Towards an integrated approach to promoting environmental innovation and national competitiveness

Abstract

This paper explores how governments can promote environmentally friendly technologies while sustaining national competitiveness. Taking the Porter Hypothesis as its starting point, it briefly discusses the related literature on the relationship between environmental policy and competitiveness. It concludes that this literature has significant limitations and, therefore, proposes an alternative approach to tackling this question. It begins by reviewing the literature on innovation-oriented environmental policy. Next, it provides an overview of the literature on the role of government policy in promoting national competitiveness. It finds that recent shifts in the latter debate have increased the potential for integrating the two policy domains. The paper concludes with a discussion of the potentials and challenges of such an integrated policy, drawing on examples from the field of renewable energy. Based on this empirical example, a number of policy conclusions for both industrialized and emerging countries are presented.

Keywords:

• environmental innovation
• lead markets
• national competitiveness
• industrial policy
• innovation policy

Notes

1. Despite strong theoretical arguments in favour of (technology-neutral) R&D subsidies, neoclassical economists rarely consider their role in conjunction with environmental policy (for exceptions see Carraro, Katsoulacos, and Xepapadeas 1996; Fischer and Newell 2004).

2. Supply-side measures are less relevant for international diffusion, although capacity building to enable policy and technology transfer may also play a role.

3. See http://www.symbiocity.org/.