Pollution Regulation and Its Effects on Technological Innovations

Regulatory instruments of environmental policy have been criticised for hampering innovations and their promotion. In this article the impacts of a regulatory instrument on technological innovations and their diffusion are evaluated, using waste water permitting in the Finnish pulp and paper industry as a case-study. The retrospective evaluation is made on two different levels. Firstly, the regulatory approach adopted towards innovation is analysed. Secondly, on the basis of data covering the past thirty years, an evaluation is made of the impacts of the regulatory instrument on innovations and their diffusion. The empirical observations are based on documents produced by the decision-making bodies, and interviews with key participants. It is concluded that there is a special kind of dynamics by which the impact on innovations and their development occurs. It is not possible to understand these dynamics only in terms of the use of the coercive power inherent in regulation, but the need for anticipation and other motives of operators must also be taken into account. The introduction of IPPC controls under the EC Directive may have the affect of shifting the focus from end of pipe technology to process technology, and thereby incorporating more technological variables into the negotiation stage of the permitting stage regulation. Its impact, however, on the relationship between regulation and innovation remains less clear at this stage.