1. Environmental policies

2. Sustainable development and technologies
1. Eco-efficiency and resource efficiency and their relationship to sustainable development, including the development of indicators that can be applied to countries, sectors and technologies II. How innovation systems and the design of environmental policies and regulations can best provide the conditions and incentives needed to promote environment-related innovation III. Specific technologies and their contributions to sustainable development (nuclear power? Biotechnology?) IV. Case studies of how enterprises incorporate environmental objectives into their management strategies, including investments in clean technologies V. Means for facilitating international collaboration in research and development on environmental problems and technologies

3. The role of technology
Technology is crucial in de-linking economic growth (GDP) from environmental degradation.
Significant reduction in energy and materials intensity and polluting emissions requires technological advances in:
Products and processes
As well as organisational and behavioural changes

4. Economic theory and technological change (1)
Traditional growth theory
New technology is an exogenous variable appearing from outside at the right time and right price
In reality, market failures in terms of information deficiencies and inappropriate pricing risk suffocating rather than stimulating green technologies capable of enhancing sustainable development
Producers and consumers may lack knowledge about environmental impacts of different products and activities.
Prices often do not reflect resource use or environmental externalities
Therefore, new substitutes tend to be more expensive than conventional technologies
Providing proper price signals would increase investment in clean technologies

5. Economic theory and technological change (2)
Endogenous growth theories
Technological change occurs as a result of identifiable processes such as corporate investment and public policies
Governments play an important role in getting prices right
Economic, legal and physical infrastructure determine levels of:
R&D
Education and training
Investments (etc.)
Market factors, such as consumption trends, and government regulation are important influences on the innovation climate.
Governments have a more direct role in developing and diffusing green technology…
…and in the financing of the basic research that underlies innovation.

6. Creating an innovation climate for sustainable development
Promoting incorporation of environmental and social criteria into innovation systems
Reforms may concern:
Intellectual property regimes
Competition polices
Education and training policies
Financial and fiscal policies (enhance capital)
Communication policies

7. Policy coherence
New insights into the nature of the innovation process have changed perceptions about the appropriate role of governments
Policies to promote research collaboration, facilitate firm networking and clustering, encourage institutional ties, diffuse technology and increase personnel mobility are taking on new significance.
the success of these approaches depends on the overall policy environment, encompassing both macroeconomic and structural conditions.
Policy coherence also implies improved integration of environmental and technology policies and better co- ordination among environmental and technology agencies.

8. Formulating environmental policies
Environmental innovation takes place mostly in industry, where environmental policies and regulations are an important influence.
PROBLEM: traditional forms of environmental regulation have not generally led to radical technological change, although they have contributed to significant pollution abatement over the years
OPEN BOX 1 – General Purpose Technologies

9. Environmental policy (preliminary concepts)
Command and control (CAC) approaches have been a predictable stimulus to small, incremental improvements along established pathways, often in the form of end-of- pipe technologies.
More dynamic environmental policies that promote prevention rather than abatement, and the development of clean technologies and integrated approaches - including economic instruments - are needed

10. Developing and diffusing environmental technologies
Governments should assure a continuing basic research and development (R&D) effort on broad enabling technologies to support sustainable development goals.

11. Forming Public/Private partnership
Governments also play a role in developing technology and are increasingly conducting applied research in partnership with industry
They can enhance linkages among enterprises, and between enterprises universities and public research institutions, and foster interactions that are crucial to the innovation process
PPP: ‘any long-term association between distinct legal and administrative entities in the public and private sector for the pursuit of ends they would not be able to attain efficiently, effectively, economically, or equitably on an individual basis’
Many OECD governments are involved in partnerships aimed at developing technologies that can contribute to both sustainable development and industrial competitiveness.

12. Forming Public/Private partnership (PPP)
Public-private stakeholder platform for water management in Jordan. A pilot public/private stakeholder platform, the Jordan Business Alliance on Water, has been formed with initial USD funding from the US Agency for International Development (USAID). One project involves establishing a plant at a cost of USD Approximately 60% will be financed by the public sector and 40% secured from private sector funds. A similar model was agreed for another slightly smaller scale project, costing USD The initial USD investment in this partnership thus brought in total project finance of approximately USD 1.3 million, a leverage ratio of 1:13 (World Economic Forum, 2011).

13. Forming Public/Private partnership (PPP)
Climate public private partnership for developing countries. The UK Government, in collaboration with the International Finance Cooperation and Asian Development Bank, launched the Climate Public Private Partnership in For every pound provided by the UK taxpayer, this initiative will leverage up to 30 times the amount in private capital using two new commercial funds. This initiative will help support projects to deliver clean, renewable and efficient energy, new technology and protect natural resources in emerging and developing countries. It is estimated that the initiative could generate more than 7GW of clean, reliable energy – equivalent to 66% of current UK renewable energy capacity – and create jobs (DFID, 2012).

14. Environmental Policy Characteristics (Jonhstone et al., 2010)
It has long been recognized that the characteristics of the environmental policy can affect the rate and direction of innovation in pollution abatement technologies.
Different policy measures are likely to have different impacts on innovation.
There is a large body of literature which assesses the role of environmental policy instrument choice on the rate of innovation, with the common finding that market-based instruments are more likely to induce innovation than direct forms of regulation

15. Environmental Policy Characteristics (Jonhstone et al., 2010)
PROBLEM: Two market-based instruments (i.e. a tax on carbon emissions relative to environmentally-motivated product tax differentiation) may be as different from each other as each is in relation to some forms of direct regulation
The stark juxtaposition between market-based instruments and direct forms of regulation is somewhat misleading
SOLUTION: It is more helpful to think in terms of attributes of characteristics of different policies, and what effect each of these characteristics has on innovation.

16. Environmental Policy Characteristics (Jonhstone et al., 2010)
ATTRIBUTES: stringency; depth; incidence; flexibility; and stability
KEY POINT: correlation between instrument types and policy design attributes is imperfect.
Any incentives for innovation arise out of the underlying policy attributes and not the broad policy type per se.

17. Environmental Policy Characteristics (Jonhstone et al., 2010)
– Stringency – i.e. how ambitious is the environmental policy target, relative to the «baseline» emissions trajectory?;
– Predictability – i.e. what effect does the policy measure have on investor uncertainty; is the signal consistent, foreseeable, and credible?;
– Flexibility – i.e. does it let the innovator identify the best way to meet the objective (whatever that objective may be)?;
– Incidence – i.e. does the policy target directly the externality, or is the point of incidence a «proxy» for the pollutant?; and
– Depth – i.e. are there incentives to innovate throughout the range of potential objectives (down to zero emissions)?.

18. Environmental Policy Characteristics (Jonhstone et al., 2010)
Different environment-related taxes may have very different attributes.
EXAMPLE:
A tax on CO2 is flexible, targeted, deep, and often predictable
A differentiated tax for «environmentally friendly products» is not very flexible, targeted or deep.
Depending upon how the tax rate is determined, such a measure may actually have more similarity with technology-based standards than with an emissions tax

19. Environmental Policy Characteristics (Jonhstone et al., 2010)
STRINGENCY:
The effect of stringency on innovation is a correlate to the Hicksian notion that a change in the relative prices of factors of production will motivate firms to invent new production methods in order to economise the use of a factor which has become relatively expensive.
By imposing a price (whether explicitly or implicitly) on the costs of pollution emissions, or by otherwise changing the opportunity costs associated with environmental assets, environmental policy is likely to induce innovation − because firms seek to meet the policy objectives at least cost.
The stringency effect on innovation is difficult to measure

20. Environmental Policy Characteristics (Jonhstone et al., 2010)
STRINGENCY:
Pollution abatement and control expenditure (e.g., Lanjouw and Mody, 1996; Brunnermeier and Cohen, 2003)
Frequency of inspection visits (e.g., Jaffe and Palmer, 1997)
Measures based on the point of policy implementation (e.g., Johnstone et al., 2010 and Johnstone - Labonne, 2006)

21. Environmental Policy Characteristics (Jonhstone et al., 2010)
PREDICTABILITY:
Can reduce uncertainty for investors
Market uncertainty
Economic uncertainty can be a significant «brake» on investment (see Pindyck, 2007; Dixit - Pindyck, 1994).
This may be particularly true of investments in R&D, which are by nature risky and with uncertain outcomes
Investments are irreversible ( sunk costs)

22. Environmental Policy Characteristics (Jonhstone et al., 2010)
PREDICTABILITY :
Policy uncertainty
«stability» of the policy framework, as well as of the signals provided by the policy itself
Predictable signals and «irreversible » investments give rise to great option values, implying strong incentives to postpone investments
Governments which do not provide clear signals about policy intentions over the duration of firms’ planning horizons will retard investment in innovation
In particular, if the future trajectory of the costs associated with policies is uncertain
Timing matters (long-term investments and climate change)

23. Environmental Policy Characteristics (Jonhstone et al., 2010)
PREDICTABILITY :
EXAMPLE:
US - uncertainty concerning the annual renewal of the federal production tax credit (PTC), discouraged investment in renewable energy.

24. Environmental Policy Characteristics (Jonhstone et al., 2010)
FLEXIBILITY
if more «prescriptive» policies are applied, technology invention and adoption decisions are constrained by the precise characteristics of the standard
in order to induce search for the optimal technology to meet a given environmental objective governments should seek to allow for more flexibility in their policy regimes when this can be achieved at reasonable administrative cost

25. Environmental Policy Characteristics (Jonhstone et al., 2010)
FLEXIBILITY
US - Clean Air Act Amendments (CAAA) of 1990 which sought to reduce SO2 emissions by implementing a tradable permit system in place of direct regulations
The industry is allocated a fixed number of total allowances, and the firms are required to surrender one allowance for each ton of sulphur dioxide emitted by their plants. Firms may transfer allowances among facilities or to other firms, or bank them for use in future years.
BEFORE CAAA: plants were required to use the best available technology for pollution control, which was a scrubber. As a result, while there were incentives for innovation that would lower the cost of installing and operating scrubbers, there would be little incentives for innovation to improve the efficiency of the scrubbers
AFTER CAAA: freedom to search for all possible technologies to reduce SO2 emissions (see Burtraw, 2000).

26. Environmental Policy Characteristics (Jonhstone et al., 2010)

27. Environmental Policy Characteristics (Jonhstone et al., 2010)

28. Environmental Policy Characteristics (Jonhstone et al., 2010)

29. Environmental Policy Characteristics (Jonhstone et al., 2010)

30. Environmental Policy Characteristics (Jonhstone et al., 2010)

31. Environmental Policy Characteristics (Jonhstone et al., 2010)