Figure 4-1-4 Case Study: Eco-innovation Examples

Source: Created by the Ministry of the Environment, using information from the OECD's "Eco-Innovation in Industry: Enabling Green Growth"

the sequence of the “mechanism” from “modification” to “creation,” and the sequence of the “target” from “product” to “system.”

## (3) Concepts behind Environmental Policies that Contribute to Green Innovation

Environmental policies play an important role in promoting green innovation.

According to the OECD’s study, environmental policies related to innovation are broadly divided into two categories: supply-side policies and demand-side policies. Supply-side policies include capital support through setting up venture capital funds in the early stages of research, and support for research and development (R&D) that provides funds to universities and basic research organizations (Figure 4-1-5). Demand-side policies include establishment of regulations and standards, and policies for public procurement that the public sector, also a main consumer, purchases materials and services that have a low environmental impact (same Figure 4-1-5). The research also found that in order to efficiently promote innovation, it is necessary to consider collaborative approach of policy measures on the demand side and the innovation policies on the supply-side that have traditionally been carried out.

These innovation policies need to include 5 policy characteristics; “Stringency,” “Stability,” “Flexibility,” “Incidence,” and “Depth,” because these characteristics have a different effect on innovation while it is generally believed that market-based approaches are more effective than direct regulation (Figure 4-1-6).

In disseminating fields that include new technologies, such as the field of renewable energy, it is necessary for policy makers to approach appropriately according to the stage of development of the technologies in the market. As a main policy measure for achieving green growth, the OECD summarized its tentative assessment results in the “Interim Report.” One of the its findings was that in order to realize dissemination of renewable energy technologies for a low-carbon society, innovation policies should be made according to the stage of development in the market for renewable energy technologies. The report also said that the degree of competition in the market must be encouraged according to the degree of maturity and dissemination of such technologies.

Focusing on policies related to dissemination of renewable energy technologies, the “Interim Report” discussed stages of development in the renewable energy technologies by dividing stages into the four stages of “prototype and demonstration stage,” “high cost-gap stage,” “low cost-gap stage,” and “mature stage” (Figure 4-1-7). In the discussion, continuous research and development with supports of subsidies and tax will be necessary in the “prototype and demonstration stage” or the high cost-gap stage, because they are the early stages of disseminating renewable energy technologies. In the “low cost-gap stage,” it will be necessary to set technology-neutral policies such as emissions trading, strengthen competitive status against other technologies and gradually defer to consumer demand and competition in the market, because dissemination of the renewable energy technology has made progress and the