Stimulating 'green' technological innovation: An analysis of alternative policy mechanisms

As our understanding of human impacts on the environment has increased, it has become clear that we need to move toward a closed-loop industrial socie ty in order to avoid undesirable health and ecosystem consequences. Achieve ment of this goal depends on radical technological innovation in both produ cts and processes. This paper explores how to design public policy mechanis ms to stimulate rather than impede pollution-preventing technological innov ation. It begins with a discussion of the role of government in civilian te chnology development and diffusion. It then sets out six design criteria fo r policy to promote 'green' technology innovation. Based on this set of des ign criteria, the article assesses the potential and limitations of current U.S. policy approaches to stimulate technological innovation that moves us toward a minimal waste society. The main conclusions of this assessment ar e as follows. Over the past decade, the U.S. environmental policy system ha s experienced a variety of reforms and new initiatives,many aimed directly at promoting environmentally-friendly technological change. The strengths o f these reforms are to increase the information that the private sector has about the magnitude and cost of their environmental impacts and to allow g reater flexibility in the technologies that firms choose to meet environmen tal regulations and goals. Because of these reforms, firms are likely to un dertake technological innovation for the environment in situations with cle ar short-term economic benefits, i.e. to capture the much heralded win-win potential of environmental regulation. However, these reforms have signific ant weaknesses as well. Unless policy provides stronger political or econom ic incentives and clearer signals about future environmental performance re quirements, we are unlikely to be able to drive technological innovation in industries where the pay-off is more longterm or uncertain, and thus will make only limited progress toward the goal of a minimal waste society.