## 2 Eco-Innovation
### Determinants of Eco-Innovation  
Several scholars have studied the determinants of eco-innovation given international efforts to implement and diffuse eco-innovation toward sustainable development. [PERSON] [42] classified the determinants into three sides: supply, demand, and policy (Table 1). The supply side includes technological capabilities for eco-innovation and possibilities for appropriating problem and market characteristics. The demand side is the expected market demand on environmentally friendly products. It reflects social needs and awareness and preferences for environmentally friendly products. The policy side includes the institutions that implement eco-innovation. It includes political opportunities for environmentally oriented groups, organizing information flow and existing innovation networks. It can be presented as a technology push, market pull, and regulation push/pull. Eco-innovation policies cover all of the determinants that were classified by [PERSON] [42]. Technological capabilities, including knowledge capacities, are the main determinants of eco-innovation on the supply side (Table 1). The Oslo manual [33] includes knowledge as one factor for eco-innovation. A firm that cooperates with research institutes and universities is more active in all types of eco-innovation [9]. Several studies indicate that monopolistic market structures may help to overcome problems with appropriation, specifically for large firms because they fear less imitation from competitors and gain more from the scale economies that are associated with innovation [7,42]. \begin{table}
\begin{tabular}{c l} \hline \hline
**Elements** & **Contents** \\ \hline \multirow{2}{*}{Supply} & Technological capabilities (knowledge capacities) \\  & Appropriation problems and market characteristics \\ \hline \multirow{3}{*}{Demand} & (Expected) market demand (the demand pull hypothesis) \\  & Social awareness of the need for clean production; environmental \\  & consciousness and preferences for environmentally friendly products \\ \hline \multirow{2}{*}{Institutional and political influences} & Environmental policy instruments \\  & Institutional structure \\ \hline \hline \end{tabular}
\end{table} 
Table 1: Three determinants of eco-innovation [42]. Currently, there is a consensus that the technology push is particularly important during the initial phase of an innovation's life cycle, which includes developing a new product, while demand factors, such as the market pull, are more important during the diffusion phase [42]. In particular, environmental regulation may lead to eco-innovation by forcing technological improvements in the initial phase of an innovation [42]. In the diffusion phase of new (environmental) products, the demand from consumers, public procurement, and other firms and exports is important [43, 44]. [PERSON] [42] argues that positive demand expectations can trigger innovations. The best guarantee of accelerated private investment in innovation is the expectation of rapidly growing demand for products based on those new technologies [45, 46]. Environmental regulations that encourage new technologies to respond and financial systems are external determinants of eco-innovation [47, 48, 49, 50]. The [PERSON] hypothesis [47] postulates that environmental regulations may lead to win-win situations to reduce pollution and increase profits. Therefore, environmental regulations may force firms to implement economically benign environmental innovations [42]. Furthermore, there are currently other strategies to lead eco-innovation. Encouraging soft environmental measures, such as environmental accounting systems, may improve eco-innovation's information base. In addition to environmental policy instruments and regulations, soft instruments, such as voluntary commitments, eco-audits, and eco-labels, may determine innovative behavior in firms. This typifies a new phase in environmental policies that promotes broader sustainability rather than addressing single environmental issues.