Environmental Policy

Environmental policy is often regarded as one of the main drivers of environmental innovation (Porter and van der Linde, 1995b). The adverse effects of most environmental problems resulted in environmental innovation being less market-driven and more regulatory motivated. Porter and van der Linde (1995b) advocate that environmental regulation may result in a win-win situation: pollution being reduced and profits increased. This argument is famously termed the Porter Hypothesis and is largely based on evolutionary innovation theory (Nelson and Winter, 1982). Nelson and Winter (1982) postulate that a firm’s innovative behaviour is hardly an optimisation process; rather it often follows rules of thumb and routines, due to the large uncertainties related to the success of innovation. Following Nelson and Winter (1982) Porter and van der Linde (1995b) assert that this argument is largely applicable to environmental innovation where firms are “… still inexperienced in dealing creatively with environmental issues.”(Porter and van der Linde, 1995b). Therefore, environmentally and economically favourable innovations are often unrealised due to inadequate information, organizational and coordination problems (Porter van der Linde 1995b). Therefore, in such a scenario, environmental regulation plays a critical role by forcing firms to bring about “economically benign environmental innovation” (Horbach, 2008). For example, the Catalytic Converter was developed following regulations to protect local air quality, and resulted in significant reduction in emissions of pollutants such as NOx and SOx from vehicles (Kemp and Foxon, 2007). Indeed, Porter and van der Linde (1995b) call for countries to adopt “innovation-forcing regulations” for envi...

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...ug and Sørensen, 2009).indeed, Moe (2006), exploring the Norwegian construction industry, has noted that there are no established standards for measuring the energy efficiency nor the environmental soundness of buildings. Therefore, developers who want to pursue a sustainable solution are free to choose what criteria they want to apply, resulting in sustainability, including energy efficiency, being shaped by local interpretations, priorities and interest (Moe, 2006). Moe (2006) also highlight that energy technologies are often selected based on how strongly they symbolise energy efficiency, rather than being selected based on actual calculations of their energy performance. An example of that are heat pumps which are selected for their iconic status as sustainable technologies, even though other technologies may have provided greater energy efficiency (Moe, 2006).