Innovation, Environmental

Environmental or eco-innovation is about renewing products, processes, and institutions from an environmental point of view. Environmental innovation aims to reduce the (over) use of natural resources and the negative effects on ecosystems, such as emissions to air, land, and water. Innovations can be of an incremental or radical character and can take place at the level of a product or service or at the level of the sociotechnical system in which the innovation is adopted. The path of incremental innovation is commonly considered to be too piecemeal and too slow to address urgent problems such as climate change. System innovations are to be preferred, but they are hindered by institutional and societal forces. The urgency to innovate raises the question of the governability of innovation. The different views on the extent to which environmental innovation can be stimulated, and which [Page 235]instruments government can use to push or pull innovation, are merging into a coherent management paradigm.

Innovation focuses on the process of the development and diffusion of a novelty through society. The novelty may concern a product or service, the process by which is it produced or delivered, and the technological, social, and institutional environment in which it is developed and used. An invention becomes an innovation when it is spread through society and is used by members of that society. This process of diffusion of innovation and the adoption of it by users is considered to evolve along an S-shaped curve. The curve starts with high investments in research and development, followed by gentle slope upward, in which innovations are selected by a group of early adopters. When the majority follows, the curve steeply rises and marginal costs (change in total costs that results from producing one additional unit) in this stage are low. The curve flattens again when the innovation has become common.

In an early stage of development, green products have to doubly compete with nongreen or grey substitutes. These products already benefit from scale advantages, and they externalize environmental costs, whereas green products aim to include these costs in the price. The buyer pays for these costs, and society freely benefits from the environmental advantages. This asymmetrical allocation of costs and benefits imposes an extra barrier to the large-scale adoption of green products.

Once green products are produced on a large scale, they do not have to be more expensive than their grey substitutes, especially not when the lifetime and maintenance costs of the green product are taken into account. Responsible use of materials results in durable products that require less maintenance and/or repair and that often outlive their grey competitors. However, customers tend to base investment decisions on up-front capital costing and not on the return on investment over a longer time, which explains the continued competition between grey and green products.