Shaping Climate Change Policy
ESRI Studies Series on the Environment
Lisa Ryan and Hal Turton
10. Supply-side policy measures: R&D Productivity-enhancing innovation is the lifeblood of modern economies. Without it, stagnation in growth and living standards is inevitable. What is true of economies is true also of sectors and companies. Those that lag in terms of innovation will lag also in terms of growth and market share; ultimately, their survival depends on their success or otherwise in embracing innovation. For ﬁrms in the automobile sector, new product development is the very essence of their craft; their survival depends on having a pipeline of new potentially successful products and services. For this reason, automobile industry analysts examine carefully what products are in the pipeline, and how much and to what eﬀect expenditure is devoted to R&D. As the number of vehicle manufacturers globally has shrunk through takeovers and mergers, there has been sluggish growth in major car markets and a rapid expansion of production capacities in emerging markets, leading to stronger competition in the traditional segments of the car market, and process innovation to keep production costs low (CEC, 2004c). This trend can have both a positive or negative eﬀect for the development of environmental technology: either these technologies become increasingly important as a means by which companies can retain an edge over competitors, or margins become so narrow that companies are unable to aﬀord to invest in technology research. Furthermore, large ﬁrms may be able to pursue more risky technologies, whereas small companies may lack the necessary capital or management...
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