Regulatory
screening A short guide on the innovation effects of regulation Research and Innovation
EUROPEAN COMMISSION Directorate-General for Research and Innovation Directorate B – Innovation Union and European Research Area Unit B1 – Innovation Union Policy Contact: Peter Dröll
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[email protected] [email protected] European Commission B-1049 Brussels
EUROPEAN COMMISSION
Regulatory screening A short guide on the innovation effects of regulation
Viola Peter Geert van der Veen Asel Doranova Technopolis Group
2014
Directorate-General for Research and Innovation
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LEGAL NOTICE This document has been prepared for the European Commission however it reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein. More information on the European Union is available on the Internet (http://europa.eu). Cataloguing data can be found at the end of this publication. Luxembourg: Publications Office of the European Union, 2014
ISBN 978-92-79-34788-7 doi:10.2777/52771 © European Union, 2014 Reproduction is authorised provided the source is acknowledged. Cover image © peshkova, #55269067, 2014. Source: Fotolia.com.
Authors Viola Peter, Geert van der Veen, Asel Doranova - Technopolis Group
Acknowledgements This guide is the condensed form of a methodological screening, developed and tested in a project for the European Commission, DG-RTD (Contract: MS (2012) 1055187). It benefited greatly from the learning process within the project, involving several external thematic experts, colleagues and the most constructive feedback from the involved EC services. We would like to acknowledge and thank Leonor Pires and Sivasegaram Manimaaran from DGRTD for their support and feedback. The full report including many case studies can be downloaded from http:// www.europa.eu/research/innovationunion/index_en.cfm?pg=other-studies
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Innovation and regulation… what is it about ? Innovation creates jobs, drives growth and improves the quality of goods and services. The role of innovation in economic growth has been acknowledged widely in academia and policy – no wonder it is central in the EU policies for smart, sustainable and inclusive growth. It plays an important role in tackling major societal challenges like climate change, ageing, energy and resource scarcities. Innovation is the outcome of the interplay of various actors such as businesses, research organisations or financial institutes. Each is embedded in a complex system framed by ambitions, regulations and a number of other drivers. Typical barriers to innovation include both cultural norms and market conditions. In some cases innovation can be hampered by excessive or outdated regulation; at other times regulation may actually be a driver of innovation. In fact, we have seen an example of the latter in the case of environmental regulation where some European countries have a competitive, innovative edge largely due to early and strict regulation. The negative side, regulation acting as a barrier, is also possible. Regulation effects on innovation are not uniform. Industries will also encounter different compliance cost levels along the way, and may therefore respond differently to regulation over time. The smart regulation approach of the European Commission aims to address the innovation effects of new regulatory proposals in its impact assessments, with active stakeholder involvement and input. But it is also important to check if existing regulation is still ‘fit for purpose’, including a check on its effects on innovation. For this purpose the Commission carries out evaluations of its existing regulatory framework, including cross-cutting REFIT-evaluations in which this ‘fitness for purpose’ is thoroughly checked. In these exercises guidance will be needed to address the innovation effects of regulation. While the effects of regulation show up at micro level, i.e., industries, firms, and consumers, ‘fit for purpose’ checks have a high relevance at national level where the often-complex innovation systems absorb EC directives in various ways. Often a fine-tuning of implementation modes may be necessary to trigger positive effects.
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However, in order to find out the necessary tools, a screening exercise may be necessary.
What is meant by regulation? Regulation comes down to ‘the rules of the game’: some regulations, such as market entry regulations of price, quality, or conditional entry, are set by governments. The OECD defines regulation quite usefully as “the diverse set of instruments by which governments set requirements on enterprises and citizens. Regulations include laws, formal and informal orders and subordinate rules issued by all levels of government, and rules issued by non-governmental or self-regulatory bodies to whom governments have delegated regulatory powers.” (OECD, 1997) Much of the negative connotations surrounding regulation and its effects on innovation is likely due to the fact that innovation is rarely a clear objective of a regulation. Rather, regulation is mostly concerned with quality and safety issues – or at least that is the perception. Environmental concerns have gained considerable regulatory traction, but innovation is frequently not put in the same category. The growing interest and notion of wanted/unwanted effects of regulation on innovation need a dedicated approach to better identify, analyse, address and plan innovation regulation effects.
Who is addressed? Policy makers at EC as well as national level are already well aware of the need to maximise benefits and reduce costs, including regulatory burdens. In this respect, procedures and methods are already highly advanced at EC-level, where impact assessments are common for new regulation, and more fitness checks and evaluations are being carried out on existing regulation. This guide aims to complement this and to provide tools to support a specific aspect in the regulatory screening, i.e. to see if the regulation is stimulating or hindering innovation. At country level, systematic analyses of existing regulation are less prevalent, and especially given the complexity and vast quantity of regulations in each country, this is understandable. However, national policy makers have a strong interest in
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shaping key regulations affecting innovation in their countries in a desired way. A better and complete understanding of regulation effects are therefore necessary prerequisites. This short guide aims to provide a step-wise approach for addressing this complex issue and to provide tools and tips for organising the screening systematically.
Three pillars… and six Steps Analysing regulatory effects needs to take place in a broad context. So far, regulation and innovation meet in practice, but they seem to be worlds apart. Therefore, the analysis starts with a better understanding of the two pillars:
• •
regulation – and what are the effects of regulation on innovation, and innovation – and what are the functions of a regulation for innovation.
The third pillar is a crucial, linking one. It is important to include the positions and views of a wide range of
•
stakeholders,
particularly those who are directly, and possibly indirectly, affected. Stakeholders have a view when and where regulation hampers or fosters innovation. They may be useful to help point out a number of underlying explanations, drivers and barriers. An overview of the system and its components is presented in Figure 1. Bringing onboard and consulting with stakeholders is a great opportunity to collect a heterogeneous set of information which otherwise may not be mentioned by the ‘core’ affected companies. There are six steps helpful steps to help analyse the regulation-innovation complex and form the basis for policy recommendations or rethinking regulatory set-ups. The individual steps have a core objective, but it may be more useful to combine some steps. Steps 2, 3, and 4 are treated separately, yet they are interrelated and add to the overall ‘explanatory power’ of the screening exercise.
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Each step may require a considerably longer or shorter amount of time or require different levels of knowledge. Some suggestions may not need to be followed at all. The approach is designed to be flexible since each analysis needs a slightly different approach.
The steps Step 1 – Identification Step 2 – Scoping Step 3 – Drivers and Barriers Step 4 – Regulatory landscape Step 5 – Linking regulation and innovation Step 6 – Recap and action The next pages guide you through these steps, their role and what can be done.
➔ typologies (legal, objective)
Perspectives of innovation system actors, notably companies (sectoral perspectives)
➔N ew buisness models
➔ Services
➔ Diffusion
➔ Implementation
➔ Products ➔ Procesess
R&I comertialisation
R&I outputs/ results
R&I outputs/ results
➔B usiness activities relevant for innovation
➔ Innovation collaboration
➔ Innovation activity, incl. R&D
R&I activities
Innovation processes and outputs
DIRECT & INDIRECT IMPACT!
IMPACT!
INDIRECT IMPACT!
Regulatory framework
➔ Technological
➔ Environmental
➔ Social
➔ Economic
Socio economic impacts
WIDER IMPACTS!
Source: Technopolis
Wider regulatory and policy framework; market conditions; nance and capital markets; institutional and cultural aspects etc)
Wider framework conditions: Innovation drivers and barriers
➔ current and expected regulations (regulations in the „pipeline”)
➔ enquire „hierachy”of ojectives
➔ assess external coherence (policy rationale behind various regulations may be diverse)
➔ screen key objectives for the area under scrunity relevant for innovation (=change)
(level of ambition)
Policy objectives
Figure 1. Framework for a system analysis
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Step one – identify your area You may already have a concrete example in mind where innovation is hampered or fostered by regulation. Maybe an industry association has complained about how badly a certain excessive tax affects R&D spending and warned that the “introduction of plant-specific targets for carbon reductions” will impact their employment levels. Is this a sound complaint? Before a new piece of legislation is drafted or an existing one revised it might be worth analysing in greater detail business communities’ perceived injustices. In other cases, policy-makers or regulators may want to learn from other examples: What makes Germany a leader in selling environmental goods – in spite of or because of high regulation levels? Why does Italy has a waste problem? Could it be solved with regulation and innovation?
To do’s Initiate a discussion…
•
within your organisation. This may be a regional agency or government, or a ministry. The idea is to brainstorm on the topic: can you identify a single regulation that impacts innovation in a specific industry or across multiple industries?
Set up a small team…
• •
possibly of experts who know about the regulations in place, the business communities’ views and the views of consumers. Decide on the point of departure, such as: ̪̪ boundaries; e.g., do you want to analyse effects on a specific or several industries? ̪̪ type of regulation: do you aim to analyse the implementation of an EC directive, a national law, or a standard? ̪̪ regulatory agent or level: e.g., by looking at regional, national or supra-national level.
10 Enlarge your team… You may soon meet the limits of an internal team. Try to identify colleagues in other departments or ministries that may equally have a say concerning the regulation, or who are concerned with other sectors or areas such as procurement, employment, or other seemingly remote areas.
Plan ahead… You may have the internal resources and capacities to organise the screening, or you may want to involve external experts. Whatever you chose, make sure you designate colleagues to follow, provide feedback and report back. These colleagues will be the interface between the analysis and subsequent actions.
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Step two – Start scoping your area What is scoping? Scoping is a systematic exercise that aims to identify and collect information that is then used for further analysis. It addresses questions such as:
• • •
What are the main innovation needs? Who are the main actors involved? Is there available data supporting the analysis?
The level of detail in the information that can be collected will vary highly. For an analysis that starts with a specific regulation, a more narrow focus may be sufficient in order to identify the range of affected actors. The more complex the subject matter is, the broader the scoping exercise may become and the more difficult it may be to isolate regulatory effects.
To do’s Indentify the relevant actors
•
You may know best about the industries that are vocal in their disapproval, but there may be other groups: other businesses, end-users, public bodies or NGOs. Identifying a broader set of actors enhances not only their chances of being heard in your workshops or via interviews, but you may identify thus broader, indirect and unintended effects on other stakeholders.
Check the social importance of the chosen area
•
Is the sector/industry relevant for a small group or does it have it a wider role within society? Try to obtain qualitative information from external people.
Check the economic importance of the area The scoping area may already be important or it may be a political goal to gain
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leadership. Common knowledge may indicate the area’s importance, but it’s necessary to check data such as productivity, employment, final consumption expenditure or R&D data such as expenditure or the number of human resources. Important innovation indicators can be built around patent and trade data, for example. Use time series and comparative, international data. Isolated data of a given year is not very revealing. Through a descriptive analysis over time (around 5-10 years) and/or a comparison to international competitors, patterns can be observed and possible outliers identified. In some instances, outliers are the starting year(s) for a new trend that may tentatively be linked to important structural changes.
Discuss and analyse the first findings
•
•
Once you have accumulated the information, include it in a document (‘a scoping paper’) which can serve as basis for discussion and further analysis. This paper may grow during the course of the process and it may be revised to reflect the information collected, analysed and validated. Analyse the findings and identified some names within your internal group; you may also want to discuss it with external experts.
How to do ➔ Data can be found at national statistical offices as well as Eurostat or the OECD. Patent searches can be done from espacenet, a service of the European Patent Office.
• • •
interviews with external experts are useful in the first phase of the screening, particularly if you have been relying only on internal knowledge. a small workshop with experts and your team is useful to compliment and validate your findings. It is also an opportunity to obtain new ideas and views you may not have had before. Make sure you are not only discussing with the ‘usual suspects’ but try to bring in diversity of thoughts and opinions.
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Step three – Identification of drivers and barriers Regulation has intended and unintended, direct and indirect effects on innovation. This step provides two analytical tools which can help structure the full analysis and identify framework conditions that influence innovation either directly or indirectly via regulation. When you have already identified your area, the main actors and gathered quantitative and qualitative information, you may characterise the innovation impacted by the regulation more clearly. It will help to classify the innovation effects – namely, when and to whom they occur in the innovation process. Policy-makers may want to rectify the regulatory situation. This requires a holistic approach which can be done by identifying drivers and barriers. Innovation is not only affected by regulation such as a direct law; there are other areas, possibly equally influences by regulation, and perhaps equally important. This step provides another piece of analysis useful in the assessment of the regulation and its effects on innovation.
To do’s Check: what type(s) of innovation are you dealing with?
•
Regulation may impact products, processes, marketing or organisational innovations. They may be incremental or disruptive. You can differentiate by looking at the functions of innovation, such as knowledge creation, knowledge diffusion, or market formation etc.
Which type(s) do apply in your case?
Identify drivers and barriers A given regulation may seem to be the focus of attention, but given that the regulation does not function in isolation, it is useful to analyse the broader context and how that one may influence the regulation in its innovation impacts.
14 • •
Use a broad →check-list of possible drivers and barriers. You may not have envisaged remote factors that may be influential and having explanatory power. Experts may at that point be even more valuable. You may envisage to discuss drivers and barriers with the external experts in a workshop.
how to do A checklist of drivers and barriers can be very broad. We suggest looking at four fields:
• • • •
Policy, regulation, governance; Economic and market; R&D capabilities; Socio-cultural.
Within each of the fields, many factors can be identified that work either as a driver or barrier – or are neutral. The following provides a shortened example from a larger exercise, followed by a longer checklist you may use for inspiration. Always identify and add factors to help explain your particular focus. The added value of the broad checklist is that it includes items not necessarily at the primary focus for each individual. However, when experts are asked to think more broadly – guiding them for example with a written list – it may provide a rich and inspiring discussion with useful but counter-intuitive findings.
15 Example Analysis of the drivers and barriers of the WEEE regulation and its revision in the UK in 2013 on its role for recovery of raw materials, revealed economic and market factors are the dominant barriers. These would need to change in order to turn them into drivers.
Table 1. Regulation, drivers and barriers in the UK FActor
Driver
BArrier
Economic and market factors Current industry structure
+ competition stimulates innovation and cost reduction.
--- most product design is globally oriented, while recycling (WEEE) regulation is national
Pricing
+ markets for most of the recovered materials
--- p rices are often too low and volatile, do not provide incentive to collect other material than ferrous metals
Market demand
+ market demand for most raw materials
--- most of the supply chains are not oriented towards recovered materials such as plastics
+ increasing attention/ value given to rare earth metals/minerals Consumer market demand
International competiveness
+ growing awareness for energy use of appliances
-- no real consumer ‘pull’ for resource efficient products or ‘productas-a-service’ concepts’ --- Recovery market is competing with lowlabour disassembly in non-EU countries
16 Table 2. List of drivers and barriers (non-exhaustive) Policy, regulation, governance factors
Economic and market factors
Governance structures (e.g., monopolies, ownership structures…)
Pricing
Multi-stakeholders approach in governance
Current industry structure
Coherence with other existing regulation
Market power of competing products / substitution potential of these products
Risk assessment approach for harmonized EU regulation
Lack of transparency
National/international (demand-side) policies: • Innovation procurement • Regulation • Standardisation • Demonstration projects • Prototyping • Tax incentives • Labeling • Information campaigns Competition law (incl. State Aid rules) Trade agreements Dedicated sectoral (supply-side) policies
Current market demand
Industrialisation Deindustrialisation Facility of transportation Technological challenges (use and integration of spillover) Enabling infrastructures
17 Table 3. List of drivers and barriers (non-exhaustive) R&D capabilities
Socio-cultural
Own financial resources (High/Low)
Population (growth/decline)
Access to finance (Good/poor)
Ageing of the population
Current industry structure
Environmental concerns
Innovation costs (High/low)
Geopolitics and world conflicts
Qualified internal technological skills (good availability/shortage)
Quality of life
Skills related to innovation management (good availability/shortage)
Personalisation
Abilities to spot market opportunities – lack of information on markets (EU and global) (good /lack of ability) Risk perception Abilities to test market readiness (limited/good)
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Step Four – Screening the regulatory landscape Regulations can come from drivers fields and they differ by type and effect. While they impact innovations, they are rarely designed for inducing innovation. Regulations are broadly categorised under economic, social, and institutional objectives. Environmental protection, for example, is classified under social objectives. This type of regulation can stimulate new products and processes by requiring high technical standards not met by currently existing products. They can however limit R&D budgets since compliance costs with the regulation may be very high. You may want to use a coherent scheme that may equally broaden the perspective and may help characterise the regulation in terms of negative or positive effects you address in the screening. Finally, most regulation comes in packages. It is rarely a single law that shapes the issue but sub-laws, standards, tax regimes, etc. can equally be mentioned. Similar to the drivers and barriers identification exercise in Step 3, the screening of the regulation will help you identifying the relevant set of regulations and other types of policy measures that may be under scrutiny for change.
To do’s Check: into what type of regulation yours is falling?
•
Use the type of regulation effects list as guidance for classifying your regulation.
Can you identify other relevant regulation?
•
For identifying other relevant regulation, your group and external experts may be of help. Also, the drivers and barriers exercise (step 3) may have already identified other relevant regulation.
20 how to do Types of regulations and their effects can be manifold. The classification following Blind (2010) is one possibility to identify positive or negative effects. Since you may have come across related regulation during the scoping process already, you can classify those as well – and see if there is potential conflict between the types and their effects.
21 Table 4. C lassification by type of regulations and their effects Type of regulation
positive effects
Negative effects
Economic Competition
Increases incentive to invest in innovation
Reduces rents for innovators Reduces R&D co-operation
Antitrust
Competitive pressure by market entrants
Merger & Acquisitions
Restrictions protect management from short term market pressure
M&A restrictions limit takeover pressure and innovation incentives
Market entry
Can protect infant industries
Restricts market entry of (innovative) newcomers
Price regulation
Minimum prices decrease risk
Price caps reduce innovation incentive
Natural monopolies/ public enterprises
Stability allows for long time-horizons
Monopoly results in low incentives
Social Environmental protection
Creates incentive for new eco-friendly products and processes by creating temporary market barriers (Porter Hypothesis)
Compliance costs limit R&D budget
Workers health and safety protection
Creates incentive to develop new processes with higher work safety
Compliance costs limit R&D budget
Product and consumer safety
Increases acceptance/ demand for new products among consumers
Compliance costs limit R&D budget
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Type of regulation
positive effects
Negative effects
Institutional Liability
Increases acceptance and diffusion among consumers
Too high liability reduces incentives to develop new products
Employment protection legislation
Job security
Higher adjustment costs
Immigration
More competitive/flexible job market
Integration costs
Bankruptcy
Increased confidence of creditors to invest in innovation
Restriction to acquire external funds for risky investments
Intellectual property rights
Additional incentives to invest in R&D due to monopoly rights
Restricts development and diffusion of new technologies
Source: Blind (2010)
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Step Five – Analysing the linkages A clear taxonomy determining the direct and indirect innovation effects of a given regulation does not exist. Similarly, we have no clear or complete view on how regulations affect innovation processes. An analysis of the links between regulation and innovation should therefore be approached in a pragmatic way. While the screening methodology so far has relied on collecting information and by using different schemes to structure points of the analysis, it is time to bring the pieces together. Coming back to the starting point to screen regulation for its innovation impacts, we want to link the information obtained from using data as well as experts’ opinions. Depending on your ultimate goal, you may want not only to know if a specific regulation is impacting innovation but also how and in which context. There is scant evidence that regulation has only negative impacts. More often, some will feel negatively impacted while others may benefit. This can be the case between industry sectors but a trade-off may equally happen between different stakeholders. A regulation that may hamper the economic short-term benefit of firms may yield high social benefits and possibly in the longer run also positive ones for firms.
To do’s Summarise the insights gained…
• •
and the data you collected. You may have already identified hampering or fostering effects of regulation during the screening process; synthesise the results stemming from the discussions with various internal and external experts. They may have broadened the scope of the screening exercise but also helped focus on the key components.
24 Analyse and compare the effects
•
Once you have brought together the findings, some hampering or fostering effects of regulation may have become clearer while others may have been identified at the outset.
Try to link the information over time
• • •
Can you identify patterns our strong changes in the data you collected, for example by comparing countries or indicators? Does/did the regulation promote large-scale implementation of current technologies or new innovations? For new innovations, effects may come with a larger lag than for current technologies. Have you identified single events that seem probable for explaining changes in innovation behaviour and innovation outcomes?
Validate with stakeholders
•
Much of the interpretation of the data and findings benefit from expert knowledge. It is helpful to check the findings and discuss them with internal and external experts.
Ideally, you may be able to detect innovation impacts when analysing patent or trade data and link it to actual events. Figure 2 links the effects of a safety regulation (REACH) to the innovation developments for less harmful substances. As a ‘quality regulation’ with environmental and social impacts, the regulation pushed the search for a safer material to replace a banned one. The output may be a new, safer product offering wider societal benefits. The regulation also has a signalling function: a new market for a safer product will be created. This provides some certainty about a future demand – and thus a push to invest R&D resources into this direction. While regulation can directly impact innovation in the sense of new products and processes, regulation can equally boost existing technologies.
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25
Non-phthalate inventions Inventions that can uses phthalates or non-phthalate
20
2008: 4 phthaltes added to REACH Candidate List 1999: Temporary EU phthalate directive
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1999: European 2006: Commission EU REACH SCTEE opinion and Reg. Adopted Recomendation
10
5
2008
2006
2004
2002
2000
1996 1998
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
0 1972
number of patented inventions (as patent families)
Figure 2. D evelopment of phthalates and non-phthalates patent innovations following EU regulation
Source: CIEL 2013 This may not immediately lead to an increase in innovations, as can be seen with the developments around the Water Framework Directive (WFD) from the year 2000. Looking at patent applications at the European Patent Office (EPO) we see from Figure 3 a rise of EU applications from the early 1990s to 1999. On average annually the number of patent applications rose by 7.3% (Japan: 13.6%, USA: 3%). While the trend was continuously growing for the EU and Japan, the USA had its peak in 1995 and declined from then onwards. From 1997-2000 when the WFD was discussed at EU-level, the number of EU patent applications had a first peak. During the period between the Directive’s adoption and its transposition into national law by 2003, applications declined. Only after the transposition, applications rose again until a second peak in 2008.
0
EC proposal
Water Framework Directive
Transposition in nat. legislation
Introduction pricing policies
Financial crisis
EU27
JAPAN
USA
Data: EPO, Calculations: Technopolis
1996 1997 1998 1997 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
50 000
100 000
150 000
200 000
250 000
Figure 3. Patent applications of water goods, EPO 1990-2009
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Effects of the regulation can also be seen in terms of traded goods. The trade balance increases in water goods in Figure 4 following the WFD seemed largely to be a diffusion of existing technologies since the two indicators show at first sight opposite developments with a decrease of patent applications after 2000 – while trade of water goods increased during the same period. The growth rates immediately after 2000 were nearly the highest during the decade. We can then assume that the large share of traded goods diffused were mostly previous innovations. Regulation effects may not always be measurable with data. In many cases, stakeholders will only be able to report positive or negative effects from their experiences. One example is too strict regulation: the use of high quality water (drinking water quality) may be the only option for households and industry alike. However, several water using processes in industry (e.g. chemical industries), do not require drinking water quality but could reuse water (so-called greywater). Some examples were identified where industry was not allowed to use greywater, even if it would have made economic sense and the industry was able to install a greywater system. Here, it seems that caution from governments prevents a wider use of greywater. Since water supply conditions and water related regulation tend to be implemented at local level, existing quality standards may need revision. In this respect, the ‘fit for purpose’ check is an appropriate tool even at the lowest, often local, implementation level.
0,00
200,00
400,00
600,00
800,00
1 000,00
1 200,00
EU27
JAPAN
USA
Data: Comtrade, Calculations: Technopolis
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2003 2005 2006 2007 2008 2009
WFD- pre and post Implementation phase
Figure 4. Trade balance of water goods, 1996-2011
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Step Six – Recommendations Based on the analysis of the innovation system and the interplay of regulation and innovation obtained via the collection of data and the qualitative involvement of experts and stakeholders, recommendations may be derived from the complex analysis phase. Given that in the previous steps the regulation was tackled in a broader context, it is likely that several ‘construction sites’. i.e. fields that influence regulation, were identified. These need to be addressed in order to improve regulation effects on innovation. Policy-makers should be aware of the various effects. Political decisions, including those on regulation, need to be increasingly based on evidence. This holds true for new regulation as well as for those under scrutiny, which may face an amendment, replacement or abolishment. Each decision will almost inevitably bring about different incentives and thus also have different innovation consequences for different stakeholders. In providing recommendations, it is also necessary to take into consideration that the possible impact - while being positive for innovation - might have negative effects in other fields. When it comes to environmental pressures, it could create rebound effects (e.g., encouraging water or material efficiency can lead to an increase of company rents, which in turn can be used in a nonsustainable way). Not only a comprehensive analysis of the expected, direct and indirect innovation effects should already be included in an ex-ante impact assessment for new regulation, but their complex analysis is also necessary when revising regulation.
To do’s Compare the insights gained
• •
On innovation effects of the regulation, possibly on more than just one industry. Given the data collected, discuss how changes in regulation will likely shift incentives and induce different behaviours.
30 Decide…
•
Do the necessary amendments of the regulation take into account the expected innovation effects when changing a particular instrument?
The following Figure 5 provides a recap of the steps, the questions addressed and the necessary actions.
NO YES input action exit
Color coding:
Identify; involve various stakeholders
Identify
Do we know if regulation effects are different for various actors/ stakeholders?
Is an innovation influencing regulation identified?
Do we know direct/ indirect drivers and barriers?
Do we identify all relevant actors and stakeholders?
Can we identify the innovation performance of the sectors/ industries?
Review legislation
Has the regulation had significant negative effects on one or more stakeholder?
Can we identify the links between regulation and innovation?
Identify; engage with experts
Collect relevant data (revenues, trade,..)
Collect relevant data (R&D, patents,…)
Identifythrough collecting data, involving experts
Can we identify and quantify the economic relevance?
Do we have an overview on the innovation system, the regulation is supposed to hamper?
Do we know the innovation effects ?
Do you have a specific sector or industry in mind where regulation may impact?
Figure 5. A decision tree
Exit
Exit
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Further reading Blind, K. (2012): The impact of regulation on innovation. Manchester Institute of Innovation Research. CIEL (2013): Driving innovation. How stronger laws help bring safer chemicals to market. Report by B. Tuncak. http://www.ciel.org/Publications/Innovation_ Chemical_Feb2013.pdf Eco-innovation Observatory (2011): Water innovation. http://www.ecoinnovation.eu/index.php?option=com_content&view=article&id=284%3Awaterinnovation&catid=79%3Athematic-reports&Itemid=212 Hekkert, M.; Suurs, R.; Negro, S.; Kuhlmann, S.; Smits R. (2007). Functions of innovation systems: A new approach for analysing technological change, Technological Forecasting and Social Change 74(4): 413-432. Horbach J.; Rammer, C., Rennings, K. (2012) Determinants of eco-innovations by type of environmental impact — The role of regulatory push/pull, technology push and market pull, Ecological Economics, Volume 78, June 2012, Pages 112122. Massarutto, A., and Ermano P. (2013): “Drowned in an Inch of Water: How Poor Regulation Has Weakened the Italian Water Reform.” Water Utility Regulation in Developed Countries 24 (0) (March), pp 20–31. UBA (2008): Instrumente zur Förderung von Umweltinnovationen, Bestandsaufnahme, Bewertung und Defizitanalyse. Studie durchgeführt von ZEW und FU Berlin, Forschungsstelle für Umweltpolitik. UBA Schriftenreihe Umwelt, Innovation, Beschäftigung 02/08
This guide is based on the full study report, ‘Screening of regulatory framework’, commissioned by DG-RTD and provided by Technopolis Consulting Group. The report can be downloaded from http://www.europa.eu/research/innovationunion/index_ en.cfm?pg=other-studies
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KI-01-13-849-EN-N
The regulatory environment is an important factor influencing the innovation activities of companies and the wider economic system within which they operate. A methodology for assessing the impact of regulation on innovation was developed and applied to two sectors: Water and Raw Materials. Implementing one of the commitments of the Innovation Union, this methodology can now be used to screen the innovation impacts of existing regulatory frameworks in different areas with a view to identifying their effectiveness as catalysts of innovative behaviours. This short guide provides a practical step-by-step approach on how to go about in implementing the methodology in any area.
doi:10.2777/52771
