Internalization of external effects vs. decrease of externalities: from end-of-pipe technologies to cleaner technologies

International Journal of Sustainable Development

Volumn 3, Issue 3, 2000, Pages 239-256

  Grimal, Laurent ^a   Képhaliacos, Charilaos ^b  

^a CNRS   (France)

^b UNIVERSITÉ DE TOULOUSE   (France)

Author keywords

adoption cost; cleaner technology; end of pipe technology; environmental innovation; firms competitiveness; imperfect market

Indexed keywords

EID: 84937339377     PISSN: 09601406     EISSN: None     Source Type: Journal    
DOI: 10.1504/IJSD.2000.001534     Document Type: Article

References (27)

1. See Baumol, W.J. and Oates, W.E. (1988) The theory of Environmental Policy, Cambridge University Press, Cambridge, MA.
2. See Porter, M.E. and Van Der Linde, C. (1995) ‘Toward a new conception of the environmentcompetitiviness relationship’, J. Econom. Perspect., Vol. 9, No. 4, pp. 97—118.
3. See Palmer, K., Oates, WE. and Portney, P. (1995) ‘Tightening environmental standards: the benefit-cost or the no-cost paradigm?’, J. Econom Perspect., Vol. 9, No. 4, pp. 119—132;
4. Simpson, R.D. and Bradford, R. L. (1996) ‘Taxing variable cost: environmental regulation as industrial policy’, J. Environ. Econom. Management, Vol. 30, No. 3, pp. 282—300.
5. See Shrivastava, P. (1995) ‘Environmental technologies and competitive advantage’, Strat. Management J., Vol. 16, pp. 183—200.
6. Jaffe, A. and Palmer, K. (1997) ‘Environmental regulation and innovation: A panal data study’, Rev. Econom. Statistics, Vol. LXXIX, No. 4, pp. 610—619.
7. See p. 178: ‘The trade off between environmental conditions and profits of the home industry remains but is less sharp because of downsizing and modernization of the industry’Xepapadeas, A. and de Zeeuw, A. (1999) ‘Environmental policy and competitiveness: the Porter hypothesis and the composition of capital’, 1. Environ. Econom. Management, Vol. 37, No. 2, pp. 165—182.
8. See Levêque, F. (1998) ‘Economie de Ia réglementation’, Collection Repères, N° 238, Edition La Découverte.
9. See the inventory of technologies that permit an increase in the resources productivity done by the Wuppertal Institute. Most of them are recorded in Weizsäcker, E.U., Lovins, A.B. and Lovins, L.H. (1997), Factor Four. Doubling Wealth, Halving Resource Use. The new Report to the Club of Rome, Earthscan, London. However, firms generally use end-of-pipe technologies: the share of these technologies in pollution control equipment is currently estimated at 80% in Belgium, 82% in Western Germany and 87% in France. See Skea, J. (1995) ‘Environmental technology’, in Folmer, H., Gabel, H.L. and Opshoor, H. (Editors), Principles of environmental and resource economics. A guide for students and business makers, Edward Elgar, Aldershot, pp. 389—412.
10. See Khanna, M. and Zilberman, D. (1997) ‘Incentives, precision technology and environmental protection’, Ecological Economics, Vol. 23, No. 1, pp. 25—43; and Khanna, M. and Zilberman, D. (1997) Precision technologies and nonpoint pollution control, Working Paper, University Of Illinois.
11. Duchin, F., Lange, G.-M. and Kell, G. (1995) ‘Technological change, trade and the environment’, Ecological Economics, Vol. 14, pp. 185—193.
12. Pearce, D. (1976) ‘The limits of cost-benefit analysis as a guide to environmental policy’, Kykios, Vol. 29, No. 1, pp. 97—112.
13. See Sawyer, J.E. (1994) ‘Concepts of variable rate technology with considerations for fertilizer application’, J. Prod. Agric., Vol. 7, No. 2, pp. 195—201.
14. This improvement in competitiveness is certain if the input price is not mo dified. In other words, cleaner production technologies must operate with the same types of input as obsolete technology. If this is not the case, arbitration between profits and costs appears.
15. However, the adoption by a firm of cleaner production technology does not induce the end of the use of all add-on technology.
16. For an exhaustive description of precision technologies available for cereal agriculture, see Gay, M. (1997) ‘Agriculture de precision, un nouvel enjeu pour Ia céréaliculture européenne’, PUR PAN, Etudes Scientifiques, Techniques, Economiques Juridiques pour l’Agriculture et le Milieu Rural, No. 184, pp. 125—148.
17. Internal recycling is different from external recycling. In latter case, wastes generated by a firm are recycled by another firm who sells the product thus obtained to a third one.
18. See Vernier, J. (1997) Les energies renouvelables, Que Sais-Je n°3240, Presse Universitaires de France.
19. By reason of the thermodynamic laws, the system can never be totally closed: a part of energy is lost during the transformation process, inducing an entropy increase (change of free energy from linked energy).
20. Incremental innovations are relatively minor changes of processes and products that occur more or less continuously. They may often occur, not so much as the result of deliberate R&D, but stemming from experiences of engineers in the production process or as a result of initiatives and suggestions by users. Radical innovations are discontinuous events and are the result of deliberate R&D in firms and research activities in university and government laboratories. See Freeman, C. and Perez, C. (1988) ‘Structural crises of adjustment, business cycles and investment behavior’, in Dosi, G., Freeman, C., Nelson, G.S. and Soate, L. (Editors) Technical Change and Economic Theory, London, Pinter Publishers, pp. 38—66.
21. Faucheux, S. and Nicolai, I. (1998) ‘Les firmes face au développement soutenable changement technologique et gouvernance au sein de la dynamique industrielle’, Revue d’Economie Industrielle, Vol. 83, No. 1, pp. 127—146.
22. Ayres, R. U. and van Leynseele, T. (1997) ‘Eco-efficiency, double dividends and the sustainable firm’, Working Paper n 097/34/EPS, INSEAD, Center for the Management of Environmental Resources.
23. A more thorough duopoly analysis asks for a more general setting in which the adoption of new technology by one or even two firms is endogenous. However, we prefer to keep our analysis here to the particular case of an exogenous adoption, in order to present a tractable model, which will allow us to stress the principal conditions of that adoption.
24. For a presentation of this category of model, see Tirole, J. (1988) Theory of the Industrial Organization, Cambridge/MIT Press.
25. This assumption, extremely restrictive a priori, enables us to consider the incentives to the adoption of only the point of view of the firm economic calculation on the basis of technical and merchants effects who have been specified. Indeed, the fact that consumers differentiate the two goods generates various marketing strategies from the companies which reflect on their structural competitiveness with the result of reinforcing the adoption process if the agents affect a higher utility to ‘green goods’. See Brdcard, D. (1998) ‘Incitation a innover et taxe environnementale: le role de Ia conscience écologique’, Recherches Economiques de Louvain, Vol. 64, No. 4, pp. 447—465.
26. See, for example Averch, H. and Johnson, L.L. (1962) ‘Behavior of the firm under regulatory constraint’, Amer. Econom. Rev., Vol. 52, pp. 1053—1069.
27. We have not studied the extreme case where the duopoly solution leads to the institution of a monopoly by the exclusion of firm 1. The positive effect in terms of pollution will then be more important that in the case studied here. However, these gains in welfare terms will be reduced through the classic losses of welfare due to the establishment of a monopoly in the sector.