Quaderno n . 1 / 2012 January 2012 The European Emission Trading Scheme and environmental innovation diffusion : Empirical analyses using Italian CIS data

We study the driving forces behind the adoption of environmental innovations (EI) in the Italian economy over 2006-2008 through empirical analyses of the new wave of Community Innovation Survey (CIS) data that covered environmental innovation adoptions in different realms (energy, carbon, production, consumption, etc.). Given the shortage of studies that have empirically assessed the innovation effects of ETS at micro econometric level, we investigate whether the first phase of EU ETS (started in 2005-2006) has exerted some effects on environmental innovations. We then include in a typical probit innovation function some policy stringency indicators, for the ETS sectors, to verify whether the likelihood of adopting environmental innovations is stimulated among other factors by the ETS lever. We test a wide and comprehensive set of potential drivers, including internal factors (R&D), external (to the firm) factors (cooperation, networking), international drivers (foreign related relationships), and mostly important, the dynamic incentives to innovation eventually provided by the ETS implementation. Estimates show that external forces and complementarity with other management practices are particularly relevant to increase the adoption of relatively new and radical technologies: relationships with other firms and institutions, local public funding, group membership are the key factors in this sense. Training is also positively related to EI, confirming recent evidence. The role of ETS on EI seems instead to be weak, but it turns out to be significant for energy efficiency innovations and for consumption level/good related reductions of atmospheric and water emissions. Keywords: environmental innovation, industrial sectors, ETS, innovation drivers, CIS data. JEL: C21, L2, O33, Q38, Q55 * The authors would like to thank seminar participants at the International Workshop on Evaluating Innovation Policy: Methods and Applications (EUNIP, 5-6/5/2011, Florence), at the SIEP (Società Italiana di Economia Pubblica, Pavia, 19-20/9/2011), and the SIE (Società Italiana degli Economisti, Rome, 14-15/10/2011). The usual disclaimer applies. ** University of Siena, Faculty of Political Science, Department of Law, Economics and Government, via Mattioli 10, 53100 Siena *** University of Padova, Department of Economics, via del Santo 33, 35123 Padova. † Corresponding author: Massimiliano Mazzanti, University of Ferrara, Faculty of Economics, Department of Economics Institutions Territory, Via Voltapaletto 11, 44121, Ferrara. Tel: 0532 455066, Fax: 0532293012, E-mail: mzzmsm@unife.it. 1 Introduction: environmental innovations and the EU ETS The socio economic analysis of environmental innovations (EI) (Rennings, 2000; Krozer and Nentjes, 2006) is based on both the evolution of various empirical research directions on innovations drivers and on the theoretical literature regarding the dynamics of EI and the investigation of the environmental and economic performances e¤ects of environmental innovations. The literature that studies the dynamics of environmental innovation has developed on a theoretical ground on both classic research issues of environmental economics studying the static and dynamic e¢ ciency of regulatory instruments (economic vs command and control, scal tools and emission trading), thus including the e¤ects of (technological, mainly emission abatement tools) innovation spurred by the regulatory stimulus (Hahn and Stavins, 1994; Goulder and Parry, 2008), and on more recent analyses evolving within evolutionary economics (Mulder and Van den Bergh, 2001), intrinsically focused on the co-evolution of innovation, policy and economic dynamics in socio-bio-economic systems (Kemp, 1997). The structural theme of innovation endogeneity is crucial and links the analysis of innovation drivers to the realm of the e¤ects of innovations (Pizer and Popp, 2009). The empirical literature is fed by the theoretical reasoning in testing the hypotheses on e¢ ciency (but also e¤ectiveness in a less mainstream perspective of ex post evaluation, Millock and Nauges, 2006; Bruvoll et al., 2003) of economic and policy drivers (Johnstone, 2007). The theoretical paradigm is based on both mainstream and heterodox approaches (van den Bergh, 2007). The motivations of environmental innovations (Sterner and Turnheim, 2008; Mazzanti and Zoboli, 2009b; Horbach, 2009; Rennings et al., 2003; Frondel at al 2004), but also the complementarity nexus between drivers (Mohnen and Roller, 2005; Mazzanti and Zoboli, 2008) with other organisational innovations of environmental nature, such as EMS/auditing schemes (Harrington et al., 2007; Arimura et al., 2008; Frondel et al. 2004; Wagner, 2007, 2008; Johnstone and Labonne, 2009) are studied. On the level of economic and environmental performances of EI, the starting point is the well known Porter hypothesis (Porter and Van der Linde, 1995) on the competitive advantages that may derive in the long run from investments in environmental innovations (that may anticipate or being just compliant with policies) or more in general from strategies which are not (only) based on cost reduction management options, but are aimed at investing on rm assets following the paradigm of corporate social responsability (CSR, Reinhardt F. Stavins R: Vietor R., 2008; Margolis et al. 2007). Key factors are techno organisational innovations, training/human capital, workers and unions involvement in strategic innovative decisions, workers conditions regarding health, safety and stress. The aim is one of increasing long term pro tability by means of complementary investments in technological and human capital, and the production of impure public goods linked to innovation processes (Kotchen, 2005; Rubbelke and Markandya, 2008). Environmental performances and workers conditions are thus characterized as the