The innovation impact of the EU Emission Trading System — Findings of company case studies in the German power sector

This paper provides a detailed analysis of how the European Emission Trading System (EU ETS) as the core climate policy instrument of the European Union has impacted innovation. Towards this end, we investigate the impact of the EU ETS on research, development and demonstration (RD&D), adoption, and organizational change. In doing so, we pay particular attention to the relative influences of context factors (policy mix, market factors and public acceptance) and firm characteristics (value chain position, technology portfolio, size and vision). Empirically, our qualitative analysis is based on multiple case studies with 19 power generators, technology providers and project developers in the German power sector which were conducted in 2008/09. We find that the innovation impact of the EU ETS has remained limited so far because of the scheme's initial lack of stringency and predictability and the relatively greater importance of context factors. Additionally, the impact varies significantly across technologies, firms, and innovation dimensions and is most pronounced for RD&D on carbon capture technologies and organizational changes. Our analysis suggests that the EU ETS on its own may not provide sufficient incentives for fundamental changes in corporate innovation activities at a level which ensures political long-term targets can be achieved.

[1]  S. Hart.  A Natural-Resource-Based View of the Firm , 1995 .

[2]  Harold D. Lasswell,et al.  The Policy Sciences , 1953 .

[3]  Tom Tietenberg,et al.  Emissions Trading: An Exercise in Reforming Pollution Policy , 1985 .

[4]  P. González.  Analysing the factors influencing clean technology adoption: a study of the Spanish pulp and paper industry , 2005 .

[5]  Jens Horbach,et al.  What Triggers Environmental Management and Innovation? Empirical Evidence for Germany , 2008 .

[6]  Thomas Trautmann,et al.  Regulatory Uncertainty: A Reason to Postpone Investments? Not Necessarily , 2009 .

[7]  P. Joskow,et al.  The European Union's emissions trading system in perspective , 2008 .

[8]  C. Fischer.  Technical innovation and design choices for emissions trading and other climate policies , 2005 .

[9]  Karoline S. Rogge,et al.  EU emissions trading: an early analysis of national allocation plans for 2008–2012 , 2006 .

[10]  Andreas R. Ziegler,et al.  Integrated Product Policy and Environmental Product Innovations: An Empirical Analysis , 2007 .

[11]  Richard G. Newell,et al.  Environmental and Technology Policies for Climate Mitigation , 2008 .

[12]  Margaret R. Taylor.  Beyond technology-push and demand-pull: Lessons from California's solar policy , 2008 .

[13]  A. Jaffe,et al.  Environmental Policy and Technological Change , 2002 .

[14]  Karoline S. Rogge,et al.  Incentives for energy efficiency in the EU Emissions Trading Scheme , 2009 .

[15]  J. Wettestad,et al.  EU Emissions Trading: Initiation, Decision-making and Implementation , 2008 .

[16]  A. Chambers,et al.  World Energy Outlook 2008 , 2008 .

[17]  Clayton M. Christensen,et al.  Explaining the attacker's advantage: Technological paradigms, organizational dynamics, and the value network , 1995 .

[18]  M. Gibbert,et al.  What passes as a rigorous case study , 2008 .

[19]  P. Río.  Interactions between climate and energy policies: the case of Spain , 2009 .

[20]  R. Yin.  Case Study Research: Design and Methods , 1984 .

[21]  L. Greene.  EHPnet: United Nations Framework Convention on Climate Change , 2000, Environmental Health Perspectives.

[22]  Charles Edquist,et al.  Systems of Innovation Approaches - Their Emergence and Characteristics , 2013 .

[23]  Nicholas A. Ashford,et al.  Using Regulation to Change the Market for Innovation , 1985 .

[24]  K. Pavitt.  Sectoral Patterns of Technical Change : Towards a Taxonomy and a Theory : Research Policy , 1984 .

[25]  J. Horbach.  Determinants of Environmental Innovation - New Evidence from German Panel Data Sources , 2006 .

[26]  René Kemp,et al.  The innovation effects of environmental policy instruments — A typical case of the blind men and the elephant? , 2011 .

[27]  M. Frondel,et al.  End-of-Pipe or Cleaner Production? An Empirical Comparison of Environmental Innovation Decisions Across OECD Countries , 2007 .

[28]  J. Dales.  Pollution, property and prices;: An essay in policy-making and economics , 1970 .

[29]  V. Hoffmann,et al.  Navigating the global carbon market: An analysis of the CDM's value chain and prevalent business models , 2010 .

[30]  Wolfgang Eichhammer,et al.  Designing National Allocation Plans for Eu-Emissions Trading — A First Analysis of the Outcomes , 2004 .

[31]  Till Requate,et al.  Dynamic incentives by environmental policy instruments—a survey , 2005 .

[32]  Pablo del Río González,et al.  The empirical analysis of the determinants for environmental technological change: A research agenda , 2009 .

[33]  J. Barney.  Firm Resources and Sustained Competitive Advantage , 1991 .

[34]  Lars Zetterberg,et al.  A Ten-Year Rule to guide the allocation of EU emission allowances , 2007 .

[35]  K. Neuhoff,et al.  Allocation, incentives and distortions: the impact of EU ETS emissions allowance allocations to the electricity sector , 2006 .

[36]  V. Hoffmann,et al.  A taxonomy for regulatory uncertainty—application to the European Emission Trading Scheme , 2008 .

[37]  Volker H. Hoffmann,et al.  The impact of the EU ETS on the sectoral innovation system for power generation technologies - Findings for Germany , 2010 .

[38]  Martin Cames,et al.  Emissions Trading and Innovation in the German Electricity Industry , 2010 .

[39]  David Popp,et al.  Energy, the Environment, and Technological Change , 2009 .

[40]  M. Frondel,et al.  ANALYSISWhat triggers environmental management and innovation? Empirical evidence for Germany , 2008 .

[41]  J. Fagerberg,et al.  Innovation studies—The emerging structure of a new scientific field , 2009 .

[42]  Martin Jänicke,et al.  Environmental Policy and Innovation: an International Comparison of Policy Frameworks and Innovation Effects , 2000 .

[43]  Volker H. Hoffmann,et al.  EU ETS and Investment Decisions:: The Case of the German Electricity Industry , 2007 .

[44]  S. Pontoglio.  The role of environmental policies in the eco-innovation process: evidences from the European Union Emission Trading Scheme , 2008 .

[45]  Wallace E. Oates,et al.  The theory of environmental policy , 1976 .

[46]  Unfccc.  Kyoto Protocol to the United Nations Framework Convention on Climate Change , 1997 .

[47]  Volker H. Hoffmann,et al.  Corporate response strategies to regulatory uncertainty: evidence from uncertainty about post-Kyoto regulation , 2011 .

[48]  Volker H. Hoffmann,et al.  Effects of regulatory uncertainty on corporate strategy—an analysis of firms’ responses to uncertainty about post-Kyoto policy , 2009 .

[49]  Bernd Hansjürgens,et al.  Emissions trading for climate policy : US and European perspectives , 2005 .

[50]  N. Johnstone.  Environmental Policy and Corporate Behaviour , 2007 .

[51]  S. Schneider,et al.  Climate Change 2007 Synthesis report , 2008 .

[52]  C. Schultze,et al.  POLLUTION, PRICES, AND PUBLIC POLICY , 1977 .

[53]  Stefan Kuhlmann,et al.  Functions of innovation systems: A new approach for analysing technological change , 2007 .

[54]  K. Eisenhardt.  Building theories from case study research , 1989, STUDI ORGANIZZATIVI.

[55]  Daniel Kammerer,et al.  Explaining Green Innovation: Ten Years after Porter's Win-Win Proposition: How to Study the Effects of Regulation on Corporate Environmental Innovation? , 2006 .

[56]  Richard L. Ottinger,et al.  Compendium of Sustainable Energy Laws: Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 Establishing a Scheme for Greenhouse Gas Emission Allowance Trading Within the Community and Amending Council Directive 96/61/EC , 2005 .

[57]  In or out: efficient inclusion of installations in an emissions trading scheme? , 2010 .

[58]  Pushpam Kumar.  Agriculture (Chapter8) in IPCC, 2007: Climate change 2007: Mitigation of Climate Change. Contribution of Working Group III to the Fourth assessment Report of the Intergovernmental Panel on Climate Change , 2007 .

[59]  Mary Tripsas,et al.  Thinking About Technology: Applying a Cognitive Lens to Technical Change , 2008 .

[60]  Vanessa Oltra,et al.  Environmental innovation and clean technology: an evolutionary framework , 2005 .

[61]  Paula Kivimaa,et al.  The role of policy instruments in the innovation and diffusion of environmentally friendlier technologies: popular claims versus case study experiences , 2008 .

[62]  Heidi Armbruster,et al.  Organizational innovation: The challenge of measuring non-technical innovation in large-scale surveys , 2008 .

[63]  Luc Soete,et al.  Firm size and inventive activity: The evidence reconsidered , 1979 .

[64]  A. Denny Ellerman,et al.  New Entrant and Closure Provisions: How do they Distort? , 2008 .

[65]  J. Dales,et al.  Pollution, Property and Prices , 1969 .

[66]  A. Jaffe,et al.  The Induced Innovation Hypothesis and Energy-Saving Technological Change , 1998 .

[67]  M. Mazzanti,et al.  Economic instruments and induced innovation: The European policies on end-of-life vehicles , 2006 .

[68]  Daniel Radov,et al.  Evaluation of Alternative Initial Allocation Mechanisms in a European Union Greenhouse Gas Emissions Allowance Trading Scheme , 2010 .

[69]  Margaret R. Taylor,et al.  Control of SO2 emissions from power plants: A case of induced technological innovation in the U.S. , 2005 .

[70]  Manuel Frondel,et al.  The impact of emission trading on innovation – science fiction or reality? , 2005 .

[71]  T. Tietenberg.  Emissions Trading: Principles and Practice , 2006 .

[72]  W. Pizer,et al.  Decentralization in the EU Emissions Trading Scheme and Lessons for Global Policy , 2007, Review of Environmental Economics and Policy.