Jérémy Laurent-Lucchetti

Environmental Policy, Innovation and Performance: New Insights on the Porter Hypothesis

Jaffe and Palmer (1997) present three distinct variants of the so- called Porter Hypothesis. The “weak” version of the hypothesis posits that environmental regulation will stimulate certain kinds of environmental innovations. The “narrow” version of the hypothesis asserts that flexible environmental policy regimes give firms greater incentive to innovate than prescriptive regulations, such as technology-based standards. Finally, the “strong” version posits that properly designed regulation may induce cost-saving innovation that more than compensates for the cost of compliance. In this paper, we test the significance of these different variants of the Porter Hypothesis using data on the four main elements of the hypothesised causality chain (environmental policy, research and development, environmental performance and commercial performance). The analysis is based upon a unique database which includes observations from approximately 4200 facilities in seven OECD countries. In general, we find strong support for the “weak” version, qualified support for the “narrow” version, and qualified support for the “strong” version as well.

Generational Welfare under a Climate‐Change Policy with Induced Innovation*

We develop a climate–economy model with generational heterogeneity and with the potential for climate‐policy‐induced technological change. We use the model to assess the distributional implications of climate policies that recycle generated revenues to finance research and development in the energy sector. We show that while the investments of climate‐policy rents that are used to accelerate innovation are likely to be welfare‐improving, as long as significant market failures exist, they are also likely to exacerbate the distributional inequities created across generations by climate‐change policies.

Generational welfare and induced innovation under climate change policy

We develop a climate–economy model with generational heterogeneity and with the potential for climate‐policy‐induced technological change. We use the model to assess the distributional implications of climate policies that recycle generated revenues to finance research and development in the energy sector. We show that while the investments of climate‐policy rents that are used to accelerate innovation are likely to be welfare‐improving, as long as significant market failures exist, they are also likely to exacerbate the distributional inequities created across generations by climate‐change policies.