Edited by Henk Folmer, H. Landis Gabel, Shelby Gerking and Adam Rose
Chapter 14: Environmental technological innovation and diffusion
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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