Environmental policy instruments and their effects on innovation

The influence of environmental policy on innovative behaviour of companies has so far received little attention in scientific discourse. Based on recent literature, the paper analyzes the impact of requirements, levies, permits, liability laws, and the EC‐eco‐audit regulation with respect to the generation of environmentally benign innovations. Most theoretical studies come to the conclusion that direct requirements provide little incentives for dynamic effects and that emission taxes and permits are better instruments to promote innovations. However, the empirical studies show that the dynamic effects of environmental policy instruments in practice partly differ from the ideal instruments analyzed in theoretical studies.