ENVIRONMENTAL REGULATION AND DIRECTION OF TECHNOLOGICAL CHANGE

Transcription

1 ENVIRONMENTAL REGULATION AND DIRECTION OF TECHNOLOGICAL CHANGE IAERE Conference 2016 Working Paper Presentation Enrico Botta, Univ. degli Studi di Milano

2 The impact of environmental regulation is widely discussed in the literature The traditional view on environmental polices is opposed to the Hypothesis put forward by Porter and van der Linde

3 The Porter s Hypothesis has been articulated into three more narrowly defined forms Strong version The assumptions of perfect markets with fully rational agents are rejected, as such firms are not operating at the maximum possible efficiency. Weak version Firms will innovate in order to comply with the new regulation in the most cost effective manner. Narrow version Flexible environmental policy regimes are more likely to increase innovation and improve company performance.

4 The narrow and weak version Impact on green innovation Main studies on green innovation and environmental regulation: Jaffe and Palmer (1997) Johnstone et all (2010) Rubashkina et al. (2015) Limited panel data Few studies assessing jointly both market and non-market based regulation. Impact on grey innovation..but what happens to grey innovation? Aghion et al. (2016)?

5 Our main working hypothesis is that the direction of technological change is driven by two key factors A more stringent environmental regulation should steer innovation away from polluting technologies and towards green technologies The direction of technological change is affected by the cumulated knowledge stock Market based regulation provide dynamic incentives and therefore stimulate higher rates of green innovation

6 Index Intro The model

7 The following empirical model is developed to test the hypotheses set out above:!""!"#$!!"!!!!"#$%&!"!!"#$%&'#(!!"!!"#$%"&!"!!!!!!!!!!"!

8 The following empirical model is developed to test the hypotheses set out above:!""!"#$!!"!!!!"#$%&!"!!"#$%&'#(!!"!!"#$%"&!"!!!!!!!!!!"! Triadic patents a common measure of innovation worldwide and used to mitigate issues with the quality of inventions Aggregate into three main groups: green energy technologies, other green technologies and not-environmental related innovation.

9 The following empirical model is developed to test the hypotheses set out above:!""!"#$!!"!!!!"#$%&!"!!"#$%&'#(!!"!!"#$%"&!"!!!!!!!!!!"! OECD index It covers 26 OECD countries over the years It combines information on 15 environmental policy (both market based and not-market based) instruments. Instruments not related to the energy sector are excluded

10 The following empirical model is developed to test the hypotheses set out above: Overall Environmental Regulation of the Energy Industry Market-based instr. Not marketbased instr. Taxes Trading schemes FiT ELVs R&D sup N.B. information on not energy related regulation instruments has been dropped

11 The following empirical model is developed to test the hypotheses set out above:!""!"#$!!"!!!!"#$%&!"!!"#$%&'#(!!"!!"#$%"&!"!!!!!!!!!!"! Knowl. stock The law of motion of knowledge is calculated using the perpetual inventory method (Verdolini & Galeotti, Coe and Helpman,1995) a separate variable for the knowledge stock of each type of technology. Both foreign and domestic knowledge stocks considered know_stock tech,it =inno tech,it +(1-δ) * knowstock tech,it-1

12 The following empirical model is developed to test the hypotheses set out above:!""!"#$!!"!!!!"#$%&!"!!"#$%&'#(!!"!!"#$%"&!"!!!!!!!!!!"! Controls GDP per capita Liberalization of the energy sector

13 Econometric estimation!""!"#$!!"!!!!"#$%&!"!!"#$%&'#(!!"!!"#$%"&!"!!!!!!!!!!"! A. Hausman, Hall and Griliches (HHG) B. Blundell, Griffith and Van Reenen (PSM) C. Blundell, Griffith and Van Reenen & IHS (IHS)

14 Index Intro The model Results

15 Green HGG Green PSM Green patents PSM & IHS HGG PSM patents PSM & IHS EPS 0.138*** *** *** *** (0.0516) (0.0521) (0.0564) (0.0280) (0.0232) (0.0231) log_ksgreen_energy 0.316*** 0.583*** 0.394*** 0.176*** 0.193*** 0.196*** (0.119) (0.152) (0.136) (0.0492) (0.0473) (0.0455) log_ks_other_green 0.737*** 0.795*** 0.547*** (0.237) (0.225) (0.210) (0.1000) (0.0823) (0.0819) log_ks grey *** ** *** 0.380*** 0.503*** 0.506*** (0.254) (0.266) (0.254) (0.107) (0.106) (0.105) Lag3.lforei._KS_ge 3.653*** 0.558* 0.739* * (0.725) (0.303) (0.420) (0.247) (0.143) (0.143) Lag3.lforei._KS_go 2.755*** 1.242** (0.729) (0.558) (0.603) (0.388) (0.260) (0.259) Lag3.lforei._KS_grey *** ** * (1.173) (0.279) (0.279) etcr2_ele *** ** ** ** ** (0.0392) (0.0414) (0.0412) (0.0183) (0.0139) (0.0139) lgdp_pc * * * (0.841) (0.449) (0.484) (0.367) (0.226) (0.226) lpsm ** 0.289*** 0.286*** (0.205) (0.223) (0.0742) (0.0726)

16 Green HGG Green PSM Green patents PSM & IHS HGG PSM patents PSM & IHS EPS_Market ** * (0.0404) (0.0465) (0.0448) (0.0252) (0.0210) (0.0210) log_ksgreen_energy 0.385*** 0.533*** 0.399*** 0.137*** 0.160*** 0.165*** (0.114) (0.144) (0.124) (0.0472) (0.0459) (0.0442) log_ks_other_green 0.816*** 0.842*** 0.580*** (0.237) (0.226) (0.206) (0.100) (0.0841) (0.0836) log_ks grey *** ** *** 0.376*** 0.474*** 0.477*** (0.254) (0.280) (0.252) (0.108) (0.109) (0.108) Lag3.lforei._KS_ge 3.231*** 0.547* 0.657* (0.719) (0.330) (0.397) (0.245) (0.140) (0.140) Lag3.lforei._KS_go 2.851*** 1.213** * * (0.741) (0.576) (0.603) (0.394) (0.261) (0.260) Lag3.lforei._KS_grey *** ** * (1.139) (0.611) (0.706) (0.567) (0.280) (0.280) etcr2_ele *** ** ** ** ** (0.0396) (0.0411) (0.0410) (0.0183) (0.0140) (0.0140) lgdp_pc ** ** (0.799) (0.455) (0.468) (0.349) (0.225) (0.224) lpsm ** 0.309*** 0.304*** (0.212) (0.219) (0.0743) (0.0727)

17 Green HGG Green PSM Green patents PSM & IHS HGG PSM patents PSM & IHS EPS_nonmarket * *** *** *** (0.0401) (0.0346) (0.0390) (0.0185) (0.0164) (0.0164) log_ksgreen_energy 0.337*** 0.629*** 0.483*** 0.201*** 0.212*** 0.214*** (0.123) (0.140) (0.142) (0.0494) (0.0477) (0.0457) log_ks_other_green 0.707*** 0.758*** 0.477** (0.239) (0.220) (0.201) (0.0991) (0.0820) (0.0818) log_ks grey *** ** ** 0.366*** 0.460*** 0.462*** (0.259) (0.252) (0.243) (0.105) (0.106) (0.105) Lag3.lforei._KS_ge 3.676*** 0.547* 0.605* ** (0.761) (0.279) (0.353) (0.247) (0.157) (0.160) Lag3.lforei._KS_go 2.687*** 1.276** (0.744) (0.553) (0.575) (0.387) (0.262) (0.263) Lag3.lforei._KS_grey *** *** ** (1.206) (0.555) (0.639) (0.538) (0.292) (0.295) etcr2_ele *** ** ** ** ** (0.0392) (0.0407) (0.0413) (0.0179) (0.0139) (0.0139) lgdp_pc (0.858) (0.439) (0.446) (0.356) (0.241) (0.241) lpsm ** 0.284*** 0.283*** (0.191) (0.220) (0.0749) (0.0736)

18 Green knowledge flows across national boundaries but slower PSM patents PSM & IHS EPS ** ** PSM patents PSM & IHS EPS_market PSM patents PSM & IHS EPS_nonmarket *** *** log_ksgreen_energy 0.105** 0.127*** * 0.102** 0.117** 0.139*** log_ks_other_green * * * * log_ks grey 0.568*** 0.573*** 0.535*** 0.539*** 0.543*** 0.544*** lforei._ks_ge * * * * ** ** lforei._ks_go ** ** *** *** *** *** lforei._ks_grey 0.707* 0.635* 0.666** 0.613** 0.818** 0.779** etcr2_ele lgdp_pc lpsm 0.366*** 0.336*** 0.367*** 0.341*** 0.368*** 0.334***

19 Index Intro The model Conclusion

20 Three main conclusions The estimations suggest that environmental policy stringency does drive the direction of technological efforts Market and non-market instruments behave differently in relation to type of innovation considered. Path dependency. Measures to favour inflow of green technology might be a tool to stimulate green innovation when designing more stringent regulations prove to be politically challenging

21 Thank you