GREEN INNOVATION AND INDUSTRIAL POLICIES
subsidizing fossil fuels, given that most studies show that these tools do more than patent protection to limit the transfer of clean technologies (Barton 2007 and Copenhagen Economics 2009, as cited in Hall and Helmers 2010). A World Bank (2008) study finds that eliminating tariff and nontariff barriers in the top 18 developing countries ranked by greenhouse gas emissions would increase imports by 63 percent for energyefficient lighting, 23 percent for wind power generation, 14 percent for solar power generation, and 4.6 percent for clean coal technologies.11 Policies to stimulate adoption of green technologies. Green technologies are often more costly for firms to adopt and are not always immediately more attractive to enduse customers. When feasible, ensuring that prices reflect the environmental externality and removing subsidies that favor brown technologies are the best tools with which to encourage the adoption and spread of green innovation. When prices cannot be adjusted, demandpull technology-deployment innovation policies (standards, regulations, public procurement) are needed. Demand-side policies include guaranteed feed-in tariffs for renewables, taxes and tradable permits for emissions pollution, tax credits and rebates for consumers of new technologies (compact fluorescent light bulbs), comparison labeling (to inform consumers about the relative efficiency of products), endorsement labeling (“CFC– free”), government regulations (limits to polluting emissions from industrial plants), and industry-driven standards (home and office building insulation). In contrast with radical innovation, demand-side policies appear to be effective in spurring firms to introduce incremental environmental innovations and adopt existing technologies. Indeed, European Union surveys show that firms in most countries identify existing or future environmental regulations, followed by market demand from customers, as the main driver behind adopting incremental processes (Dutz and Sharma 2012). In high-income countries as a whole, most
studies report that well- designed environmental regulations stimulate innovation by firms, as measured by R&D spending or patents. That said, the induced innovation may not be enough to fully overcome the added costs of regulation (Ambec and others 2011). As for designing environmental regulations, studies emphasize the need for stability, predictability, and a focus on end results rather than means—allowing firms to choose the most cost-effective approach to meet the end result. Voluntary sustainability standards for products and processes can help local fi rms upgrade environmental practices, a form of catch-up innovation for business practices. Roundtables and other multi-stakeholder initiatives provide new ways to manage natural resources more sustainably and efficiently. The best-known are international initiatives that group together producers, processors, traders, and other actors in a commodity’s supply chain with banks and civil society groups concerned about the harmful impacts of agriculture and aquaculture expansion. They aim at building consensus and setting voluntary standards on what constitutes responsible production and processing, along with promoting proven management practices to reach the set targets. Linking local fi rms to the global value chains of multinational corporations that have adopted sustainability standards helps leverage international market pressures (box 3.7). Finally, a better financial infrastructure could significantly boost green technology absorption. In a study on adopting efficient stoves, small biogas plants, and efficient tobacco barns for commercial farmers in Malawi, Rwanda, and Tanzania, financing emerged as the main stumbling block for all projects because of high start-up costs (Barry and others 2011). A study of low-income countries finds that higher financial intermediation significantly helps non-hydroelectric renewable energy generation per capita, because investment in renewable energy is constrained in environments where access to long-term loans is limited (Brunschweiler 2010). Regarding China, a study cites access
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