Environmental Policy Instruments and Eco-innovationAn Overview of Recent Studies

Abstract

In this paper we conduct a systematic literature review with the aim of understanding the effectiveness of environmental policy instruments, in particular, command and control, market-based instruments and voluntary schemes, in promoting eco-innovation. This study analyzes the information presented in selected papers, mainly from peer-reviewed journals, covering the period 2005-2012. The sample is based on 40 papers traced through a keyword search in Scopus database, representing the main academic journals related to the subject. A few more sources were added after reviewing the list of references from the main papers. The literature reviewed adopts different approaches and pursues several objectives to understand the relationship between policy instruments and eco-innovation. We find overall evidence that stringency is a key feature of policies for determining the effects of environmental technological change. It is argued that command and control instrument boosts eco-innovation, but continuity in investments depends more on the expected severity of future regulation. Empirical studies confirm that market-based instruments promote more incremental innovation and diffusion of existing technologies than radical innovation. In general, instruments based on economic incentives need to be complemented with stringent controls to be more effective. We conclude that complementarities between measures focused on developers and demanders are necessary in order to foster eco-innovation.