Session 1: Effect of Environmental Regulation on Innovation Marcus Wagner

1. The Porter Hypothesis at 20: How Can Environmental
Regulation Enhance Innovation and Competitiveness?
Montreal, 28 June 2010
Regulation & Innovation:
The Perspective of
Innovation Economics
Prof. Dr. Marcus Wagner
w Chair in Entrepreneurship and Corporate Growth
gU University of W
U i it f Wuerzburg & BETA Strasbourg
b St b

2. w
Implications of Stylized Facts in Innovation Economics
gU
 Stylized facts:
– Product versus process innovation (role of dominant design)
– I
Incremental vs. radical i
t l di l innov. (
(young/small vs. l
/ ll large fi
firms)
)
– Integrated vs. end-of-pipe environmental innovation
 (How) does the effect of regulation on these types of innov.
differ? H
diff ? How traceable when trend i i t
t bl h t d is integrated i
t d innov.??
 Empirically, environmental reg. has stronger positive effects
on environmental technology (trade) than technology overall
(comp. more strongly improved for env. than other sectors)
Env. Reg.
Env Reg Env. Inno.
Env Inno
 Need for an entrepreneurship lens Other reg. Other Inno.
Prof. Dr. Marcus Wagner, University of Wuerzburg

3. w
Technical Aspects to Analysing the Porter Hypothesis
gU
 Taxes subsidies trading systems are environmental policy
Taxes, subsidies,
instruments, but some difference to command/control, e.g.:
where is the stringency aspect? See German feed in law:
feed-in
 P li
Parliamentary i iti ti (
t initiative (rare), significantly f t d diff i
) i ifi tl fostered diffusion
of renewable energy, but mainly indirect innovation effects
(experience curve/learning, price d li d competitiveness)
( i /l i i declined, ii )
 Reg. less linked to innov./patents; stronger effect of reg. on
diffusion: R&D often before reg. is enforced (co-evolution?)
 How to measure innov.? Env. patents difficult to define (IPC
p (
classes, keywords): more so with integrated technology
Prof. Dr. Marcus Wagner, University of Wuerzburg

4. w
Innovation Restrictions under Regulation: A Model
gU
Competitiveness
Competitiveness weak strict
Legal minimum level of performance required by Optimum
environmental or social regulation (
g (weak or strong)
g) with weak Optimum
p
regulation with strict
Optimum with weak or strong regulation regulation
non-linear
relationship
linear
relationship
Environmental/
Environmental/
Social Regulation/
Social Regulation/ Legal minimum of performance Performance
Performance
Traditional relationship between environmental/social Revised relationship between environmental/social
regulation/performance and competitiveness regulation/performance and competitiveness
Level of regulation is … “Traditional”-type link (left) “Revised”-type link (right)
… strict Optimal choice: be compliant Optimal choice: be compliant
… weak Optimal choice: be compliant
p p Optimal choice: be over-
p
compliant
Prof. Dr. Marcus Wagner, University of Wuerzburg

5. w
gU
Future Empirical Research: A Mixed Method Proposal
Survey of 342/169 firms and exploratory interviews
Panel study: 2001 (env inno ) 2006 (regulation) 2011 (financials panel methods)
(env. inno.), (regulation), (financials,
Sample Innovation Regulation Competitiveness: 4 Firm data
(Wagner, 2008, - Types/drivers - REACH dimensions: pro- - Size, strategy
Ecological
Economics) - Open? User? - EU-ETS ductivity, markets, - Industry, age
- Level of inno. - .. 4 more .. stakeholders, risk -…
Augmented n=56,
n=56 patent data 1998 2005
1998-2005 n=54, in-depth
n=54 in depth case studies
subsamples (Method: Wagner, 2007, Research Policy) (detailed innovation-specific data)
derived
Data added green/total patents Type of innovation offset, …
Preliminary - stable strategy focus 98-05
results of but for cost leadership: quality
analysis (incl. env. perf.) increas. relev.
(incl env perf ) increas relev
- patents not assoc. with main
driver (technol., markets, reg.)
- occurence and l d level of i
l f innov.
depend on specific regulation
(sig. effect of reg. on inno. for
REACH, EU Noise Directive;
for latter less radical innov.)
Prof. Dr. Marcus Wagner, University of Wuerzburg

6. w
Some Conclusions and Alleys for Future Research
gU
 Explore more links
– to supply/value chain perspectives (extended version of PH),
– t i t
to integrated policy f
t d li frameworks (D t h t
k (Dutch transition management) and
iti t) d
– to literature bodies in innov. economics (national innovation systems)
 Arrow‘s distinction of rate and direction of technical change:
does reg. affect b th (?) similarly (?) i same way (?)
d ff t both i il l in
 Identify mechanisms that bring about inno. offsets, e.g.
incentive systems, information systems, product/corporate
strategies, esp. those implying beyond compliance/voluntary
action: when does innovation enable competitiveness from
regulation and when other mechanisms and which ones?
Prof. Dr. Marcus Wagner, University of Wuerzburg