ANALYSIS
Redefining innovation — eco-innovation research and the
contribution from ecological economics
Klaus Rennings *
Center for European Economic Research(ZEW),Research Area En6ironmental and Resource Economics, En6ironmental Management,P.O.Box103443,D-68034Mannheim,Germany
Received 31 July 1998; received in revised form 29 July 1999; accepted 30 July 1999
Abstract
While innovation processes toward sustainable development (eco-innovations) have received increasing attention during the past years, theoretical and methodological approaches to analyze these processes are poorly developed. Against this background, the term eco-innovation is introduced in this paper addressing explicitly three kinds of changes towards sustainable development: technological, social and institutional innovation. Secondly, the potential contribution of neoclassical and (co-)evolutionary approaches from environmental and innovation economics to eco-innovation research is discussed. Three peculiarities of eco-innovation are identified: the double externality problem, the regulatory push/pull effect and the increasing importance of social and institutional innovation. While the first two are widely ignored in innovation economics, the third is at the least not elaborated appropriately. The consideration of these peculiarities may help to overcome market failure by establishing a specific eco-innovation policy and to avoid a ‘technology bias’ through a broader understanding of innovation. Finally, perspectives for a specific contribution of ecological economics to eco-innovation research are drawn. It is argued that methodological pluralism as established in ecological economics would be very beneficial for eco-innovation research. A theoretical framework integrating elements from both neoclassical and evolutionary approaches should be pursued in order to consider the complexity of factors influencing innovation decisions as well as the specific role of regulatory instruments. And the experience gathered in ecological economics integrating ecological, social and economic aspects of sustainable development is highly useful for opening up innovation research to social and institutional changes. © 2000 Elsevier Science B.V. All rights reserved.
Keywords:Innovation; Evolutionary economics; Technology; Economic incentives and disincentives
www.elsevier.com/locate/ecolecon
1. Introduction
Since the world community committed itself in 1992 in Rio to the principles of sustainable devel-opment, it has become more and more clear that sustainability means long-term and far-reaching * Corresponding author. Tel.: +49-621-1235-207; fax: +
49-621-1235-226.
E-mail address:[email protected] (K. Rennings)
changes in technologies, infrastructure, lifestyles and institutions.
Thus, the importance of a better understanding of innovation processes has several reasons:
The demand for drastic reductions of
environ-mental burdens, e.g. of greenhouse gases,
im-plies that adaptation within existing
technologies is not sufficient. Instead, regula-tion strategies to effect ‘technology forcing’ and/or ‘technological regime shifts’ are needed.
Secondly, innovation is expected to offset
bur-dens and costs induced by environmental regulations. Secondary benefits of an innova-tion-friendly environmental policy are often seen in reduced costs, increased competitive-ness, creation of new markets for
environmen-tally desirable products and processes,
corresponding employment effects, etc. Al-though these aspects have already been empha-sized by Porter and van der Linde (1995a), the Porter hypothesis postulating ‘innovation off-sets’ of strict environmental policy is not em-bedded in economic theory and is received with
scepticism among mainstream economists
(Jaffe and Palmer, 1996; Ulph, 1996).
New types of vehicles, renewable energy
sys-tems or corresponding infrastructure often need at least a decade or more for invention, for adaptation and for diffusion, respectively. In total, it is realistic to assume time-scales of half a century and more for major changes in important economic and social sub-systems, like technological regime shifts in energy and transport systems. Thus, in situations far away from the desired equilibrium, the importance of analyzing transition and learning processes moves into the foreground.
Moreover, many scenarios suppose that
long-term sustainability goals cannot be met by progress in environmental technology and must be supplemented by corresponding lifestyles, e.g. through energy saving or changing mobil-ity patterns, and institutional changes (ranging from local networks to global organizations).
Inventing or adapting environmentally
desir-able processes or products is already part of every day life for a large majority of firms and, thus, a field of scientific research. As Cleff and
Rennings (1999a) have shown in a German industry survey, about 80% of all innovating firms are involved in environmental-friendly innovation projects. It is hard to find even a small or medium sized enterprise that has no experience at all with substituting hazardous substances, designing and using eco-efficient products, saving energy, waste and material or reducing emissions. Managing eco-innovation is an increasingly important issue for many firms.
Finally, innumerable sustainability programs
and initiatives have been set up to promote innovative policy responses and corresponding scientific research to improve the understand-ing of global environmental change and it’s relation to economic and social systems. Hav-ing this in mind, together with long time-scales, a careful valuation of experiences seems to be crucial to identify key determinants and success factors of innovation processes toward sustain-ability, i.e. to analyze which experiments suc-ceeded, which failed, why they failed and in which phase.
evolutionary concepts in environmental and inno-vation economics. Finally, conclusions concerning methodological pluralism in eco-innovation re-search are drawn.
2. Redefining innovation
While ecological economists seem to be aware of the need to redefine progress to meet the challenge of sustainable development, no com-parable effort has been made up to now to re-define the term innovation. This is surprising because innovation aspects play not only a major role for national and international economic poli-cies, but are also important elements of strategies for sustainable development as described in the introduction. Large budgets are spent for innova-tion, particularly allocated to technology support programs. From an ecological economics perspec-tive, important questions are;
how to identify and promote technologies
which help to reach sustainability targets and
whether the focus on technologies is too
nar-row and a broader concept of innovation is needed.
Thus, this section will redefine innovation with regards to challenges of sustainable development.
2.1. Sustainable de6elopment
There is an ongoing debate on whether sustain-able development can be defined operationally. Some agree (overview in Rennings and Wiggering, 1997), others doubt or deny that it can (Nor-gaard, 1994; Cary, 1998; Minsch 1997). Those who doubt or deny understand sustainability more as an heuristic idea, similar to ideas of liberty and justice, guiding and orienting our
search rather than predicting its outcome.1
However, with any of these interpretations of sustainable development, at a certain point it is necessary to give a more concrete idea about the direction and problem areas of sustainability. In its environmental report 1998, the German Coun-cil of Environmental Advisers identified a consen-sus on problem areas in seven major consen-sustainability
concepts developed by European institutions2
(Table 1).
Obviously, these problem areas require progress toward certain sustainability targets, which may be different across regions, time-scales, target groups, etc. The definition of problem areas and the negotiation of targets can be analyzed and evaluated by scientists, but decisions are made in the political process. Ambitious goals as formu-lated in the Toronto Resolution for greenhouse gases may be watered down in the political pro-cess and lead to modest agreements like those in
Table 1
Common areas of problems and sectors addressed in sustain-ability conceptsa
Main problem areas Main sectors
Greenhouse effect Energy
Mobility Depletion ozone layer
Acidification Waste
Eutrophication
Toxic impacts on media/ecosystems Toxic impacts on humans
Loss of biodiversity Use of soil, land Resource use
aSource: SRU (1998), p. 88.
2Six were from Germany (one NGO-report, three from the German environmental protection agency, one from the gov-ernment and one from a parliamentary commission) and one from the European Commission. However, the problem areas may be different in other contexts and countries. For example, agriculture, forestry and households may be added. Several authors consider population policy as a further central element of a policy of sustainability (e.g. Pestel and Radermacher, 1996). But compared with environmental problems this issue is still not well addressed in most sustainability concepts and strategies.
1As Cary (1998) (p.12) writes:
the Kyoto Protocol. However, in our context only two features of a definition of sustainable devel-opment are relevant: that it contains an ecologi-cal, economic and social dimension and that even modest sustainability targets, as fixed in the Ky-oto PrKy-otocol, require substantial innovation.
2.2. Inno6ation
The conventional understanding of innovation as defined in the Oslo-Manual of the OECD (1997) (see also Hemmelskamp, 1997) distin-guishes mainly between process, product and or-ganizational innovation:
Process innovations occur when a given
amount of output (goods, services) can be pro-duced with less input.
Product innovations require improvements to
existing goods (or services) or the development of new goods. Product innovations in machin-ery in one firm are often process innovations in another firm.
Organizational innovations include new forms
of management, e.g. total quality management. Innovation is different from invention, which is an idea or a model for a new improved product or process. In an economic sense, an invention be-comes an innovation when the improved product or process is first introduced to the market. The third phase is the diffusion phase, when the inno-vation is used and adopted over time.
For research on issues of sustainable develop-ment, the OECD categories are useful but not sufficient. It is useful because product and process innovations include environmental technologies, and because organizational innovations include measures like eco-audits. Moreover, it is useful that the OECD has recently extended innovation research from industry to service sectors. This means that eco-efficient services saving energy, transport or waste are considered.
However, a weakness of the OECD definition is that it does not explicitly distinguish environmen-tal and non-environmenenvironmen-tal innovations. Conse-quently, this distinction does not appear in empirical innovation studies either. Finally, con-sidering the challenges of sustainable
develop-ment, innovation in households and institutional changes are missing in the OECD definition.
2.3. Inno6ation toward sustainable de6elopment
The general definition of innovation is neutral concerning the content of change and open in all directions. In contrast, putting emphasis on inno-vation toward sustainable development is moti-vated by concern about direction and content of progress. Thus, the additional attribute of innova-tions toward sustainability is that they reduce environmental burdens at least in one item and, thus, contribute to improving the situation in the problem areas mentioned above. The interdisci-plinary project ‘Innovation Impacts of Environ-mental Policy Instruments’ has introduced the term environmental innovation (short: eco-inno-vation) and defined it very broadly as follows (Klemmer et al., 1999):
Eco-innovations are all measures of relevant actors (firms, politicians, unions, associations, churches, private households) which;
develop new ideas, behavior, products and
processes, apply or introduce them and
which contribute to a reduction of
environ-mental burdens or to ecologically specified sustainability targets.
Eco-innovations can be developed by firms or non-profit organizations, they can be traded on markets or not, their nature can be technological, organizational, social or institutional. The follow-ing paragraphs will look more specifically on the distinction between;
technological,
organizational,
social and
institutional innovation.
Fig. 1. Preventive environmental technologies. Source: Hohmeyer and Koschel (1995). ones are also frequently referred to as
end-of-pipe-technology. Integrated environmental tech-nology can be subdivided into product and
process integrated measures (Hemmelskamp,
1997). Organizational changes are, for example, management instruments at the firm level like eco-audits, which are of increasing importance for innovation.
Changes of lifestyles and consumer behavior are often defined as social innovations (Scherhorn et al., 1997, p. 16). With regard to eco-innovation, the term sustainable consumption patterns as mentioned in the Rio Convention has received increasing attention. Duchin (1999) argues that the idea of social innovation is new
‘But one that is gathering an increasing fol-lowing among social scientists and the public more generally, that effective environmental policy requires understanding not only techno-logical but also lifestyle dynamics.’
Progress is still often understood simply as innovation in firms, with a strong focus on tech-nological progress. Due to the fact that many problems of sustainable use of nature and land are not primarily technological questions, this may lead to a ‘technology bias’. Even more, Nor-gaard (1994) (p. 16) identifies unsustainable devel-opment itself as a result ‘from technology outpacing changes in social organization’ and
postulates that, within a co-evolutionary
biodiversity issues) and international trade (Ren-nings et al., 1998; SRU, 1998, pp. 318 – 334). Innovative institutions include improved decision making through new ways of scientific assessment and public participation. An example of an inno-vative scientific network on the global level is the Intergovernmental Panel on Climate Change (IPCC), numerous other institutions for public discourse upon environmental and technology im-pact assessment have been established at the na-tional, regional and local level. Thus, institutional eco-innovations are often seen as a basic founda-tion for a policy of sustainability (Freeman, 1992; Minsch, 1997).
Examples for the different kinds of innovation are: the 3-liter-car as an example of technical eco-innovation, in contrast to higher-speed cars with increased fuel consumption as an example of non-environmental innovation. A shift of modal split from car transport toward bicycling is an example of social innovation, in contrast to a modal shift towards air passenger traffic as an example of non-environmental social innovation. A network of NGOs, scientists, firms and public authorities to promote sustainable transport or to improve material flow management in a certain region is an example of institutional eco-innova-tion, while the same regional network co-ordinat-ing an application for hostco-ordinat-ing Olympic games would be a non-environmental innovation.
The distinctions between the different kinds of innovations cannot be very sharp. Collective ac-tions of households concerning sustainable
con-sumption patterns may be regarded as
institutional innovations, and the creation of en-vironmental awareness in firms as social
innova-tion. Different kinds of innovation go
hand-in-hand or, using the terminology of Nor-gaard, they co-evolve. In the words of Freeman (1992) (p. 124):
‘Successful action depends on a combination of advances in scientific understanding, appro-priate political programs, social reforms and other institutional changes, as well as on the scale and direction of new investment. Organi-zational and social innovations would always
have to accompany any technical innovations and some would have to come first.’
3. Economic approaches to eco-innovation research and policy
Having defined eco-innovation in a broad sense, the question is how to analyze eco-innova-tion and what ecological economics can con-tribute to research. In this section, the most relevant economic approaches for innovation re-search, neoclassical and evolutionary concepts and their possible contribution to eco-innovation research will be discussed.
The distinction between neoclassical and evolu-tionary approaches has to be justified. Using
neoclassical approaches mainly means that
methodological individualism is applied, which can be incorporated into evolutionary approaches too. Nevertheless, the distinction is useful for analytical reasons because nearly all studies fol-low only one approach and differ commonly from the other by using different sets of assumptions.
It will be argued that ecological economics can create an added value mainly by supporting inter-disciplinary research. Methodological pluralism as it is established in ecological economics would be very valuable for eco-innovation research because co-operation between the different disciplines (in-novation and environmental sciences) and schools (neoclassical vs. evolutionary concepts) is still rather poor.
3.1. Eco-inno6ation in neoclassical economics
The issue of eco-innovation is placed at the borderline between two different economic sub-disciplines, environmental economics and
innova-tion economics. For an adequate analysis,
interdisciplinary research of both disciplines
would be very helpful. While environmental eco-nomics tells how to assess environmental policy instruments, innovation economics has led to in-sights about the complexity of factors influencing
innovation decisions. Integrated approaches
approaches considering elements of both schools are still hard to find. Thus, both approaches will be described separately before synergies are discussed.
3.1.1. En6ironmental economics
The superiority of market-based instruments like taxes and tradable permits has been the basic lesson from environmental economics concerning innovation for a long time. These instruments have been identified as environmental policy in-struments with the highest dynamic efficiency (in-novation efficiency). Their advantage is that they give permanent incentives for further, cost-effi-cient emissions reductions. By contrast, regulatory regimes driven by technical standards (either in a command-and-control system or in a regime of voluntary agreements in which standards are ne-gotiated between government and industry) are not cost-efficient and the incentives for progress in emission reduction vanish after the standards are met.
However, several exceptions and modifications to the rule have been made recently. For example, the innovation efficiency of standards can be im-proved substantially by ‘technology forcing’ in a command-and-control regime (rules of permanent reductions or long-term standards going beyond existing technologies) and by repeated negotia-tions in a regime of voluntary agreements (contin-ued process of negotiations after each monitoring phase) (Hohmeyer and Koschel, 1995; Brock-mann, 1999). On the other hand, the innovation efficiency of taxes may be watered down in the political process. Total environmental costs for industry are normally higher under a tax regime than under alternative regimes of command-and-control or negotiated agreements (because firms have to pay for residual emissions and pollution). This may lead to a tendency to impose relatively low taxes with low innovation impacts. It is im-portant to note that it is exactly the innovation-friendly attribute of taxes (charging firms for residual emissions), which may lead to this coun-ter-effect (low tax level with low impacts) (Kemp 1997, p. 64). Further modifications to the rule have been derived in general equilibrium models of endogenous growth and in game theoretic
models. While the superiority of market-based instruments has been confirmed for situations with perfect competition and full information, the situation changes under imperfect competition. When firms gain ‘strategic advantages’ from inno-vation, standards may be more appropriate for stimulating innovation (Carraro, 1999).
In summary, the conclusion can be drawn that the debate on dynamic efficiency is still open in environmental economics. No instrument is gener-ally preferable and the welfare gain of environ-mental policy instruments depends on different sets of circumstances (Fischer et al., 1998). Against this background, Jaenicke (1999) criti-cizes ‘instrumentalism’ in environmental policy, i.e. the assumption that the choice of policy in-struments determines the policy success. Accord-ing to Jaenicke, specific instruments (taxes, permits) are overestimated in the discussion while important elements of successful environmental policy are underestimated, as there are;
long-term goals and targets,
the mix of instruments,
different policy styles and
actor constellations.
Preliminary, it can be concluded that contribu-tions on innovation from environmental
eco-nomics suffer from a simple, mechanistic
stimulus-response model of regulation, neglecting the complexity of determinants influencing inno-vation decision in firms. These determinants will be introduced in the following sections of this paper.
3.1.2. Inno6ation economics
Fig. 2. Determinants of eco-innovations. *OSH=Occupational Safety and Health. The double externality problem reduces the
in-centives for firms to invest in eco-innovations. Therefore environmental policy and innovation policy should be co-ordinated. Innovation policy can help to cut the costs of technological, institu-tional and social innovation, especially in the phases of invention and market introduction, e.g. by financial support for pilot projects, and in the diffusion phase it may help to improve the perfor-mance characteristics of eco-innovations. At least in the diffusion phase, however, environmental policy is responsible for internalizing external costs imposed by competing, non-ecological prod-ucts or services. As long as markets do not punish environmental harmful impacts, competition be-tween environmental and non-environmental in-novation is distorted.
Due to the fact that both externalities result in a sub-optimal investment in eco-innovations, the double externality problem induces a second pe-culiarity: the importance of the regulatory frame-work as a key determinant for eco-innovative behavior in firms, households and other institu-tions. The main discussion in innovation econom-ics has been whether technological innovation has been driven by technological development (tech-nology push) or by demand factors (market pull).
Empirical evidence has shown that both are rele-vant (Pavitt 1984). With regard to eco-innovation, new eco-efficient technologies can be subsumed under technology push factors, while preferences for environmentally friendly products or image can be subsumed under market pull factors. Due to the externality problem of eco-innovations, the traditional discussion of innovation economists has to be extended to the influence of the regula-tory framework. In the following, this peculiarity of eco-innovations will be called the regulatory push/pull-effect. Fig. 2 illustrates the determinants of eco-innovation. As empirical evidence shows (Green et al., 1994; Porter and van der Linde, 1995a,b; Kemp, 1997; Faucheux and Nicolai 1998), the regulatory framework and especially environmental policy have a strong impact on eco-innovation. Eco-innovations are, in contrast to such technologies as microelectronics and telecommunications, normally not self-enforcing. Because factors of technology push and market pull alone do not seem to be strong enough, eco-innovations need specific regulatory support.
study shows that, within their innovation goals, eco-innovative firms attach significantly higher importance to the goals of cost reduction and total quality management (TQM) than other in-novators. This gives evidence to the Porter hy-pothesis that firms understand eco-efficiency as a part of total efficiency. With regard to integrated technologies, Cleff and Rennings differ between ecological product- and process-innovations. En-vironmental product innovation is significantly driven by the strategic market behavior of firms (market pull effect), while environmental process-innovation is more driven by regulation
(regula-tory push/pull effect). As for the influence of
individual policy instruments on environmental innovation, influence from ‘soft’ regulatory instru-ments (environmental liability, eco-audits, volun-tary commitments) and from eco-labels can be found. These instruments enable firms to use their environmental performance in their marketing strategies or in negotiations with the state. Envi-ronmentally innovative firms seem to be less de-pendent on ‘hard’ state regulation than other, more passive firms. Thus, ‘soft’ and voluntary environmental policy measures may be sufficient for pioneers. However, ‘hard’ measures (com-mand and control instruments, duties) seem to be still necessary for a diffusion of integrated mea-sures to non-innovative firms.
Using industry micro-data either for technolog-ical or organizational innovations, such studies may improve our understanding of firm decisions concerning short-term, incremental changes. They should be supplemented by additional surveys on eco-innovation in the service sector. With regard to strategies of de-materialization or de-car-bonization of consumption and production pat-terns within a policy of sustainability, innovation in the service sector plays a key role. Surveys should be supplemented by case studies analyzing the success and failure of interrelated technologi-cal, social and institutional eco-innovation.
For long-term innovation processes including more radical changes, however, neoclassical mod-els assuming marginal changes and equilibrium situations may be too narrow. Broader evolution-ary approaches have been developed to improve our understanding of radical system changes.
Their contribution to a theory and policy of eco-innovation will be discussed in the next section.
3.2. Eco-inno6ation in (co-)e6olutionary approaches
While deterministic neoclassical models have their merits, especially for analyzing marginal or incremental changes induced by different kinds of incentives, they are of limited value for the analy-sis of more radical changes of technological sys-tems including the organizational and societal context. According to Freeman (1992) (pp. 77 – 81), incremental innovations can be characterized as continuous improvements of existing techno-logical systems (i.e. they fit in existing input –
out-put tables) while radical innovations are
discontinuous (i.e. they require new lines and columns in input – output tables).
Evolutionary approaches have therefore been developed to open up the ‘black box’ of surprises being connected with radical changes: unpre-dictable interactions of sub-systems,
irreversibil-ity, path-dependency, lock-in effects of
technological trajectories or bifurcation. Evolu-tionary approaches are more interested in the analysis of transition and learning processes than in equilibrium states and assume bounded ratio-nality and rules of thumb rather than optimiza-tion. The main methods are case studies and ex post analysis because predictions regarding which option will succeed are recognized as being impossible.
3.2.1. Variation, selection and co-e6olution
The biological terms of selection and variation are used to describe the innovation process. In-ventions are variations which succeed or fail in the evolutionary process due to selection criteria of their environment. According to Freeman (1992) (pp. 123 – 127), the selection environment of the innovation process can be divided into three categories:
Natural environment. Man-made
environmen-tal problems or external forces may put
selec-tive pressure on society to create new
Built environment. The built environment con-sists of physical assets, i.e. the existing in-frastructure. The built environment needs decades to depreciate, thus, slowing down in-novation and diffusion processes.
Institutional environment. Profitability can be
identified as a key selection criterion in market economies.
It should be noted that the variation-selection-terminology focuses only on technological innova-tions and does not explicitly consider complex feedback mechanisms between variations and the selection environment. This seems to be inade-quate bearing in mind that an innovation is not only selected by the environment but also changes the environment by selective pressures. CFCs have depleted the ozone layer and led to the invention of CFC-substitutes, changes of institu-tions and consumer behavior. These responses (such as ‘soft’ CFCs) put again selective pressures on the environment, raising concern for improved eco-innovations. Similar feedback mechanisms can be observed in energy policy where eco-inno-vations such as cleaner fossils, safer nuclear, ratio-nal use of energy and renewables are responses to environmental pressures (scarcity of fossil fuels, air pollution, greenhouse effect, nuclear risks) but
also change the environment by selective
pressures.
In ecological economics, these complex feed-back mechanisms have been addressed by the co-evolutionary paradigm as defined by Norgaard (1984) (p. 161):
‘In biology, co-evolution refers to an evolu-tionary process based on reciprocal responses between two interacting species. … The concept can be broadened to encompass any ongoing feedback process between two evolving systems, including social and ecological systems. … So-ciosystems and ecosystems are maintained through numerous feedback mechanisms. Co-evolution occurs when at least one feedback is changed, which then initiates a reciprocal pro-cess of change.’
Having in mind the danger of a technology bias as mentioned in Section 2, the co-evolutionary framework seems to be more appropriate to ana-lyze eco-innovations for at least two reasons;
it includes all sub-systems, i.e. co-evolving
so-cial, ecological and institutional systems avoid-ing any rankavoid-ing of their importance, and
it underscores the importance of their
interactions.
The history of pesticide policy and the phasing out of CFCs are textbook examples of co-evolu-tionary innovation processes highlighting the im-portance of interactions between technological, social and institutional innovations. In the CFC phase-out, the Montreal Protocol has been a key success factor illustrating the importance of insti-tutional innovations (see for details on pesticide policy Norgaard, 1994, pp. 23 – 28; on the CFC phase-out in Germany and the United States Kuehn and Oso´rio-Peters, 1999).
Freeman’s emphasis on the crucial role of insti-tutional and social re-organization (cited in Sec-tion 2) within a paradigm of ‘green’ innovaSec-tion shows that he is well aware of the need for a broader approach. However, the co-evolutionary approach has not yet been elaborated for specific
purposes of eco-innovation research.3
Thus, a re-search need can be identified for opening up evolutionary approaches in innovation economics to co-evolving ecological, institutional and tech-nological systems.
3.2.2. Technological change
As already mentioned, evolutionary approaches have focused on technological innovation in the past. Nevertheless, these studies have given valu-able insights about determinants of technological change, which are relevant for eco-innovation research.
Due to the pressures of the selection environ-ment a certain technology may become a domi-nant ‘technological paradigm’. Advantages in transaction costs, learning curves, economies of scale, superior cost-benefit-ratios and a good fit
with existing lifestyles, technologies, infrastruc-tures or networks result in path-dependencies or technological trajectories (Dosi, 1988), i.e. to lock-in effects of a technology excluding other evolutionary options. Examples of technological paradigms are oil-based chemistry and semi-conductors.
Kemp (1997) (pp. 279 – 289) describes determi-nants and success factors of technological change as follows:
Determinants are new scientific insights which
open up new technological opportunities,
pressing technological needs (e.g. technological bottlenecks to further emission reductions through incremental improvements of end-of-pipe technologies, high costs of further ad-vances within a technical design, such as carbon dioxide reductions within fossil energy technologies, changes in demand, scarcity of materials, or labor conflict) and entrepreneurial activities and institutional support for radically original technologies.
Important success factors of radical
technologi-cal change are early market niches and the use of available knowledge and techniques, i.e. a certain compatibility with existing know how, experience and infrastructure.
Having identified these success factors, Kemp (1997) (p. 310) suggests fostering technological change by a policy of strategic niche management, i.e. the ‘creation of protected spaces for promising technologies that we want to point out’. The idea is to install temporary pilot markets protected by subsidies or other regulatory measures. Examples are:
The success stories of wind energy markets in
Denmark and Germany which are especially interesting for a close cooperation between en-vironmental and eco-innovation policy, i.e.
be-tween economic incentives (subsidies in
Germany, energy tax in Denmark) and
tech-nology support programs (Hemmelskamp,
1999).
The ‘Los Angeles Initiative’ requiring that
zero-emission cars must account for 2 – 10% of new car production in the 1998 – 2003 period as creating a temporary protected area for electric vehicles (Templin, 1991, p. 310).
The idea of a ‘Renewables Portfolio Standard’
under which every retail power supplier would be required to purchase renewable energy cred-its equivalent to some percentage of cred-its total energy sales (Rader and Norgaard, 1996). The examples show that a policy fostering tech-nological eco-innovations cannot be reduced to technological support programs nor to conven-tional environmental policy measures, but has to find intelligent combinations of both. The prob-lem is, of course, to find a balance between pro-tection and selection pressure. However, some protection may be necessary, even in the diffusion phase, due to the degree of existing external costs not yet internalized by environmental policy. Thus, close co-ordination between environmental
policy and eco-innovation policy will be
necessary.
3.2.3. Perspecti6es
Evolutionary approaches seem to be very useful for providing additional insight into radical tech-nological change. Compared to neoclassical eco-nomics they follow a broader approach as they allow surprises and consider technological path-dependencies. It would be worthwhile, however, to open up the evolutionary framework to ecolog-ical irreversibility and to strengthen social and institutional innovations. This would be an im-portant contribution from ecological economics to eco-innovation research, avoiding a ‘technol-ogy bias’ and unsustainable development.
Moreover, it seems to be beneficial to link neoclassical and evolutionary models in further research. For example, Kemp (1997) has com-bined neoclassical and evolutionary approaches of eco-innovation to a certain extent. He introduced uncertainty, specific technology characteristics and shifting consumer preferences into neoclassi-cal models and rational choice and optimization into the evolutionary discussion of technological regime shifts.
4. Perspectives for methodological pluralism in eco-innovation research
theory and policy of eco-innovation. The evolu-tionary approach is broader and tries to take a real-life picture of a certain innovation process avoiding any generalization. This is an important advantage as far as stochastic phenomena have to be understood, which are common especially for
radical innovation. Thus, evolutionary
ap-proaches are appropriate as far as long-term, radical changes including path-dependencies, irre-versibility, transition processes, discontinuous and unpredictable events are concerned.
Recently, international case studies on the im-pact of environmental policy on eco-innovation have been carried out with an approach that combines elements of both evolutionary econom-ics and policy analysis. Based on Jaenicke’s criti-cism of ‘instrumentalism’ in environmental policy (see Section 3.1.1) and on seven international case studies, Blazejczak et al. (1999) have identified three essential success factors for innovation-ori-ented environmental policy: instruments, policy styles and actor constellation. This ‘policy style’-approach postulates that concerning instruments, important success factors are a mix of instru-ments, strong economic incentives, strategic plan-ning and a consideration of the different phases of the innovation process. With regard to policy style, calculable goals (e.g. long-term national en-vironmental policy plans) are an important ele-ment to stimulate innovation especially when they are combined with flexible means. Actor constel-lations should include inter- and intra-policy inte-gration, co-ordination between regulators and target group and between stakeholders along the production chain.
However, not every innovation process can be assumed to be random or unpredictable, espe-cially incremental innovation, which is largely de-termined by a given technological trajectory. If the behavior of actors or sub-systems and rela-tions between them can be assumed to be rational and stable, methods derived from neoclassical the-ory are preferable for eco-innovation research. They offer quantitative tools and are most elabo-rated to analyze the efficiency of incentive
sys-tems, which is essential for stimulating
innovation. Furthermore, neoclassical approaches explain two important peculiarities of
eco-innova-tion: the double externality problem and the regu-latory push/pull effect.
The co-evolutionary approach has been used to explain the third peculiarity of eco-innovation emphasizing the interactions of ecological, social and institutional systems. Both the evolutionary and the neoclassical framework should be opened up to interactions with ecological systems (e.g. to consider not only the impact of regulation on eco-innovation but also the ecological impact of eco-innovation) and to strengthen the importance of social and institutional innovations.
Some may wonder if it makes sense to redefine every kind of technical, institutional and socioeco-nomic change or reform as innovation. However, in our context, the only relevant criteria for valu-ing change is that it is somehow new and a certain likelihood that it leads in the desired direction. A more restrictive selection and support of options, e.g. a focus on technologies, is explicitly not in-tended as long as a diversity of other options exists which might be supplementary, superior, etc. Thus, innovation policy should open up a narrow technological definition of innovation to all kinds of organizational, behavioral and institu-tional change.
A look on the ongoing German innovation support program, ‘Demonstration Projects for
Sustainable Development’ (BMBF/GSF 1999)
may illustrate the existing theoretical vacuum in the field of social and institutional innovation. Within this program, the German government supports 14 demonstration projects in the area of social and institutional eco-innovation, i.e.:
Regional projects on sustainable agriculture.
The ministry supports networks aiming at the regional distribution of ecological food.
Regional projects on material flow
manage-ment. The ministry supports networks of, e.g. firms optimizing their material flow manage-ment by exchanging materials and waste.
Projects concerning specific regional needs, e.g.
optimization of material flow management in a regional construction sector.
are missing. Thus, it seems to be important to elaborate approaches like strategic niche manage-ment for applications to social and insitutional eco-innovation. Due to the fact that eco-innova-tion policy requires the implementaeco-innova-tion of effi-cient incentive systems and coordination between research and environmental policy, neoclassical approaches including new institutional economics (game theory, public choice) are important, too.
However, the theoretical and empirical work on eco-innovation is still in its beginning. Theoretical approaches and methods are required as well as data. Essential material for further research would be data-banks on the eco-innovation behavior of firms, households and stakeholders in networks. Such data-banks have to be developed by regular surveys. Other issues for a research agenda are ecological, social and economic impacts of eco-in-novations (innovation impact assessment) as for example impacts on employment, eco-innovation in the service sector, or national and regional eco-innovation systems.
Some elements of eco-innovation theory and policy have not yet been mentioned or elaborated in this paper. They include management ap-proaches in business administration (management of eco-innovation as outlined, e.g. by Fuzzler, 1996). However, within a broader co-evolutionary paradigm, conceptual and methodological plural-ism and interdisciplinary research are welcome. Approaches from business administration and other disciplines enrich the discussion. Synergies, conflicts and complementarity between the con-cepts may be an issue for further research.
Acknowledgements
A former version of this paper (title: ‘Towards a theory and policy of eco-innovation — neoclas-sical and (co-)evolutionary perspectives’) was written during a visiting scholarship at the Uni-versity of California in Berkeley in the summer of 1998. Work has been made possible by internal funding from ZEW. However, the work is closely related to a sub-task of the project ‘Innovation impacts of environmental policy instruments’ (German acronym: FIU) commissioned by the
German Ministry of Education and Research (BMBF). I am grateful to Jens Hemmelskamp (Joint Research Center, Sevilla), Richard Nor-gaard (University of California, Berkeley), my colleagues Karl Ludwig Brockmann and Henrike Koschel, Ernst Mohr and two anonymous
review-ers for stimulating discussions and helpful
comments.
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