Env Innovation _amp; Economic Performance

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					Ecological Modernization &
 Environmental Innovation:
        What is the Role of
Environmental Regulation?

        Jacqueline Lam, Postdoctoral Fellow
                   Prof. Peter Hills, Director
                     The Kadoorie Institute
               The University of Hong Kong
Env Innovation &
Economic Performance
l   Ecological Modernization & Environmental innovation
    l   Environmental Innovation (EI) considered as a critical
        means to achieve both economic gain and environmental
        performance in the Ecological Modernization Theory (EMT).
l   Adoption of EI has the potential of
    l   Reducing emissions and the consumption of resources
    l   Improving the eco-efficiency to bring about better
l   Purpose of this paper
    l   To investigate the conditions that govern the adaptation and
        diffusion of TEI and policies that can mostly effectively
        stimulate the industry to engage in TEI
    l   To understand what role do environmental regulations play
        in the promotion of TEI
Defining Environmental Innovation
l   General Definitions on Environmental Innovation
    Measures of relevant actors which help develop new ideas,
    behaviour, products and processes, apply or introduce them and
    which contribute to a reduction of environmental burdens, an
    improvement in resource efficiency as well as economic gains
    (Porter and Van der Linde, 1995b; Gouldson and Murphy, 1998;
    Rennings, 2000)

l   This study focuses on EM-based Technological
    Environmental Innovation which refers to:
    Any new techniques or technologies that have beneficial effects on
    the environment and (potentially) brings about an improvement on
    the economy (or company’s economic performance)
TEI Conditions
TEI Conditions
l   The adoption/diffusion of TEI is determined by
    economic, firm-internal and contextual factors.
l   Apart from costs, many other factors prevent the
    adoption/diffusion of TEI
    l   market failures and barriers, such as negative externality,
        knowledge spillover, information asymmetry, and
        technological lock-in (Jaffe, Newell and Stavins, 2000)
    l   firm capability, managerial & organizational norms and
        attitutdes, and stakeholder pressure
Economic Condition
l   Do economic benefits outweigh the expected costs
    of a TEI investment?
l   Short term high costs are usually repaid after a long
    period of time.
l   Benefits
    l   Direct: may reduce costs
    l   Indirect: improved resource productivity, increased
        competitive advantage, improved customer satisfactions,
        public relations, staff commitment, corporate reputation, …
        (Porter & Van der Linde 1995a, 1995b, Gouldson & Murphy
        1998, Jaffe, Newell & Stavins 2004)
Firm Internal Conditions:
Innovation Capability
l   Organizational and technological capabilities,
    strategic alliances and networks of collaboration are
    critical to the willingness of adopting TEI
    l   Corral (2002, 2003), Gouldson and Murphy (1998), Kemp
l   Organizational capabilities
    l   the ability for firms to learn quickly and reshape
        organizational structures and routines to enable the
        integration of TEI in the company
l   Technological capabilities
    l   the extent that the existing production processes are able
        to adapt to and prepare for transitions towards new
        technological pathways
Contextual Conditions:
Attitudes, Norms & Behaviours
l   Stakeholder attitudes, norms and behaviours
    of individuals are considered to be critical
    determinants in explaining the TEI behavior
    l   Klemmer, Lehr & Lobbe (1999)
l   e.g. Firm managers need to attend to
    attitudes and norms of societal stakeholders
    such as customers or regulators.
How do different Env. Regulation
address these TEI conditions?
Traditional Env. Regulatory
Approach (TERA)
l   The Traditional Env. Regulatory Approach (TERA) is
    dominated by command-and-control regulation
    (C&C REG), characterized by rules, hierarchy,
    control, deterrence and specialization. (Fiorino,
    l   impedes innovation, inflexible, legalistic, fragmented, …
l   Passively required to meet standards
l   Firms are not encouraged to go beyond the
    prescribed level even if they have the capacity as no
    benefits can be reaped from such efforts.
EM-based environmental
policy (II)
l   Incentive-based measures to motivate businesses to engage in
    continuous enhancement of environmental performance
l   Increasingly replaced by market-based and voluntary measures
    l Incentive-driven
    l Capability-building
l   However, the success of incentive-based and voluntary
    measures depend on
    l the willingness of firms to commit to TEI
    l the removal of barriers such as uncertainty, negative externality,
       spillover problem, info. asymmetry.
l   Regulation, if carefully designed, is still a very important and
    necessary tool to complement non-regulatory measures and
    catalyze the adoption of TEI.
l   What kind of env. regulation should we
l   We see merits of TERA and EM-based policy
    in creating favourable innovation conditions
    for bringing about TEI.
l   Synergy of both
    l   Pressure (Regulation); Motivation (Regulation +
    l   Incentive (Regulation + EM-Based)
    l   Capability (Regulation + EM-Based)
Env. Regulation
l   Porter & van der Linde (1995) argue that properly-designed
    environmental regulation (PD REG) may not only benefit the
    environment but also the regulated industries by forcing industry
    to innovate and thus increase productivity and resource
l   “WIN-WIN” Hypothesis
l   To avoid the negative consequence of C&C REG in the past,
    they note that good env. regulations that foster TEI should be
    designed in such a way that
    l create maximum opportunity for industries to innovate,
    l be technology-forcing instead of technology-setting, and
    l leave little rooms for uncertainty at every stage during the
        regulatory process.
New Environment Regulatory
Approach (NERA)
l   accommodates non-regulatory instruments to
    enhance economic incentives and capabilities of the
    business, and to mobilize change
l   replace traditional environmental regulations
    with new environmental regulations that are
    innovation-oriented, and are properly-designed
    and implemented
    l   to reduce the negative impacts of traditional C&C
    l   to enhance the favourable innovation conditions
        governing TEI
New Environment Regulatory
Approach (NERA)
l   Accommodates non-regulatory instruments
    for enhancing the TEI conditions
    l   Economic
    l   Firm-internal
    l   Contextual
Characteristics of PD REG (I)
l       Goal-setting
    l     focus on long-term goals to steer regulated firms towards
          the most innovative solution, instead of forcing them to
          adopt particular technologies (technology-setting) or
          environmental standards (standard-setting).
l       Stringency
    l     provide a strong impetus for regulated firms to strive for
          higher environmental performance.
l       Flexibility
    l     increase the flexibility for regulated firms in terms of how
          they achieve the regulatory target.
Characteristics of PD REG (II)
l       Incentive-driven
    l     couples environmental regulations with other incentive-based
          instruments, e.g. tradeable permits, or credit system, in
          promoting continuous environmental improvement
l       Participatory
    l     encourage industrial participation in the design of phase-in
          periods, the content of regulations, trust-building, and self-
          regulatory behaviours, such as information disclosure.
l       Capability-enhanced
    l     enhance organizational and technological competence, by
          complementing with voluntary programmes in the form of
          technical assistance, demonstration projects and training
          programmes and technological consulting services
l       Consistency, Certainty, …
           Case Study
Zero Emission Bus Regulation
                 in California
l   The ZBus regulation is picked for the
    following reasons:
    l   Demonstrate the adoption of TEI
    l   Display some characteristics of the NERA
    l   Achieve some initiate success on achieving
        environmental improvements while potentially
        creates some competitiveness for companies.
Zero Emission Bus Regulation
Background (CARB 2009)
l   Adopted in Feb 2000 & modified in Jun 2004
l   Goal - Encourage a bus fleet with increasing
    replacement by zero emission vehicles
l   Fuel Cell Buses had demonstrated ability to
    meet performance needs
ZEBus Purchase
l   Diesel Path
    l   Based on number of buses Jan 2007
    l   Agencies with > 200 buses
    l   15% 2008-2015
l   Alternative Fuel Path
    l   Based on number of buses Jan 2009
    l   Agencies with > 200 buses
    l   15% 2010-2015
ZBus Regulation & NERA (I)
l   Goal-setting & Certainty
    l   well defined phase-in periods and deadlines for ZBus
        demonstration, purchase requirements and other targets
l   Stringency
    l   a certain percentage of buses purchased or leased should
        be ZBuses by certain deadlines
    l   transit bus operators should commit to the ZBus
        demonstrations on street
l   Consistency
    l   broadly consistent with other regulations by CARB, e.g. the
        ZEV Mandate or ZEV Regulation.

                     Regulatory Pressure!
ZBus Regulation & NERA (II)
l   Incentive-driven (economic condition)
    l   Credit award systems encourage early adoption of
        advanced ZBus technologies.
    l   Supported by other economic programmes: federal and
        state government funding help kickstart the adoption
l   Flexibility
    l   a grace period to implement ZBus demonstration
    l   options for joint implementation of demonstration and
        purchase/leasing agreements of ZBuses
l   Participatory (contextual condition)
    l   extensive consultation with the transit agencies and other
        stakeholders, through regular meetings and consultations
ZBus Regulation & NERA (III)
l   Capability-enhanced (firm-internal condition)
    l   joint implementation between transit agencies
        creates opportunities for inter-organizational
        learning and sharing of funding and resources.
    l   Supported by California Fuel Cell
        l   provides opportunities for transit agencies to team up
            auto manufacturers, energy companies, fuel cell
            technology companies and government agencies at
            the local, state and federal levels in fuel cell bus
ZBus Regulation & NERA (IV)
Bus Co.   Operation     Vehicles    No. of        Demo        Started
          Area                      Fuel Cell                 Since
SunLine   9 cities +    48 buses,   1 fuel cell 2000          Dec-05
Transit   Riverside     24 vans     bus, 1
          County                    hydrogen
                                    hybrid ICE
AC        East Bay of   638         3 fuel cell   Late 1999   Mar-06
Transit   San Francisco             buses
Santa     Santa Clara   423         3 fuel cell Aug-04        Feb-05
Clara     VTAArea                   buses (low
VTA                                 floor fuel
                                    cell buses)
Questions and comments are

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