Published in: Research Policy (2020)
Authors: Giulio Cainelli, Alessio D’Amato, and Massimiliano Mazzanti
This research studies the determinants which motivate EU firms to adopt resource-efficient eco-innovations (RE-EI). The research analyzes how environmental policies along with market demand for green products affect innovative solutions that decrease material use and boost recycling techniques and waste management practices in line with EU circular economy (CE) initiatives. The paper utilizes theoretical frameworks that comprise the Circular Economy and Eco-Innovation and the Porter Hypothesis and Demand-Pull Theory.
The research relies on information collected from the Community Innovation Survey (CIS) 2008 that includes over 60,000 firms from nine EU countries. Researchers analyze the collected data with Probit & Heckman Two-Step Selection Models to minimize selection biases followed by an Instrumental Variable-Linear Probability Model (IV-LPM) to address endogeneity issues. The analysis focuses on three distinct forms of eco-innovation: ECOMAT describes material reduction performance per output unit and ECOREC represents waste recycling improvement including water and materials and ECOREA depicts product reuse capabilities aftermarket utilization. The two main variables used for explanation are ENREG (environmental regulations & pollution taxes) and ENDEM (market demand for green innovations). The analysis contains control variables that include firm size together with R&D investment and business group membership and market scope and EU ETS participation.
Both hypotheses find validation from the crucial findings. Environmental regulations (ENREG) heavily influence the adoption of recycling-oriented eco-innovations (ECOREC and ECOREA) even though their influence on material reduction innovations (ECOMAT) remains limited. All types of eco-innovations demonstrate strong dependence on the market demand for green products known as ENDEM. Research and development activities conducted within the company (RRDIN) surprisingly exhibit a negative relationship with CE-related eco-innovation adoption. The data implies that standard R&D programs do not directly create CE innovations therefore targeted eco-focused R&D Initiatives appear more effective for driving such development. The nature of both large firms and multinational groups decreases their likelihood of adopting eco-innovations because smaller firms enact circular economy strategies more efficiently.
Target markets mean local audiences because firms dedicated to serving these areas show stronger adoption tendencies for CE innovations, but export-focused organizations choose not to prioritize CE innovations because sustainability benefits are thought to be community resources. EU Emissions Trading System (ETS) participation produces no substantial effects on CE innovations and instead creates negative consequences for both ECOREC and ECOREA data points indicating that carbon market mechanisms lack sufficient power to trigger material/resource efficiency.
The research emphasizes the need for better specific policy measures that boost transitions in circular economy approaches particularly regarding material efficiency improvements called ECOMAT. The existing recycling incentive policies need to evolve because they must actively promote waste prevention methods and material efficient systems. Market demand holds essential importance, but firms need both financial aid and eco-certifications to successfully implement large-scale environmental innovations. The marketplace value systems of ordinary consumers’ needs to link directly with clear profit potential for corporations to make sustainability their focus. This research shows an absence of connection between conventional R&D activities and sustainable development targets which suggests government policies need to support R&D efforts specifically designed for circular economy problems instead of sustaining uncritical technological development.
Eco-innovation adoption depends entirely on environmental policies and market demand as fundamental implementing factors. Different incentives prove necessary for recycling-focused innovations since material efficiency demands more specific measures. Research and development efforts of a general nature fail to contribute substantially to circular economy innovation therefore firms must invest specifically in sustainability-related innovation. The adoption of circular economy principles primarily relies on local market influences more than international market dynamics. The authors advocate implementing strict material efficiency targets through policy measures along with providing financial support for CE-focused R&D projects along with product marketing initiatives to boost sustainable product adoption specifically targeting various branches of industry. The research establishes eco-innovation as a fundamental driver of circular economy development while stressing that targeted policy actions must be deployed to speed up sustainability transitions.