Impacts of Environmental Policy Instruments on Technological Change

EU Conference on Sustainable DevelopmentA Challenge for European Research

Herman Vollebergh Netherlands Envirionmental Assessment Agency

Oxford University

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Korte titel – auteur, datum

TechnologicalChange

Policy

R&D Decisions

Investment Decisions

Location Decisions

Focus

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Korte titel – auteur, datum

DDirected

TechnologicalChange

Policy

R&D Decisions

Investment Decisions

Location Decisions

Focus

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Example I: EKC Results CO2 OECD countries

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1960 1970 1980 1990 2000

Per

cap

ita

CO

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Income Bayes Time Bayes Total Bayes

Income Expert Time Expert Total Expert

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Example II: EKC Results SO2 OECD countries

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5000

10000

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20000

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45000

1960 1970 1980 1990 2000

Per

cap

ita

SO

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Income Bayes Time Bayes Total BayesIncome Expert Time Expert Total Expert

Different Dynamic Incentives?

What explains different pattern SO2 and CO2?

Regulatory interventions through: Emission standards (e.g. for stationary sources) Tradeable Permits (e.g. US SO2 program)

Taxes (e.g. sulfur content coal)

Effect on technological change?

Differential impact between instruments?

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Different Dynamic Incentives?

Economic theory suggests stronger dynamic incentives from market based instruments continuous incentive for abatement

Is there any empirical evidence for the hypothesis that market-based incentives have a stronger impact on rate and direction of technological change vis-à-vis their non-market alternatives?

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Qp outputO Q*

MDC(E)

t*

MAC0(E)

S X

MAC1(E)

Q1

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P*

Q2

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Background: Theory

Background: Theory

Theory produces better understanding of:

1. Dynamics of technological change and its likely direction: invention – innovation – diffusion

2. Regulatory process in terms of information and strategy: interaction between regulator – regulated agents

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Background: Empirics

To identify relation empirically estimate:Techn.change = f (standards, taxes, tdp, controls)

Options for identifying “Techn.change”:1. Invention (R&D expend.; patents & citations)

2. Innovation (org. skills; new technologies & products)

3. Diffusion (penetration/scale; changing abatement costs)

Few empirical studies pass critical tests!

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Results (1)

1. Environmental policy in general: Env. regulation has impact on technological change:

reduces growth bad, stimulates good firms/products

Higher implicit price of emissions (e.g. energy price) boosts patents in ‘friendly’ technology

Level of pollution abatement cost linked to patents, but seems to be a good measure only of new regulation

International cooperation (acid rain protocol) stimulates transfer of knowledge (NEW!)

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Results (2)

2. Isolated policy instruments: CAC policy affects techn. change (both invention &

innovation), but also captures rents new technologies

Adoption strongly depends on firm-specific characteristics

Effect of tax-cum-rebate schemes seems to depend strongly on its design and its level!

Subsidies (or tax exemptions) also stimulate adoption even if not rational to adopt

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Results (3)

3. Differential impact of policy instruments: Indirect incentives (energy price) seem not to affect

rate of innovation, yet direction does change

Combined effects matter (product labelling!)

Impact of instruments depends above all on relative strictness (CAFE vs Energy price)

Up-front costs important barrier to adoption new technology (loans more effective?)

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Results (4)

3. Differential impact of policy instruments: Some evidence suggest MB-instruments have always

effect, but not so for CAC (should be binding)

CAC vs TDP in US Lead program suggests adoption propensity (permit sellers) stronger under TDP

CAC vs TDP in US CAA confirms cost savings potential and effect on direction of technological change, but also an effect on its nature!

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Future Research (1)

1. Focus in practice on CAC, though good examples not yet studied (e.g. energy taxes in the EU)

2. Practical policy usually cocktail, but too few data available to study differential impacts

3. Remarkable little analysis of instruments in controlled settings (field & laboratory experiments)

4. Very few European studies….

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Future Research (2)

5. Role of design instruments unclear (e.g. choice tax or regulatory base, positive vs. negative incentives, timing)

6. Little insight in role of firm-specific characteristics (e.g. adoption)

7. Bias to observable information (organizational change?)

8. What about effect on/from financial markets?

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184 Conclusies

Milieubeleid verandert richting van technologische ontwikkeling (zowel inventie, innovatie als diffusie)

‘Crowding in’ (Porter) vs. ‘crowding out’ onbeslist

(Nog) geen duidelijke aanwijzing dat MBI sterker effect hebben op tempo of richting dynamiek dan CAC: regulering als dynamisch spel

194 Conclusies

Er bestaat te weinig oog voor: dataverzameling tbv serieuze beleidsevaluatie lange termijn sectorverschuivingen (‘van mijnwerker tot

vuilnisman’) rol cultuurverschillen tussen landen bij keuze en

beoordeling effectiviteit instrumenten belang vormgeving instrumenten en kosten daarvan

(keuze belastinggrondslag, toedeling rechten) rol ondernemingsspecifieke karakteristieken belang financiële markten (‘venture capital’)?

205 Stellingen

VROM moet veel meer aandacht besteden aan ‘early stage ideas’ Informatie in patenten; venture capital

Alle milieubeleid stimuleert inventie, maar innovatie en diffusie erg gevoelig voor juiste (markt)prikkels EIA; feed-in tariffs; regulatory capture

Tegenstelling tussen CAC en MCI is schijn CAC prijst ook; MCI kan niet zonder regels

213 Effect instrumentarium?

Classic picture: Policy practice: standards & subsidies Economists: market based instruments (tradeable

permits, taxes)

Picture is bursting: Policy practice: fewer regulation, more market based

instruments Economists: dynamic analysis requires updating