Frontiers of Environmental Economics
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Frontiers of Environmental Economics

Edited by Henk Folmer, H. Landis Gabel, Shelby Gerking and Adam Rose

Top European and American scholars contribute to this cutting-edge volume on little-researched areas of environmental and resource economics. Topics include spatial economics, poverty and development, experimental economics, large-scale risk and its management, organizational economics, technological innovation and diffusion and many more.
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Chapter 14: Environmental technological innovation and diffusion

Carlo Carraro


Carlo Carraro 1 INTRODUCTION The difficulty of protecting the environment at a low economic cost and without harnessing economic growth, a task which is especially difficult in developing countries, has stimulated an increasing debate on the role of technical progress and on the prospective achievements of technological innovation in the field of emission abatement and low natural resource depletion. The confidence that technical progress may provide important tools to lessen the trade-off between economic growth and environmental protection does not necessarily imply that investments in environment-friendly research and development (R&D) and innovation will be undertaken by firms, nor that this R&D and innovation can be disseminated to give all world countries the opportunity to protect their environment at a low economic cost. This chapter addresses this issue by analysing the incentives for firms to undertake R&D and innovation, and by highlighting why market imperfections, externalities, international capital mobility and other economic factors may lead to suboptimal investments by firms in environmental R&D and innovation. This suggests that public innovation policies may become necessary to induce firms to modify their innovation strategies. Hence, the chapter analyses different types of policy mixes and discusses the role of traditional environmental policies (taxes, permits and the like) but also the effects of other policies, for example, trade or financial policies, that can affect firms’ incentives to undertake environmental R&D and innovation. The first seven sections of the paper are devoted to a synthesis of results that...

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