Innovation and environmental stringency: A cross country analysis

Silvia Rezzonico

Student thesis: Master thesis

Abstract

The Porter Hypothesis, in contrast with mainstream micro-economic theory, claims that under certain circumstances strict environmental policy can provide positive incentive mechanisms, which may eventually foster innovation, growth and competitiveness. This work tries to empirically test this hypothesis, by analyzing the relationship between stringency of environmental regulation, and environmental innovation. Stringency of regulation is measured indirectly by the yearly change in greenhouse gas emission levels. This is based on the intuition that increasing emission levels will be associated with laxity of environmental stringency, whereas decreasing emission levels will signal deeper engagement in environmental policy. Environmental innovation, instead, is measured by successful patent applications in selected patent classes, explicitly identifying “clean energy technologies”. The selection was based on a recent, fully retroactive reclassification scheme operated by the European Patent Office, that has introduced patent class Y02, referring to “Technologies or Applications for Mitigation or Adaptation against Climate Change”. The analysis was conducted in selected OECD countries over a time span of 18 years (from 1990 until 2007); the findings appear to be in line with Porter’s hypothesis and seem to confirm that the more stringent regulation, the higher the degree of innovative activity. Additionally, results provide support to the claim that market based instruments are more effective in spurring innovation.

EducationsMSc in Management of Innovation and Business Development, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2012
Number of pages64