Chapter 4: An Empirical Study of Environmental R & D: What Encourages Facilities to be Environmentally Innovative?
4. An empirical study of environmental R&D: what encourages facilities to be environmentally innovative? Toshi H. Arimura, Akira Hibiki and Nick Johnstone I. INTRODUCTION Technological innovation is indispensable to dealing with environmental problems, particularly for long-run environmental problems such as global warming. Empirical assessment of the role of environment policy on technological innovation remains limited. Indeed, numerous economic models incorporating environmental issues take technological innovation as exogenous, partly because technological innovation with respect to environmental matters has not been analysed in suﬃcient depth. From the policy perspective, the characterization of technological innovation as exogenous is not credible or satisfactory. Governments need to assess how they can promote technological innovation in an environmentallyfriendly manner. The Porter Hypothesis (Porter and van der Linde 1995) provides one view on the relationship between environmental policy and technological innovation. It asserts that well-designed environmental regulations can stimulate environment-related technological innovation, which can in turn lead to increased competitiveness in the marketplace. However, the assessment (and indeed interpretation) of the hypothesis is not straightforward. In an attempt to disentangle the diﬀerent claims Jaﬀe and Palmer (1997) identiﬁed three distinct variants of the Porter Hypothesis. In their framework, the ‘weak’ version of the hypothesis is that environmental regulation will stimulate ‘certain kinds of innovation’. Why should the stringency of environmental policies induce innovation? Explicitly or implicitly environmental policies result in either a change in the cost of diﬀerent factor inputs or a change in the relative prices of 142 An empirical...
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