Today we will discuss about the development of eco-innovation. In thinking about the relationship between economic growth on the one hand and environmental performance on the other hand, it is very important to understand the process of technological progress towards sustainable development. So, what are eco-innovations? Eco-innovations refer to the development of new products, new production processes, new services, new business methods, new organizations that reduce substantially the use of materials or harmful resources and provide a better quality of life for everyone by reducing pollution and other environmental risks. We can think of four main types of eco-innovation. First, technologies that reduce pollution. So we can think of pollution control technologies. Second, we can think of environmental organization innovation, and in this sense we can, in particular, refer to environmental management auditing scheme. Third, we can think of new products that are environmentally sustainable. Think, for example, of eco-buildings or think also of car sharing. And fourth, we can think of a whole new system to achieve sustainable development. So, for example, alternative methods of production that might refer to bio agriculture. Eco-innovation has two main dimensions that are relevant in order to understand their impact. The first one is technological progress. To what extent the innovations are radical or incremental. The second one has to do with the changes in user practices, in market relations and in institutions. So different types of eco-innovations can be evaluated according to the disruptiveness along these two dimensions. For example, car sharing is not particularly disruptive in terms of technology, but it is incredibly disruptive if we think of user practices, market competition, and also institutions. On the other hand, we do have examples of innovations that are radical from a technological point of view, but do not really change the way in which users market and institutions work. If we focus on the technological dimension, we can think of the development of green patenting activity, and we do see that green patents have increased massively as compared to other types of patents, and this is true particularly for some specific technological domains. Wind energy on the one hand, electric vehicles, and other hybrid vehicle technologies on the other. The literature has discussed at length the drivers of eco-innovation. So, where does eco-innovation come from? First, we do have technology or supply side factors. Second, innovations might come from market forces, demand side factors. Third, there is a very important role for regulation, and this is mostly because eco-innovation or green innovation are subject to the so-called double externality problem. They do have externality in the introduction phase, so that firms have to bear the cost of research and development activity in order to develop eco-innovations. On the other hand, they also have an externality in the diffusion phase, in the commercialization phase, because typically, green products are more expensive than standard products since firms have to internalize the cost of pollution prevention and therefore they have to bear a higher cost. In this sense, regulation is a fundamental aspect, not only in the development of eco-innovation to stimulate firms to carry out activity to develop eco-innovation, but also in the commercialization phase, because they need to allow a fair competition between green products and non-green products. The role of regulation for eco-innovation has been discussed for a long time. The more traditional perspective thinks of regulation as an extra cost for firms. Firms have to bear the cost of being environmentally compliant, and therefore their productivity is reduced and their exercise is really a cost minimization exercise. A more innovative perspective sees regulation differently, as a means of stimulating innovation, and therefore of stimulating competitiveness and of creating comparative advantages for companies. There are mostly two arguments that sustain this hypothesis. The first are behavioral types of arguments, and the idea is that firms or entrepreneurs are not able to understand the benefits of developing eco-innovations. The second type of arguments is the more traditional market failure arguments that state that even if entrepreneurs do actually see the benefits of developing eco-innovation, they do not do so because the cost of doing that is too high. The Porter Hypothesis has been investigated at length also by means of empirical studies. Most of the studies have actually found empirical support for the so-called narrow version of the hypothesis. So there is indeed evidence that regulation stimulates the innovative activity of companies. There is much less evidence on the fact that this process then creates competitive advantage and increases the competitiveness of companies. So evidence for the so-called strong version of the Porter Hypothesis is is not really conclusive in this respect. When we think about regulation for eco-innovation, we can think of different types of instruments that might be implemented in order for governments to give incentives to companies to stimulate eco-innovation. There are government, there are instruments that are formal instruments for regulation, and there are instruments that are more soft instruments. The first type of instruments, so the more formal type of regulation, have to do with implementation of standards that might be technological standards, or market standards, or with the activities that have to do with fiscal incentives, taxation, subsidies to research activities and so on. On the other side, governments may decide to stimulate innovation by means of more soft instruments. So, for example, by allowing companies to get certification for their environmental activity, the IMA certification is one of these examples, or they can get equally billed for their products certifying that their products are actually green and therefore benefiting from the image that their products get. So, we have understood that regulation is an important instrument, but does it have an impact on the development of innovations? We can look at some evidence from European countries, and we do actually see that right after a specific regulation has been implemented, we do observe an increase in innovative activities. There are some studies on the German market, for example, that show that right after each regulation has been put forward, patenting activity in green fields has increased. However, we need to take into account that regulatory instruments differ very much in their impact, and therefore some instruments might be actually much more effective than others in stimulating the development of green products, green services, and in generating the general hype towards the sustainable development.
