what the French call le systme socio-

productive (socioproductive system): the infrastructures of tangible and intangible

resources and the social relationships between economic and social players, not just

companies but also establishments providing training and further training, research

institutions, government and societal groups. Our view here is that studies may be

able to generate data which is relevant to overall European competitiveness vis--vis

the Triad, for example, but that these indicators are likely to be non-standard and ad

hoc, and must be treated (and labelled) with considerable caution.

The effects of regulation are variegated and occur at many points of the economy.

Two important impact sectors besides the subject sector are the equipment/capital

goods industry and the waste management sector. And besides the direct, immediate

effects there are indirect (knock on) effects. Examples of indirect, more long run

effects are:

creation of first-mover advantages for pollution control technologies and

environmentally improved products induced by environmental regulation;

restructuring of a sector through take-overs or the fossilisation of existing

structures through the creation of entry barriers;

development of new competences and linkages with other actors that may

constitute a source of competitive advantage and environmental protection in the

future.

relocation of industry activities to countries with less strict environmental laws


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It is the indirect, long-term effects that are most important. For that reason, impact

studies should pay attention to them and should seek to go beyond an assessment of

direct, immediate effects.

Innovation occurs within wider systems of innovation, of which regulation is a part.

Environmental regulation does not stop or start innovation in a simple way, it

influences innovation by changing the incentives and rule system for innovation. The

incentives are both economic (having to do with payoffs) and informational.

Environmental regulation translates the general, quite diffuse demand for

environmental protection into specific policies that lay down specific requirements

that give guidance to polluters and suppliers of environmental technologies in terms

of what is actually required. Regulations thus have an informational content, besides a

normative content.

One important way in which (environmental) regulation influences innovation is by

changing the level and nature of competition. When analysing the impact of

regulation one should look at competitive pressures that are operating on companies

and competition between different environmental technology options. All of this leads

to a view of regulation acting as a modulator of technical change, changing

directions and modes of innovation rather than just stopping or starting it.

The above insights are translated into a set of 14 guidelines for analysing the impact

of environmental regulation on innovation and competitiveness. These are given at the

end of the report; an overview of examples of environmental regulations and their

impacts are given in an appendix.


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ACKNOWLEDGEMENT

We wish to thank Fabio Leone and Jens Hemmelskamp of IPTS for their help andsupport throughout this project. We especially grateful to Jens for his comments

offered on an earlier version of the work, which helped us to substantially improve thereport. We also wish to thank Thor Egil Braadland, Simone de Jong and John Adeotifor their help with preparing the report.


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TABLE OF CONTENTS

EXECUTIVE SUMMARY ........................................................................................................... III

ACKNOWLEDGEMENT ...........................................................................................................VII

We wish to thank Fabio Leone and Jens Hemmelskamp of IPTS for their help and

support throughout this project. We especially grateful to Jens for his comments offered

on an earlier version of the work, which helped us to substantially improve the report.

We also wish to thank Thor Egil Braadland, Simone de Jong and John Adeoti for their

help with preparing the report. ...........................................................................................VII

TABLE OF CONTENTS ...............................................................................................................II

LIST OF TABLES, FIGURES AND BOXES................................................................................. III

1. INTRODUCTION .....................................................................................................................1

2. DEFINITIONS AND CHARACTERISTICS OF INNOVATION .....................................................1

2.1 A systems approach to innovation .............................................................................3

2.2 The production chain: or, the innovating filire .......................................................5

3. THE ENVIRONMENT POLICY FRAMEWORK: CONCEPTS AND ISSUES ................................. 9

3.1 Definitions of regulation and operational issues ...................................................... 9

3.2 Policy networks ....................................................................................................... 12

3.3 Environmental policy instruments ...........................................................................12

3.4 Governance models ................................................................................................. 14

3.5 Environmental policy principles..............................................................................15

4. PREVIOUS FINDINGS FROM TECHNOLOGY IMPACT STUDIES OF ENVIRONMENTAL

REGULATION ...........................................................................................................................16

5. BRINGING ENVIRONMENTAL REGULATION AND INNOVATION TOGETHER: ANALYTICAL

ISSUES ......................................................................................................................................24

5.1 Environmental innovation .......................................................................................25

5.2 Regulation as modulator of innovation ...................................................................37

6. INNOVATION INDICATORS AND MEASUREMENT ...............................................................39

7. REVIEW OF EXISTING INDICATORS OF ENVIRONMENTAL INNOVATION ......................... 43

7.1 Traditional indicators..............................................................................................43

7.2 Survey indicators of environmental innovation....................................................... 45

7.3 Literature-based environmental innovation surveys ............................................... 47

7.4 Sector or technology specific environmental innovation surveys............................49

7.5 Implications for environmental innovation indicators...............................................49

7.6 Areas where environmental indicators are needed ................................................. 50

8. DETERMINANTS OF ENVIRONMENTAL INNOVATION ........................................................539. COMPETITIVENESS .............................................................................................................58


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10. RESEARCH GUIDELINES ................................................................................................... 60

APPENDIX I..............................................................................................................................65

APPENDIX II ............................................................................................................................66

APPENDIX III ..........................................................................................................................67

APPENDIX IV........................................................................................................................... 68OVERVIEW OF TECHNOLOGY RESPONSES TO ENVIRONMENTAL POLICIES......................... 68

APPENDIX V ............................................................................................................................71

REFERENCES...........................................................................................................................72

LIST OF TABLES, FIGURES AND BOXES

Figure 1: The production chain ........................................................................................... 7

Figure 2. The building chain and the regulatory framework that governs it....................... 8

Table 1: Typology of regulations pertaining to business .................................................. 10

Table 2: Overview of traditional environmental policies..................................................13

Box 1: Eco-design for electric household appliances by Bosch-Siemens-Hausgerte

(BSHG)......................................................................................................................28

Figure 3: Waste reduction management............................................................................29

Figure 4. Strategic responses to green pressures and the implications for RTD and

innovation..................................................................................................................33

Box 2: Eco-design as part of an overall environmental strategy by Philips ..................... 34

Table 3. Environmental innovation indicators included in the family of innovation

surveys based on the Oslo Manual ............................................................................45

Table 4. Summary of questions in the environmental innovation survey by Green et al . 46


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1. INTRODUCTION

This report offers a conceptual framework and empirical guidelines for understandingthe relationship between environmental regulation and innovation. The basic aim is to

widen the concepts of innovation which are used in environment-oriented studies,

while at the same time challenging the idea that regulation is either a straightforward

promoter or inhibitor of innovation. We use a 'systems' approach, one which

emphasises the collective and interactive character of innovation, as an appropriate

entry point for analysing the complex institutional, social and networking aspects of

the sources and impacts of regulation. We seek to challenge the stimulus-response

model of the impacts of regulation on innovation. That is, we contest the view that

regulation either stops or starts innovation in any simple way. Rather, we take the

view that regulation shapes or modulates innovation across networks of firms, and

across groups of related industries. A productive way to think about the shaping of

innovation is that firms innovate as a method of removing constraints. These may be

constraints on the size or geographical location of the markets they face, or constraints

in labour supply, or finance, and so on. A significant constraint is the regulatory

environment, which does not necessarily hinder innovation, but rather says that if

firms are to innovate then they must do so with respect to certain performance

parameters.

2. DEFINITIONS AND CHARACTERISTICS OF INNOVATION

There are different meanings to the term innovation. According to Freeman (1982),

innovation is the introduction of a new product, process, system or deviceto be

distinguished from invention which is a new idea, a sketch, or model for a new or

improved device, product, process or system. Innovation, in the sense in which

Freeman uses the concept, is the elaboration of a new technical principle. Freemans

definition of innovation basically is about technical innovation. Apart from technical

innovations there are also organisational innovations: changes in organisational set

ups, policies, tasks, procedures and responsibilities. Organisational innovations

consist of new or different working routines, administrative procedures, intra-


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organisational relationships (like teams), management practices and relationships with

stakeholders. In this study we adopt a broad definition of innovation. Innovation is

taken to include both technical innovations (which include service innovations such as

new banking services) and organisational innovations. The act of adopting a new

product, process, system, device and a change in organisational practices is thus

viewed as an innovation.

The reason for including organisational innovations in our definition of innovation is

that they constitute an important type of innovation: as a general rule, the gains from

advanced technology depend upon the adoption of appropriate organisational

structures and the formation of new skills. Without the alignment of the organisation

to the new technologies the gains from new technologies will be limited or even

negative. Changes in organisational systems may also be needed to take stock of new

technological possibilities, and to design policies to develop, adopt and use new and

better technologies. Organisational innovations are an important source of

productivity improvements, and this is the reason why it is important to include these

in a study on regulation, innovation and competitiveness.

Innovation implies novelty. However, there can be many degrees of novelty, ranging

from relatively incremental improvements to existing products or methods, to

radically new techniques that imply very substantial changes in activities and outputs.

So the fact that there is a broad spectrum of potential change must always be borne in

mind. In addition, things can be new for different types of actors. An innovative

product, for example, can be new for a particular firm (though not new for other

firms), it can be new at the level of an industry or production network, it can be new

for a country, or wholly new for the world. These distinctions are important inunderstanding regulatory effects, since the likelihood, the time-scale and the adoption

of an innovation will often depend on the ambition level of the regulation.

Within the literature on innovation there is a strong distinction between work

focussing on sources of innovation and the characteristics of innovation processes, on

the one hand, and effects and impacts of innovation on the other. One problem in

analysing environmental effects is that it is necessary to bring these two dimensions ofinnovation together.


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In analysing sources of innovation, there are again two types of approaches: first,

those which take as their starting point the individual innovator, and second those

which emphasise the economic, institutional and social system within which

innovation occurs. In the first type of approach there is often a tacit assumption that

firms innovate mainly on the basis of technological opportunity - that is, that the rate

of innovation is governed by the scope of available technological opportunity, and

that the direction of innovation is explained by whatever it is (almost always

unexplained) which generates these opportunities. From this perspective, regulation is

something which limits the ability to exploit the available technological opportunities,

and is therefore something whose effects are mainly to slow down innovation. This of

course leaves a major gap in our understanding, since from a regulatory point of viewit is determinants rather than rates of innovation which are at stake.

2.1 A systems approach to innovation

Systems approaches to innovation are founded on one of the most persistent themes

in modern innovation studies, namely the idea that innovation by firms cannot be

understood purely in terms of independent decision-making at the level of the firm.

Rather, innovation involves complex interactions between a firm and its environment,

with the environment being seen on two different levels. On one level there are

interactions between firms - between a firm and its network of customers and

suppliers, particularly where this involves sustained interaction between users and

producers of technology. Here the argument is that inter-firm linkages are far more

than arms-length market relationships - rather, they often involve sustained quasi-

cooperative relationships which shape learning and technology creation: "The

coordination of an innovative endeavour almost always requires a network of

independent organizations with different competencies. The exception - internal

networks of multi-unit diversified firms - confirms the rule. Networking not only has

become but has always been a requirement for innovation."(de Bresson, 1999).

The second level is wider, involving broader factors shaping the behaviour of firms:

the social and perhaps cultural context, the institutional and organizational


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framework, infrastructures, the processes which create and distribute scientific

knowledge, and so on. This wider framework includes:

the overall economic situation and development, such as the state of the economy,

price stability, the development of exchange rates or the situation in the financial

and labour markets,

the availability of an efficient and complete tangible and intangible infrastructure,

regulations contained in collective agreements and labour law,

political determinants such as macroeconomic policy, financial policy or the vast

sphere of regulations, for instance in the area of consumer protection, general

health and safety, insurance, in banking and the transport sector, in the energy

industry or in the field of environmental regulation,

influences emanating from society and impacting the economic players, such as

social stability and cohesion, a society's openness for technological innovations

and for economic growth in general, consumer attitudes, social willingness to

endure negative environmental impacts, or to bear risk, and so on.

These framework conditions are often seen as specific to regional or national contexts,

but they are also dynamic: their forms of operation change with political conditions,

changing technological opportunities, economic integration processes and so on. The

basic argument of systems theories is that system conditions have a decisive impact

on the extent to which firms can make innovation decisions, and on the modes of

innovation which are undertaken.

What the above suggests is that we are not simply concerned with individual firms, or

individual isolated decision-making. Innovation is a multi-faceted phenomenon,

characterised above all by complexity in interactions between people and institutions.

On one level it involves new thinking, new ideas and solutions to problems, and so itcan be seen in terms of creativity and intellectual effort. On another, it involves

marshalling financial and material resources, often on a large scale, and in conditions

on serious uncertainty. But neither of these dimensions of innovation can realistically

be seen in terms of purely individual effort, either by people or by organizations.

Rather, innovation is a distributed process its inputs in terms of knowledge and

resources are distributed among many participants and contributors, linked to each

other in networks of relationships. Moreover it is a dynamic process, one which


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involves learning and change within the social and economic spheres. An important

challenge in environmental analysis is to give these ideas an empirical basis.

2.2 The production chain: or, the innovating filire

Can we translate these insights into something which is more operational with respect

to regulation? One approach might be as follows - it is represented schematically in

the following diagram. In thinking about the impact of regulation on a 'subject

industry' (meaning an activity with which we are primarily concerned, which may not

correspond to a statistically defined industry), attention has usually focussed either on

the production process of the industry, or on the technical characteristics of its end

product. Clearly, either can be affected by some specific regulatory initiative. But we

must bear in mind that there is also a range of inputs deriving from other firms across

other industries; this input range may be very extensive. At the same time, the output

of the subject industry may be sold to a wide range of other industries, and/or to final

consumers; in this case, the subject industry must respond to demand conditions

which affect product characteristics, social acceptability, cost limits, and so on. Most

of these linkages are not 'arms-length' market relationships, but rather are persistent

co-operative relationships. Either way, the knowledge required for producing theoutput of the subject industry is distributed across many input sectors, and may be

shaped by many user sectors. This implies two things. Firstly, the impulses to

innovation may stem from any point in this overall system of demand and supply.

Second, the innovative response to regulatory change may be something that must or

should occur in an industrial sector possibly far removed from the 'subject industry'.

From an empirical point of view the problem is to gain some descriptive overview ofthe overall process. From a conceptual point of view, the diagram presented below

corresponds to sectors of production and use in an input-output table, but it is unlikely

that input-output data will be available at appropriate levels of aggregation for the

study of environmental regulation impacts. So what is necessary is some more

descriptive method of looking at the direct and indirect knowledge inputs to

production, and the research activities and opportunities for achieving environmental

improvements at different points of the production chain.


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The approach outlined here is similar to that of Robert Boyer and his colleagues. This

is a systems approach based on the concept of filire. A filire is made up by a

specific set of infrastructures, technologies, institutions, practices and actors. Behind

the notion of a filire is the idea that technologies are best understood not as individual

techniques, but as integrated systems. This view of the technology of a firm implies

strong interdependence, because relevant technological knowledges are located in

different firms, with interactions between firms in terms of technological capability.

That is, the capabilities of any individual firm are shaped in part by its historical

experience and its dynamic development of competence, but also by accompanying

developments in related firms. The development of specialisation, accompanied by

inter- and intra-industry flows of technology, implies that we should think of the

technological structure of an economy not as an agglomeration of independent micro-

level decisions, but as an integrated system shaped partly by the input-output relations

between firms, and partly by intra-firm specialisation of tasks.


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Figure 1: The production chain

It is clear that a full description of these linkages would be a very major task. But it is

important that, at least in general terms, it is important to describe the structure of the

production and use links for the sector concerned. The production chain approach

helps to see the inter-industry links and wider systems aspects of achieving

environmental benefits. Such aspects differ per type of environmental technology.

Pollution control technologies and clean-up technologies are usually provided by

Environmental Goods and Services (EGS) firms who have specialised knowledgeabout pollution and how it may be handled. Here the knowledge of achieving

environmental benefits is in the hand of companies who have an interest in pollution

control rather than prevention. Prevention is more of a company internal affair. It may

not require a special technological competence but requires a special attention on the

part of the manufacturing company which may or may not be present. Recycling may

require special recycling technologies and additional process steps, such as separation

and treatment of waste, for which the company may have to bring in consultants orrely on other companies. In general, waste management depends on the waste

Input from

industry n

Input to

industry 1

Input to

industry 2

Input to

industry n

Final

Consumers

O u t p u t l i n k a g e s

S

u

b

je

c

t

in

d

u

s

try

In

p

u

t

lin

k

a

g

e

s

DEMAND CONDITIONS(Shape product quality, productivity, standards,social acceptability etc.)

CAPITAL AND INTERMEDIATE GOODS(Materials, energy use, sub-systemtechnologies, knowledge inputs etc.)

PRODUCTION PROCESS(Design, materials selection, use of inputs, process

technologies)

Input from

industry B

Social and culturalconstraints

regulations

standards

legal framework etc

infrastructures

settlement structures

infrastructures

Input from

industry A

Production process

END

PRODUCT


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management infrastructure and frame conditions that influence the costs of waste:

costs and bans of landfilling, emission standards for incinerators, restriction on the

transport of waste, availability of land fill locations, etc. Waste business involves a

chain of its own consisting of such activities as the collection, transport, separation,

treatment, recycling and controlled disposal. There are also backward linkages. For

example the use of environment-friendly materials manufactured by material suppliers

that depends on waste policies and the regulations that govern it. This is shown in

Figure 2 (taken from the recycling study on construction waste).

Figure 2. The building chain and the regulatory framework that governs it

Source: Verheul and Tukker (1999).

Innovation responses to regulation may thus occur at various points of product/waste

chains, or upstream or downstream of a subject sector. This depends on the innovation

capabilities of actors, the ease with which the innovations can be incorporated in

existing processes or require a change in technology and procedures, and the frame

conditions.1

1

As an example, regulations on landfilling and incineration spurred innovation in recycling technologysuch as material detection methods and automatic separation of waste (See Buchinger et al. (1999) andKuntze (1999)).

Commissioner1 Designer2 Contractor3

Maintenance

sector6

Demolition

sector7

Building supply

industry

4

Raw material

producers

5

Waste treatment

recycling

8

Waste treatment

landfill , incin-

eration 8

Raw material demands

material quality standards

(composition , leaching )

certification

standards (EN, national)

Waste regulations :

landfill ban

landfillclassification

landfill tax

acceptance criteria incineration

recycling targets

waste catalogues

Construction demands

building decrees

labour H&S regulations

standardized construction rules

environmental demands

building guidelines

standards (EN, national )


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3. THE ENVIRONMENT POLICY FRAMEWORK: CONCEPTS AND

ISSUES

Thus far, we have focussed on some of the complexities in innovation processes, and

the problems associated with using recent concepts of innovation in empirical

analysis. However there are similar problems in understanding regulation, and we turn

now to an overview of definitional and analytical issues in this field.

3.1 Definitions of regulation and operational issues

There is no commonly agreed definition of regulation. However most definitions

involve the idea of a discrepancy between private and public interests. Francis (1993,5) defines regulation as state intervention in private spheres of activity to realize

public purposes. Similarly, Selznich (1985) defines regulation as sustained and

focused control exercised by a public agency over activities that are generally

regarded as desirable to society (Selznich, 1985, quoted in Majone, 1990, 1-2). A

more specific definition is given by Meyer (1990: 7), where regulation refers to

governmental efforts to control individual price, output, or product quality decisions

of private firms in an avowed effort to prevent private decision-making that wouldtake inadequate account of the public interest. The first definition is the broadest. It

also includes stimulation policies, besides control policies. Control policies consist of

direct regulation (involving price control, environmental health and safety standards,

the use of licenses to operate a plant or introduce a new product in the market, and

other types of command and control measures), plus tax policies which may be

viewed as indirect regulation.

In what follows, regulation is confined to command-and-control measures to remedy

perceived market imperfections.

For purposes of analysis, regulations pertaining to business may be grouped in three

categories: economic, social and administrative, as follows:


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Table 1: Typology of regulations pertaining to business

Economic regulation2 Social regulation Administrative regulation

antitrust policies

price control

property rights

company law

environmental, health and safetyregulation

employment regulation

consumer protection

Fiscal regulation

Information provision (about performanceof company, products)

Qualification requirements

Source: OECD (1997) and UNICE (1995)

In general sectors are subject to different types of regulation. An overview of

regulations that are impacting on the building sectors is given in Figure 2. These are

however only one important aspect of the overall regulatory context. It is important to

pay attention also to the other aspects of regulation: to go beyond simply the

description of regulations, into an analysis of how they are implemented. So we mustalso consider the agencies responsible for making regulations and implementing them,

and the resources and powers which are available to them. In and between countries

there are commonly found to exist important differences in the ways in which

regulations are made, transposed into law, and, especially, implemented and enforced.

And these should not be overlooked as they are likely to have a bearing on

compliance responses and accordingly on innovation.3

In some countries (especially federalist ones) environmental policy is very much

decentralised, while in others - like France - it is more centralised. Some countries

(such as the UK and Denmark) take a comprehensive approach to environmental

problems, others (such as Germany) a more fragmented case-by-case approach. Other

important dimensions of regulatory approaches are the level of informality and the

transparency/secrecy of policy making and implementation processes. Gray (1995, 1)

provides a list of relevant dimensions of regulatory policies and styles, drawing a

distinction between:

2 Brousseau (1998) separates institutional or market organising regulations (such as property rightssystems) from economic regulation.3According to Majone, the performance of policy instruments depends even more on the institutionalframework in which they are used than on their technical characteristics: The actual outcomes ofenvironmental policies are affected more by the institutional arrangements emerging from the politicalprocess than by the technical characteristics of the instruments employed; to use a statistical image, thewithin group effects (the differential results obtained when the same tool operates under differentinstitutional circumstances) dominate the between groups effects (the results of different tools used

under approximately equal conditions). In other words, the significant choice is not among abstractlyconsidered policy instruments but among institutionally determined ways of operating them (Majone,1976, p.593).


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- Incremental versus comprehensive approaches

- Decentralized versus centralized

- Tactical versus strategic approaches

- Fragmented versus integrated approaches

- Reactive versus proactive approaches

- Pragmatic versus principled approaches

- Minimalist versus interventionist approaches

- Voluntarism versus professionalism approaches

- Accomodatory versus legalistic approaches

- Informal versus formalized approaches

- Consensual versus confrontational approaches

- Secretive versus transparent approaches

- Elitist versus democratized approaches

- Low priority versus high profile approaches

Differences in regulatory approaches give rise to distinct policy styles: by this we

mean standard operating procedures for making societal decisions (Richardson, 1982,

p.2 ). The extent to which governments seek consensus is a very important feature for

environmental policy. Other important features of environmental policy are:

- Fragmentation versus integration

- Decentralization versus centralization

- Informality versus formality

- Secretive versus transparent approaches

- EQO policies versus ELV policies4

4EQO stands for environmental quality objectives and ELV for Emission Limit Values. ELV policiesare based on available technologies and combine a balance between economic costs and environmentalbenefits. They are usually based on the concept of BAT (Best Available Technology) or BATNEEC(Best Available Technology Not Entailing Excessive Costs). ELV policies can be further differentiatedinto those that are based on the use of specific technologies (these may be called technology typepolicies) and those that are not (called technology uptake policies by Adrian Smith in a project note

for the TEP project).


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Policy styles encompass both policymaking and policy execution: from formal

implementation to practical implementation and enforcement (See Richardson and

Jordan, 1982). Apart from policy making and implementation styles there are also

enforcement styles. According to Kelman (1981), Vogel (1986) and Rabe (1994)

enforcement styles can be put into two broad categories: Compliance oriented versus

deterrence oriented. The first type is based on the use of persuasion, the second on

the use of sanctions.

3.2 Policy networks

Policy formulation and implementation invariably takes place in what we can callpolicy making and implementation networks. Policy networks consist of policy

members, connected with each other through their resources and network rule

systems. Such networks can be open or closed, stable or transitory, involving a policy

network appreciative system or a set of different belief systems. Implementation

networks tend to be closed and stable, whereas policy-making networks are more

open, involving changing coalitions. Policy networks of pollution control in the UK

are described in Smith (1997). Policy networks develop a set of roles, policypractices, ways of doing things and a rule system that governs policy interactions. The

rule system can often be characterised on the basis of the dimensions described above.

3.3 Environmental policy instruments

A further issue is that of policy instruments for environmental protection. Between

countries there exist differences in terms of the availability, acceptability and use of

policy instruments for achieving politically or administratively determined

environmental goals.5 These differences are likely to have implications for the nature,

source and timing of technology responses. A good example is construction and

demolition waste management practices in different countries. Countries with high

costs and bans on landfills used different types of recycling technologies. There was a

5 The goals may also be seen as a policy instrument.


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strong correlation between the level (type) of recycling and the costs/ban of landfill

(see Appendix II).

This is why it is important to look at policy instruments and measures. An overview

and a typology of environmental policies is given in Table 2.

Table 2: Overview of traditional environmental policies

Direct regulation Economic instruments Communicative instruments

Product standards

pre-market approval

product bans

process performance standardstechnology specifications

environmental managementrequirements

take back requirements

pollution (effluent) taxes

product charges

emissions trading (tradablepermits)

environmental subsidies

deposit-refund systems

producer responsibility

environmental liability

information provision

covenants (environmentalagreements)

technology compacts

network creation (match making)

environmental management systems

environmental labels

environmental marketing

Source: OECD (1989, 1997b) and Kemp (1997)

This overview is not exhaustive. Some instruments, such as innovation waivers and

implementation and enforcement activities, are not included in the table, as they do

not fit the typology. Moreover some instruments cross the typology: emissions tradingis classified as an economic instrument but has elements of direct regulation too. The

same is true for covenants which can be viewed as soft or de facto regulation.

Covenants are sometimes referred to as voluntary instruments and, more

appropriately, as environmental agreements.

In actual practice, an environmental policy to control an environmental problem

usually consists of a mixture of policy instruments. For example, in the Netherlands,the quality of surface waters is controlled both through the use of standards affecting

the composition and volume of discharges and also through the use of effluent charges

(both fixed and per rate of discharges). The instrument depends on the source of

discharge (whether this is an industrial company, a household, or a body operating a

collective treatment plant) and on the waste water management region. Apart from the

control policies there are investment and R&D subsidies for wastewater treatment

plants and technical assistance in the form of information provision by water-quality

management boards to industrial dischargers. An overview of packaging waste


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policies in Germany, Belgium, the Netherlands, Greece, Spain and France is given in

Appendix V, showing the multitude of (different) requirements. The fact that there are

policy packages rather than separate instruments creates a problem for researchers

seeking to disentangle the influence of particular policies on companies and

industries technology responses and compliance behaviour. Even if they rely on one

particular type of instruments, for example direct regulation, it may be difficult to

compare the stringency of the requirements among countries due to differences in the

parameter basis, time frame, and differences in enforcement. Derogations (provisios)

also complicate a cross-country comparison of the nature and stringency of certain

regulation.

3.4 Governance models

Behind policy instruments and implementation lies some more general governance

system, meaning a system of decision-making, authority, and responsibility for action

and resource allocation. By referring to a governance system, we are moving away

from a simple focus on the state, and are looking towards a more complex system of

agencies and actors through which environmental policies may be developed and

implemented. From this perspective, instruments are part of governance models.Ringeling and Hanf (1998) distinguish between four basic models:

Command and control

Governance on main policy lines

Selective governance

Facilitating governance.

In the command and control model national government is the central player. Itdefines the problem and the solutions to it in a rather autonomous top-down way.

Implementation of policy is via authorised bodies that operate within a usually

hierarchical relationship with central government.

In the governance on main policy lines model, central government designs only the

main lines of the policy which are then further specified by other actors according to

the circumstances. This model is characterised by the setting of framework laws andobligatory framework goals.


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In the selective governance and enabling model central government intervenes

only on certain crucial points. It does not assume main responsibility, which resides

by other actors who must find a way of coming up with acceptable solutions. In both

models there is a great reliance of the self-governance capacities of other actors.

Subsidies and covenants are examples of policies that fit the selective governance and

enabling model, although covenants also fit other strategies.

3.5 Environmental policy principles

A final dimension of environmental policy comprises environmental policy principles.

These principles describe the underlying concepts of objectives and methods. These

include: the prevention principle, the polluter pays principle, the precautionary

principle, principles that base permit conditions on best practicable means, the

proximity principle for waste, the principle to base environmental policy on

environmental quality objectives thus allowing for non-uniformity in emission limits,

and so on. These principles are important for comparative analysis, and for discussion

of specific activities, since they differ between countries. In the UK the precautionary

principle plays a limited role since environmental policies tend to be based onscientific evidence of actual environmental damage. The institutionalisation of

prevention differ between countries, as does hierarchy towards waste. Prevention

plays an important role in Denmark and the Netherlands. With regard to waste,

Germany has adopted a strict hierarchy whereas Italy has not. In France thermal

recovery is put on an equal footing as re-use and recycling and in Greece and the UK

land filling is not viewed as being the worst option but can be as valuable as recovery.

(See Appendix I for an overview of waste hierarchies).The consequence of this for empirical work is that any analysis attempting to analyse

the effect of regulation should:

Describe the area of regulation and the nature of the requirements--whether this is

price control, outlawing of certain practices, materials or products, licensing of

activities, or a combination thereof.

Assess the stringency of the requirements, not so much in terms of what is actuallyrequired at the micro level but in terms of the degree of change that is demanded,


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whether this is high or low, using for example cost figures, and what happens if

companies do not comply.

Describe the styles of regulation, the governance models that are used, the

regulatory principles, the allocation of responsibilities for implementation,

monitoring and enforcement, the orientation towards the target group

(impositional, mediating, see Haverkamp, 1998), focussing on the influence of

regulated industry on the conditions for compliance and the enforcement practices.

4. PREVIOUS FINDINGS FROM TECHNOLOGY IMPACT STUDIES OF

ENVIRONMENTAL REGULATION

There exists a small literature on the impact of actual environmental regulations on

compliance innovation and clean technology. This literature consists of the work of

Ashford and Heaton in the 1980s in the US, Jaffe and Palmer (1996), Kemp (1997)

and a number of German studies (Hartje (1985), Hemmelskamp (1997 and 1999),

Klemmer et al. (1999). The focus of these studies is on technical innovation, not on

organisational innovation or changes in environmental capabilities spurred by

environmental regulations. What these studies show is that the technology responsesrange from the diffusion of existing technology, incremental changes in processes,

product reformulation, as well as product substitution and the development of new

processes. The most common responses to regulation are incremental innovation in

processes and products and diffusion of existing technology (in the form of end-of-

pipe solutions and non-innovative substitutions of existing substances). It is found that

often the new technologies are developed by firms outside the regulated industry,

which means that industry can be reliant upon suppliers, capital good suppliers and

environmental technology suppliers. The studies furthermore show that the stringency

of the regulation is an important determinant of the degree of innovation with

stringent regulations such as product bans being necessary for radical technology

responses. This is not surprising. Technology-forcing standards appear to be a

necessary condition for bringing about innovative compliance responses. The studies

finally show that long before the regulations are promulgated there is a search process

for solutions to the problem, both by the regulated industry (mostly for defensive

reasons), their suppliers and outsiders. This happened in the case of PCBs and CFCs


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where firms both in and outside the chemical industry were looking for substitutes 10

year before the use of PCBs and CFCs was banned (Ashford, et al., 1985). Of course,

the certainty that their product or activity would be subject to regulations was an

important factor. An overview of findings from various impact studies in given in

Appendix IV.

Another source of information about technology impacts is an internal OECD report,

summarizing the results of various studies. The report findings were that:

High volume, mature sectors were resistant to change, although very amenable to

environmental monitoring and process controls that improved efficiency. This fits

with the Abernathy-Utterback product life cycle model which argues that during

the life time of a product a sector becomes rigid, especially those sectors that are

capital intensive. An alternative explanation might be that such sectors are

powerful and able to fight off regulations that require a major change in their

process technologies.

Significant process innovations occurred in response to stringent regulations that

gave firms in the regulated industry enough time to develop comprehensive

strategies. There is a trade-off between achieving quick results and radical change.

Smaller firms and potential new entrants tended to develop more innovative

responses. A possible explanation for this is that incumbent firms, especially the

big ones, are vested in old technologies both economically and mentally.

The environmental goods and services industry provided compliance strategies

that were at best incrementally innovative, but which diffused fast, due to their

lack of disruption and acceptability to regulators.

Regulatory flexibility toward the means of compliance, variation in the

requirements imposed on different sectors, and compliance time periods were

aspects of performance standards that contributed to the development of superior

technological responses.

Noteworthy too are the empirical studies that are done in Germany; most recently, by

the so-called Innovative Impacts of Environmental Policy Instruments research


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network .6 Owing to the special thematic significance and relevance of these studies to

the project at hand, the contents and methodological aspects of some of these studies

are outlined below.

One project analysed numerous studies on the effects of energy taxes and levies on

innovation and greenhouse gas emissions. The analysis offered an assessment of the

effects of taxes and levies on structural change, energy supply and aggregate

economic variables. The compilation of these studies showed that through the use of

leviesset at appropriate levelsthe external costs from environmental use may be

internalised. The levies stimulated environmentally benign forms of behaviour and

management, which suggests that they can be effective instruments. From the studies

it was unclear however to which extent the levies stimulated innovation and technical

progress.

Another interesting case study carried out by the German Institute for Economic

Research dealt with the recycling of plastics. For businesses and industry, the study

showed that regulations and the deliberations about environmental regulations played

a crucial role in environmental innovation in recycling processes. For instance in

Germany, especially in the early 1990s, this was visible in intense political debate

about the need to further develop recycling strategies. This prompted companies to

step up their efforts to find new technical and organisational solutions to plastic

recycling problems. The statutory regulations planned by the politico-administrative

system in the second half of the 1990s however fell far short of the regulations

foreseen in the initial discussions and declarations of intent. In the business sector this

led to already developed innovation projects (which were developed in anticipation of

regulation) not being developed any further (Strassberger and Wessels, 1999).

Against this background, the study regards the translation of environmental policy

(with specific goals) into an appropriate regulation as a prerequisite for successful

6The research network consisted of the following institutes: the German Institute for EconomicResearch (Deutsches Institut fr Wirtschaftsforschung), the Research Institute for Public Finance at theUniversity of Cologne (Finanzwissenschaftliches Forschungsinstitut an der Universitt Kln), the

Rhenish-Westphalian Institute for Economic Research (Rheinisch-Westflisches Institut frWirtschaftsforschung), and the Centre for European Economic Research (Zentrum fr EuropischeWirtschaftsforschung). See Klemmer (1999).


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support for environmental innovation processes in businesses and industry. Added to

this, the empirical case study demonstrates that the innovative effects of such

regulations not only depend importantly on the way individual environmental policy

tools are shaped and employed, but also on the wider economic and political

environment.

This includes eco-labels, provided they are granted for a limited period and are tied to

a catalogue of criteria that is regularly revised and developed further. Another aspect

of this relevant environment is seen in environmental management tools that improve

companies ecologically relevant information bases. The authors of the study believe

that these information bases would not only be an instrument for companies to

identify special ecological problems, but also to identify potentials for environmental

innovations. In this regard the study also considers support for environmentally

relevant research projects to be conducive to the identification of economic potentials

for environmental innovations. This may help to define proper regulations and reduce

business opposition to government regulation.

In the project of the research network mentioned above, an empirical case study was

done for the paper industry again by the German Institute for Economic Research.

The paper industry case study was done in several countries, and was based on

interviews. It found that the shape of environmental policies is an essential

determinant for the occurrence and diffusion of environmental innovations. Besides,

the study identified some other factors to be interdependently linked to the effects of

government regulations. These factors include:

(i) companies cost-cutting efforts, and

(ii) the degree of environmental awareness on the part of the affected publicThe study convincingly brings out the connections between the economic framework

and investment factors in general on the one hand, and environmentally relevant

innovation efforts on the other hand. It is found that the conditions for the

implementation of environmental innovations in the industry are particularly

favourable when new production capacities are being created (Blazejczak and Edler,

1999). The study also found environmental awareness among the affected public to be

an important factor. In the paper industry the growing environmental awareness


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created a demand for environmentally improved paper products that acted as an

important pull factor for innovation.

The importance of demand as a determinant of innovation also becomes apparent in a

case study on the development of energy-efficient refrigerators in Denmark which

was drawn up by the Research Centre for Environmental Policy at the Free University

of Denmark. The study concludes that apart from numerous other factors like the

energy tax, labelling of appliances, research subsidies etc., it is the marked

environmental awareness among the Danish people that is an important background

variable which serves to explain the economic success of energy-efficient

refrigerators in Denmark (Jnicke et al, 1999).

The significance of regulations as an instrument to protect the environment and as an

innovation stimulator is also evidenced in the case studies that were part of a study

done by the Research Institute for Public Finance at the University of Cologne. The

first case study examines the German wastewater effluent charge; the second, the levy

on hazardous waste that has been in existence in Germany for some years; and the

third reviews the innovation activities of a German chemical company. All three case

studies find that the chosen regulations provide strong and positive innovation stimuli.

Furthermore, the study refutes the often held view according to which the innovation-

enhancing effects of economic instruments (in this case, in the form of a levy) are

eliminated or at least limited if these instruments are combined with other regulations

in the form of administrative requirements. Rather, the findings show that both kinds

of instruments provide positive innovation stimuli, and that a combination may even

reinforce the impact on innovation (Linscheid, 1999).7 Innovation impacts of the

levies were rather low. The authors of the study, however, do not put this down to theinstrument itself, but to the way it has been employed and to insufficient capabilities.

Therefore, they recommend that by means of appropriate research and technology

7A good example of an effective and economically efficient environmental policy are the US corporateautomobile fuel economy (CAFE) standards which set progressive fuel economy targets for automobilemanufacturers in the 197985 period under penalty of a fine of $50 per car sold for each mile per gallonof shortfall. The standards and the rising fuel prices in the 1973-1981 period led the US automobilemanufacturers to double the fuel economy of domestic vehicles, from 14 mpg (mile per gallon) in 1973

to 27.5 mpg in 1988 (for a discussion and analysis of the relative importance of price and regulatoryeffects see Greene, 1990).


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policies, novel environmentally friendly development paths should be initiated and

supported. A technology-specific policy may be needed for this, based on ideas of

sustainable solutions.

In another study the Institute unveils similar innovation effects of local waste charges,

which establish a price for the disposal of household wastes (Linscheid and Tidelski,

1999). The study contained an empirical analysis of the way the waste volume

developed, and of the environmentally friendly services the municipalities offer.

Methodologically, it was based on both an evaluation of available data and

supplementary in-depth interviews. It showed that in the past economic incentives in

the form of charges resulted in innovative reactions both in private households and in

the municipalities themselves. The effects of these regulations consisted in a decline

in the volume of household wastes as well as in an increased diffusion of forms of

collecting recoverables separately. The more the measures are accepted and the

greater the awareness, the greater the effects are.

Finally, the ifo Institute for Economic Research (ifo Institut fr Wirtschaftsforschung)

conducted case studies from the automotive industry and some revolving around the

development in road traffic to examine the innovative effects of regulations (Springer

et al, 1999). What was specifically studied were the effects of regulations from areas

that include water-borne car paints in Germany; the development of catalytic

converter technology in Europe, Japan and the US; the development of less noisy

lorries in Germany and Austria; and the development of fuel cell technology. The

results are presented in Sprenger et al (1999), showed positive innovation effects. The

way the study was conceived in terms of its contents and methodology is particularly

suited to the objective. For instance, in each case study, as a first step the ecologicalproblem areas are described and the environmental policy instruments used are

depicted. The innovation potentials for each case study is then analysed, taking into

consideration the technical and socio-economic variables that may affect innovation.

The determinants of innovative activity identified in the chosen areas are thus

examined. The importance of regulations to innovative activities is estimated, with the

authors consciously distinguishing between effects on the early phases of the

innovation activity (knowledge generation) and effects on the later ones (adoption anddiffusion). This way, the various case studies disentangle the positive effects of


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environmental regulations on innovation activities in a subtly differentiated manner.

Generally, the studies reveal the basically positive effects that regulations have on the

development of environmentally relevant innovation activities. The achievement of

these effects hinges on the appropriate regulation intensity, and on an effective

implementation and monitoring of the directives which has to fit the techno-economic

context, and tip the balance of economic decision-making in order to have a decisive

and beneficial effect. This becomes apparent in two other studies of the research

network: one is an analysis of the innovative effects of German environmental

liability laws, which are regarded as unsuited to their objective because of the gaps

they contain and their characteristics; the second looks at the innovative effects of

regulations directed at the trend in energy consumption in private households, which

are also considered to be fairly unsuited, as in most cases it is possible to comply with

them using conventional products, and the regulations thus fail to provide any

incentives. This is a fairly common phenomenon and attests to the need of fine-tuning

instruments to the context in which they are applied8.

In the impact studies the focus is very much on the technologies being developed and

adopted. There is little attention to the innovation system and policy context from

which the solutions emerged: the production chain (filire) with its innovation pattern

(supplier-dependent, science-based, with customers as an important source of

innovation) and the regulatory context with its institutions and specific ways of policy

making and implementation.

In general, the studies tell us little about the policy process: who was involved in it,

what kind of issues were discussed, the framing of issues, how the learning processwas structured. They tend to say little about the problem to be controlled and the

alternative solutions available to policy-makers, or about the strategies deployed by

various actors (industrial companies, suppliers of environmental goods and services,

environmentalists, environmental authorities, politicians) to obtain favourable

outcomes for themselves.

8

Suggestions for the purposes for which different environmental policy instruments may be used(innovation promotion, diffusion of existing technology, product change) and the appropriate contextfor their use are offered in Kemp (1997).


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They also tell us little about the influence of policy styles on technology responses.

This is unfortunate because the policy interactions are likely to have an important

impact on the technological outcomes and costs of regulation.9

In future impact studies, more attention should be given to the policy interactions that

preceded the choice and design of instruments and, especially, the ways in policy

instruments are implemented. Policies can be implemented flexibly or rigorously,

with or without consultation with operators, and can be more or less dependent on

information provided by companies about environmental performance and the

appropriateness of particular compliance solutions. This requires a change in

perspective and research method, one that puts a greater focus on actors and systems

of interaction. Policy network theory (described in Rhodes and Marsh (1992), and

applied to pollution control issues by Smith (1997)) may be used to analyse the links

between policy and technology. This is done in the TEP project analysing the

implementation of European environmental policies and their impact on technology.10

Such a research approach would then examine not only the impact of a particular

policy on technology responses but also examine policy interactions over the

formulation of an environmental policy or Directive (who were involved in it, what

solutions were championed by various policy actors, the search directions being

undertaken by regulated industry, EGS suppliers, universities and government

laboratories as part of special research programmes) and the policy interactions in the

implementation process: the deliberations of what is a Best Available Technology, the

9There is small literature on the influence of policy styles on policy outcomes. According to Murphyand Gouldson (1996) and Wallace (1995) interactive and collaborative styles are likely to result inmore efficient compliance responses; they furthermore induce regulated companies to search forpreventive, innovative solutions to environmental problems (also in areas not subject to environmentalregulations). There is a danger however that co-operative styles promote incremental rather than moreradical solutions that yield greater environmental and economic benefits in the long term. One way toovercome this problem is through the use of long-term performance targets (as is done in theNetherlands). Targets give clarity to what is expected from industry in what time frame, it setsrequirements for management at the highest level, and introduces an element of strategic foresight intoinnovative activity which facilitates and encourages radical innovation rather than incrementalimprovements (Murphy and Gouldson, 1996: 14).

10 TEP is a project for the Environment and Climate programme. It is co-ordinated by Ren Kemp ofMERIT. Information about TEP can be found at http://meritbbs.unimaas.nl/tep/


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reliance on company data and company environmental protection programmes, the

enforcement practices, and the finding of a compromise as an important element of

the implementation network appreciative system and rule of the game.

5. BRINGING ENVIRONMENTAL REGULATION AND INNOVATION

TOGETHER: ANALYTICAL ISSUES

This section takes a more analytical approach to the relationship between

environmental regulation and innovation. Special attention will be given to

definitional and measurement issues. When discussing the innovation effects of

regulation it is useful to separate the impacts of regulation on innovation into thosewhich affect innovation for ordinary or main business purposes and those which

affect compliance (Ashford et al., 1979: 165). Compliance innovations are

innovations developed to meet a specific regulatory requirement or public demand;

they differ from main business innovations that are developed to provide benefits to

the individual users. Some people will immediate note a problem with the concept of

compliance innovation, which is that from the perspective of the producer of such

innovations, they constitute a normal business innovation.

A similar distinction is that between market innovation and social innovation

(Stewart, 1981). Social innovation consists of products, processes, devices and

practices developed or adopted for social performance reasons; market innovation

encompasses products and processes which entail benefits to the individual adopter in

the form of cost savings or superior services.

Social innovations rely for their development on social regulation, unless there are

important gains for the user. For social innovations, regulation may be regarded as

the mother of invention (Ruttenberg, quoted in Ashford et al., 1985: 434). For

market innovation, the influence and effects of regulation are more complex, as

regulation acts as a brake and stimulus at the same time, by favouring certain

innovation features while limiting others.


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In practice, innovations often entail a combination of private and social benefits. For

example, recycling of waste helps to cut down on the costs of material inputs;

company energy management yields social gains in the form of a reduction in energy-

related emissions. The distinction between market and social innovation is still a

useful one, even though in some cases it may be difficult to establish the principal aim

of the innovation, in particular whether this is to obtain social performance benefits or

economic benefits to the user. Social innovation not only must meet social

performance criteria, but also must meet important user requirements, a topic to which

we will return.

5.1 Environmental innovation

Environmental innovation consists of new or modified processes, techniques,

practices systems and products to avoid or reduce environmental harms. Shrivastava

(1995) uses the term of environmental technologies as a general term.

Environmental technologies are defined as production equipment, methods and

procedures, product designs, and product delivery mechanisms that conserve energy

and natural resources, minimise the environmental load of human activities and

protect the natural environment (Shrivastava, 1995: 185).11 We like to make adistinction between technical and organisational innovations, with the first referring to

products and production processes that are more environment-friendly than their

counterparts and the second to organisational innovations that help to make

environmental improvements in the products and performance of the company.

A broad definition of environmental innovations thus includes all measures that

conserve energy and materials, and minimise the environmental load, irrespective ofwhether they are introduced for environmental protection reasons.

Non-organisational environmental innovations can usually be grouped into one or

more of seven categories:

11 The term environmental technology is quite often more narrowly defined of comprising pollution

control, clean up, and waste management techniques, that is techniques that are specifically designed


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Pollution control technologies that prevent the direct release of environmentally

hazardous emissions into the air, surface waters or soil (classic end-of-pipe

technologies like fluegas-desulphurisation and biofilters).

Waste management: handling, treatment, and disposal of waste both on-site by theproducer of waste and off-site by waste management firms.

Clean technology: process-integrated changes in production technology that

reduce the amount of pollutants and waste material that is generated during

production.

Recycling: waste minimisation through the re-use of materials recovered from

waste streams. 12

Clean products: products that give rise to low levels of environmental impact

through the entire life cycle of design, production, use and disposal. Examples are

low-solvent paints and bicycles.

Clean-up technology: re-mediation technologies such as air purifiers and land

farming

Innovations in the packaging and delivery of goods in ways that reduce the overall

environmental load. Examples are low-weight packaging materials and reusable

packages.

Monitoring and assessment technologies that are used to monitor the condition of the

environment, releases of pollutants, and identification of pollutants are sometimes

also categorised as environmental technologies (National Science and Technology

Council, 1994; Skea, 1995).

for environmental protection purposes. Perhaps environmental equipment is a better term for the above

techniques, to distinguish them from product and process changes.12Recycling is often used as the general term for the reintroduction and re-use of recovered materialinto the economic process. Strictly speaking, recycling refers to the reprocessing in a productionprocess of the waste materials for the original purpose or for other purposes. Recycling comprises threemethods: mechanical recycling, feedstock recycling and organic recycling. With mechanical recyclingthe chemical structure of the material remains unchanged, only the shape is changed (examples:plastics, bitumen; synonym for "back-to-polymer recycling"). Feedstock recycling refers to a processusing chemical techniques to recycle materials to raw materials, e.g. crude oil substitute, naphthasubstitute etc. Organic recycling consists of the aerobic (composting) or anaerobic (biomethanization)treatment of the bio-degradable parts of plastics waste (landfill shall not be considered as a form oforganic recycling). Recycling should be differentiated from reuse and recovery. Reuse means anyoperation by which a product is used for the same purpose for which it was conceived. Recovery isused as a generic term to cover recycling, incineration with energy recovery, organic recycling (Fromthe EU Directive on packaging and packaging waste, reported in Kuntze, 1999, p.2).


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There does not exist a commonly agreed typology of environmental organisational

innovation. Environmental organisational innovation consists of all kind of changes in

the organisation that promote environmental improvements. They include, inter alia,

company statements that the company is committed to the goal of sustainable

development, the use of environmental guidelines, the development of environmental

programmes (which may be a training programme, a green design programme, or a

programme to make an existing plant or process more environmentally benign), the

introduction of environmental learning techniques (such as Environmental Life Cycle

Analysis for products), the allotment of responsibilities, establishment of

communication channels and creation of teams in the company to deal with

environmental issues, but also the establishment ofinter-organisational networks and

partnerships. A company engaged in the use of environmental guidelines and LCA is

BSHG. Results from its eco-design programme are given in Box 1.


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Box 1: Eco-design for electric household appliances by Bosch-Siemens-Hausgerte

(BSHG)

In 1993 the German company BSHG a joint enterprise of Robert Bosch AG and Siemens AG

established a system of environmental guidelines for product development. These guidelines pertain tothe elimination or avoidance of hazardous substances (those hazardous substances which are not yet

subject to regulation are on a special list and should be avoided as far as possible; the definition of this

list is strongly influenced by the anticipation of future regulation), the active improvement of the

recyclability of products (including the recyclability of materials used, information systems for plastics

parts and other materials difficult to identify in the recycling process, standardisation and

modularisation, the avoidance of compound constructions, and the use of recycled materials) and the

introduction of a product-environment-analysis.

The latter may be regarded as the backbone for the development of eco-designed products. It mainly

covers ecological balancing, i.e. the analysis of all relevant energy and material flows during the

lifetime of a product (from production via distribution and use to recycling or disposition). Based on

the results of ecological balancing, potentials for reducing these impacts are analysed and objectives

are defined. These objectives lead the development process for a re-design.

A first main result of the efforts of BSHG to bring eco-designed appliances onto the market, a dish-

washer was developed and produced which requires 10 % less energy, 25 % less water and 20 % less

materials, for the same performance as its predecessor. Furthermore, the use of packaging material

could be reduced considerably. With respect to recycling, the main effect was the reduction in the

number of different parts from 444 to 198.

Source: Buchinger et al. (1999, p. 23)

Pollution control technologies are often referred to as end-of-pipe (or add-on)

technologies because they are typically added to manufacturing technologies. They

constituted the common response of industry to government pollution control policies

in the 1970s and 1980s and according to a study by RDI they still account for the

largest share of the environmental technologies.13 Since the late 1980s, when pollution

prevention rather than control became the focus of governmental policies, technology

responses shifted away from pollution control technologies to production process

changes and recycling, aimed at the prevention and reuse of waste material. Another

recent development is that of clean products - products that are less environmentally

13 The share of end-of-pipe technologies in pollution control equipment is estimated at 80 per cent inBelgium, 82 per cent in Western Germany and 87 per cent in France (figures are for 1987 fromRecherche Dveloppement International quoted in Skea, 1995). The ESTO studies on EMAS


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harmful over the entire life cycle (that is, not just the production phase or at the point

of use).

Clean products consist of environmentally improved products such as compact

phosphate-free detergents or energy-efficient washing machines and products that are

inherently environmentally benign such as bicycles and insulation material. The label

clean product for the first category is something of a misnomer as the products often

continue to have negative environmental impacts. Low-solvent paints still count as

chemical waste which may not be disposed without special treatment. It is perhaps

better to talk about cleaner products.

Sometimes waste management is used as a general term for measures of waste

reduction and recycling. Waste reduction covers a wide range of measures:

technological changes in production processes (retrofitting and cleaner processes),

input material changes, product changes and good operating practice (also known as

good housekeeping) (Clift and Longley, 1996).

Figure 3: Waste reduction management

Waste management

Waste reduction at source Recycling

Good operating Technological Input Product On-site Off-sitepractice changes material changes recyclingrecycling

changes

Retrofitting Cleanerprocesses

Source: Clift and Longley, (1996)

confirmed that additive solutions constitute still a very important response, despite the increasedemphasis on prevention.


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A broader, more widely used definition of waste management includes also the

collection, sorting, upgrading, and burning and (controlled) disposal of waste.

As noted, environmental benefits may be achieved with or without the express aim of

avoiding or reducing environmental harm. Environmental gains may be a side-effect

of other goals such as the goal to reduce energy costs or

Regulação e inovação, 2000

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