The European Emission Trading Scheme and environmental innovation diffusion: Empirical analyses using Italian CIS data

We study the driving forces behind the adoption of environmental innovations (EI) in the Italian economy over 2006-2008 through empirical analyses of the new wave of Community Innovation Survey (CIS) data that covered environmental innovation adoptions in different realms (energy, carbon, production, consumption, etc..). Given the shortage of studies that have empirically assessed the innovation effects of ETS at micro econometric level, we investigate whether the first phase of EU ETS (started in 2005-2006) has exerted some effects on environmental innovations. We then include in a typical probit innovation function some policy stringency indicators, for the ETS sectors, to verify whether the likelihood of adopting environmental innovations is stimulated among other factors by the ETS lever. We test a wide and comprehensive set of potential drivers, including internal factors (R&D), external (to the firm) factors (cooperation, networking), international drivers (foreign related relationships), and mostly important, the dynamic incentives to innovation eventually provided by the ETS implementation. Estimates show that external forces and complementarity with other management practices are particularly relevant to increase the adoption of relatively new and radical technologies: relationships with other firms and institutions, local public funding, group membership are the key factors in this sense. Training is also positively related to EI, confirming recent evidence. The role of ETS on EI seems instead to be weak, but it turns out to be significant for energy efficiency innovations and for consumption level/good related reductions of atmospheric and water emissions.