Indicators for environmental innovation: what and how to measure

Environmental innovation is encouraged by many factors, including government regulation and subsidies, business opportunities for clean production, and the adoption by firms of an environmental ethic in response to public pressure. By the late 1980s environmental management had become an integral part of the corporate strategy of many firms in developed countries, diffusing increasingly also in developing countries. This brought into focus the potential economic benefits of environmental innovation from reduced material inputs and a shift away from end-of-pipe treatment solutions to preventive solutions.' However, despite the economic value of environmental innovation for industry and its potential societal benefits, there are only a few internationally comparable indicators2 on the prevalence of environmental innovation, the factors that influence it and its economic effects. This shortage hampers the ability to design policies to encourage economically efficient environmental innovation and to track progress towards enviromnental goals. The pollution abatement costs and expenditures (PACE) data are one example of the limitations of current indicators. PACE data on capital equipment spending by firms to reduce pollution have been collected on an annual basis in the United States, France and Germany and on an irregular basis in the Netherlands, the UK and Canada (Olewiler, 1994). The PACE estimates however, do not include investment in research and development (R&D) or other inventive activities, and are more likely to reflect end-of-pipe investments than investments in clean technology. The European Community Innovation Survey and similar surveys conducted in Australia and Canada are similarly lacking. Although these surveys include a few questions of relevance to environmental innovation, such as whether the firm's innovations have resulted in the reduction of per unit material and/or energy use, these questions only scratch the surface of environmental ‚Äö Issues.