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The Impact of Regulation-Driven Environmental Innovation on Innovation Success and Firm Performance

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  • Klaus Rennings
  • Christian Rammer

Abstract

The impact of environmental innovations on firm performance is ambiguous. On the one hand, regulatory-driven environmental innovation may impose additional costs to firms and lower their profits. On the other hand, eco-innovators could profit from lower uncertainty in innovation due to regulatory standards and demand-generating effects of regulation. In this paper we analyse (a) whether regulation-driven environmental innovation generates similar innovation success compared to other types of product and process innovation, and (b) whether regulation-driven environmental innovation increases or decreases firm success (as measured by return on sales). Using firm data from the German innovation survey, we find that both product and process innovations driven by environmental regulation generate similar success in terms of sales with new products and cost savings as other innovations do. However, we find different effects when looking at the field of environmental regulation that triggered innovations. Regulations in favour of sustainable mobility contribute to higher sales with market novelties while regulations in the field of water management lower this type of innovation success. With regard to a firm's price-cost margin, new processes implemented in order to comply with environmental regulation requirements lower profitability, indicating higher costs for this type of innovation which cannot be passed on through prices. Higher profit margins can be observed for firms with innovations triggered by regulations on recycling and waste management as well as on resource efficiency.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/13662716.2011.561027
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Industry and Innovation.

Volume (Year): 18 (2011)
Issue (Month): 3 ()
Pages: 255-283

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Handle: RePEc:taf:indinn:v:18:y:2011:i:3:p:255-283

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Related research

Keywords: Environmental innovation; environmental regulation; innovation; Porter hypothesis;

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References

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  1. Klaus Rennings & Christian Rammer, 2009. "Increasing Energy and Resource Efficiency through Innovation: An Explorative Analysis Using Innovation Survey Data," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(5), pages 442-459, December.
  2. Frondel, Manuel & Horbach, Jens & Rennings, Klaus, 2004. "End-of-Pipe or Cleaner Production? An Empirical Comparison of Environmental Innovation Decisions Across OECD Countries," ZEW Discussion Papers 04-82, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Horbach, Jens, 2008. "Determinants of environmental innovation--New evidence from German panel data sources," Research Policy, Elsevier, vol. 37(1), pages 163-173, February.
  4. Rehfeld, Katharina-Maria & Rennings, Klaus & Ziegler, Andreas, 2007. "Integrated product policy and environmental product innovations: An empirical analysis," Ecological Economics, Elsevier, vol. 61(1), pages 91-100, February.
  5. Adam Jaffe & Richard Newell & Robert Stavins, 2002. "Environmental Policy and Technological Change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(1), pages 41-70, June.
  6. Beise, Marian & Rennings, Klaus, 2005. "Lead markets and regulation: a framework for analyzing the international diffusion of environmental innovations," Ecological Economics, Elsevier, vol. 52(1), pages 5-17, January.
  7. Beise, Marian & Cleff, Thomas, 2004. "Assessing the lead market potential of countries for innovation projects," Journal of International Management, Elsevier, vol. 10(4), pages 453-477.
  8. Brunnermeier, Smita B. & Cohen, Mark A., 2003. "Determinants of environmental innovation in US manufacturing industries," Journal of Environmental Economics and Management, Elsevier, vol. 45(2), pages 278-293, March.
  9. Christian Rammer & Dirk Czarnitzki & Alfred Spielkamp, 2009. "Innovation success of non-R&D-performers: substituting technology by management in SMEs," Small Business Economics, Springer, vol. 33(1), pages 35-58, June.
  10. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  11. Popp, David, 2006. "International innovation and diffusion of air pollution control technologies: the effects of NOX and SO2 regulation in the US, Japan, and Germany," Journal of Environmental Economics and Management, Elsevier, vol. 51(1), pages 46-71, January.
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Citations

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Cited by:
  1. Ghisetti,Claudia & Marzucchi,Alberto & Montresor,Sandro, 2013. "Does external knowledge affect environmental innovations? An empirical investigation of eleven European countries," INGENIO (CSIC-UPV) Working Paper Series 201301, INGENIO (CSIC-UPV), revised 23 May 2013.
  2. George van Leeuwen & Pierre Mohnen, 2013. "Revisiting the Porter Hypothesis: An Empirical Analysis of Green Innovation for the Netherlands," CIRANO Working Papers 2013s-02, CIRANO.
  3. Wilfried Ehrenfeld, 2012. "Towards a Theory of Climate Innovation - A Model Framework for Analyzing Drivers and Determinants," IWH Discussion Papers 1, Halle Institute for Economic Research.
  4. Ghisetti, Claudia & Rennings, Klaus, 2013. "Environmental innovations and profitability: How does it pay to be green? An empirical analysis on the German innovation survey," ZEW Discussion Papers 13-073, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Rachel Bocquet & Christian Le Bas & Caroline Mothe & Nicolas Poussing, 2013. "Are firms with different CSR profiles equally innovative? Empirical analysis with survey data," Post-Print hal-00918528, HAL.
  6. Claudia Ghisetti & Francesco Quatraro, 2013. "Beyond the Inducement in Climate Change: Do Environmental Performances Spur Enrivornmental Technologies? A Regional Analysis of Cross-Sectoral Differences," Working Papers 2013112, University of Ferrara, Department of Economics.
  7. Doran, Justin & Ryan, Geraldine, 2012. "Regulation and Firm Perception, Eco-Innovation and Firm Performance," MPRA Paper 44578, University Library of Munich, Germany.
  8. repec:hal:wpaper:hal-00860045 is not listed on IDEAS
  9. Birgit Aschhoff & Georg Licht & Paula Schliessler, 2013. "Who drives smart growth? The contribution of small and young firms to inventions in sustainable technologies," WWWforEurope Working Papers series 47, WWWforEurope.
  10. Ghisetti, Claudia & Quatraro, Francesco, 2013. "Beyond inducement in climate change: Does environmental performance spur environmental technologies? A regional analysis of cross-sectoral differences," Ecological Economics, Elsevier, vol. 96(C), pages 99-113.

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