For which companies does it pay to be green?

Mathias Tao Agger Linnemann

Student thesis: Master thesis

Abstract

This thesis contributes to a better understanding of how climate change affects different types of companies. Specifically, it seeks to answer the question: What drives environmental innovation in different types of companies? The question is answered through an investigation of the dynamics behind corporate responses to climate change, with special attention to the recently introduced European Emissions Trading Scheme. Climate change has increasingly attracted companies’ attention because they are expected to use their innovative capacity to limit carbon emissions. This thesis analyzes four companies. Two of the companies emit significant amounts of CO2 and are technology adopters. The remaining two companies are low carbon-emitters and are innovators of low-carbon technologies. The companies all participate in industries that face major challenges from climate change, because carbon emissions occur somewhere in the added value chain. Technology innovators, with no inhouse emissions potentially hold the key to a given industry’s ability to reduce its carbon emissions, because of their innovative capacity. Therefore this thesis highlight some of the adopter-suppler dynamics involved with environmental innovation. Departuring from a theoretical discussion, an analytical framework is designed, through which the companies are analyzed. The analytical framework considers: 1, the companies responses to climate change (proactive/reactive); 2, whether their core activities are climate-friendly; 3, whether the companies are exposed to significant pressure to improve their environmental performance and; 4, whether environmental regulations induce them to innovate. The thesis concludes that there are few similarities in drivers for environmental innovation across different types of companies. As a result, the European Emissions Trading System seems unable to provide sufficient incentives for environmental innovation across the companies. The findings suggest that the demand-pull effects of the system are inefficient, given the current low carbon price and the generous allocation of free CO2-permits to polluting companies. The analyzed companies show different responses to climate change. Companies that respond proactively have widespread opportunities to reduce the use of polluting resources; can exploit government subsidies, which reduce the risks of investing in environmental innovation; or see clear market demand for the environmental credentials of their products. Only one of the companies responds reactively to climate change. The reason for its reactive response is twofold: inadequate development of internal capabilities for environmental innovation (inertia), and weak incentives for environmental innovation, because of lax regulation and technology lock-in effects, which harm innovative activity across all levels of the industry in which it operates.

EducationsMSc in Management of Innovation and Business Development, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2010
Number of pages100