Does environmental policy stringency matter for eco-innovation? Evidence from the EU countries

Abstract

Objective: The objective of the article is to examine the influence of environmental policy stringency on the eco-innovation level, measured by a number of patents, in European Union countries.

Research Design & Methods: The research method was quantitative. The study used ordinary least squares (OLS) panel regression analysis based on data covering 18 EU countries (Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, the Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, and Sweden) and a period from 2013 to 2020 (144 observations). In estimated models, gross domestic product per capita, material import dependency, and human resources in science and technology served as control variables. The Organization for Economic Co-operation and Development, the European Innovation Scoreboard, Eurostat, and the World Bank were the data sources.

Findings: Higher stringency of technology support and market-based instruments positively influences eco-innovation-related patents in EU countries whereas more strict non-market-based instruments do not impact the eco-innovation level. Technology support instruments are more effective in stimulating eco-innovation than market-based instruments. Individual technology support instruments differ in their impact on eco-innovation with R&D subsidies being the most important. The stringency of feed-in tariffs and auctions is a significant factor triggering eco-innovation in the case of wind energy technologies, but not in the case of solar ones.

Implications & Recommendations: This study suggests that stringent technology support and market-based instruments are effective in stimulating eco-innovation in EU countries considered in the research sample. The environmental policy aimed at fostering eco-innovation should concentrate on increasing R&D subsidies for clean technologies. Further tightening emission standards aiming to enhance eco-innovation level is not recommended.

Contribution & Value Added: This study contributes to the literature on the importance of environmental policy stringency in fostering eco-innovation and provides new empirical evidence by examining not only instruments that may have an indirect impact on eco-innovation (i.e. market and non-market ones) but also technology support instruments, which have received less attention in previous studies. The analysis used data on the recently updated and improved OECD environmental policy stringency index.

Keywords

environmental policy stringency, eco-innovation, technology support instruments, R&D subsidies, environmental taxes, environmental standards

Author Biography

Justyna Godawska

Habilitation in economics and finance, PhD in economics, associate professor at the Faculty of Management, AGH University of Krakow, Poland. Her research interests include environmental policy, environmental reporting and corporate finance.

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