Integrated Pollution Prevention and Control: A Driver for Innovation in the European Union?

This paper explores the relationship between environmental regulation and technical change. Firstly, the process of innovation for environmental techniques is discussed and barriers to the development and subsequent diffusion of environmental techniques identified. Characteristics of policies that can act to promote innovation are then teased out of the range of empirical case studies documented in the literature on environmental policy and technical change. Secondly, the most recent piece of European environmental legislation to control industrial pollution, the directive on Integrated Pollution Prevention and Control (96/61/EC), is assessed. Mechanisms set in place by the directive aimed at promoting innovation in industrial installations are identified and their advantages, disadvantages and requirements for effective operation discussed. With reference to primary material, the implementation strategies of three Member States are documented and the impact those divergent strategies will have upon the mechanisms of IPPC and subsequent goals of technology diffusion considered. Finally, the implications of IPPC for the pulp and paper industry are presented, drawing upon interviews with industrial stakeholders. The directive is found not to challenge leading installations to improve their environmental performance and not to establish a stable market for the most advanced environmental techniques. This stems from the flexibility of the directive, the just above average level of the technical baseline upon which standards are to be based and the anticipated divergent standards across the EU. There is considerable potential for a transfer of skills and knowledge for permitting authority to operator, but this depends upon the competence and resources of the domestic environment agency. oikos PhD summer academy 2002 “Sustainability, Corporations and Institutional Arrangements 3 Introduction Strategies for achieving sustainable development hinge around the two sides of production: sufficiency and efficiency. Sufficiency focuses upon changing behaviour to reduce consumption, whilst the latter relies upon innovation to increase the efficiency of current production methods (Jänicke et al. 2000). Technical change is seen as playing a central role in achieving the goal of sustainable production, by allowing for a reduction in the consumption of nonrenewable inputs and the production of non-recyclable waste outputs by private activity (Ashford, 2000, Carraro, 1994, Carraro and Siniscalco, 1994, Stevens, 2000). The onus is placed upon innovation to redesign processes to increase efficiency, provide substitutes for exhaustible inputs, uses for waste outputs and reformulate products (Ashford, 2000). There is widespread evidence that government regulation is the most important factor leading to improvements in the environmental performance of firms (Skea, 1994, Good, 1991, Rothwell, 1992). The extent to which environmental policies encourage the diffusion of existing technical solutions and spur the development of new solutions is arguably the most important criteria by which to judge their success (Pickman, 1998). This suggests that policy should draw from theories describing the process of innovation to generate incentives for firms to innovate and provide effective support for R&D (Freeman and Soete, 1997, p419). Environmental policy can seek out entry points in the innovation network (Marcean, 1994) and signal innovators (Leydesdorff, 2000). Regulation can be used at two levels: to steer invention towards the development of technical solutions and to encourage the diffusion of these techniques through industry (Freeman and Soete, 1997, Eads 1980). By enforcing environmental performance standards for industry or by re-pricing externalities and changing the economic conditions of production, regulation can re-orientate technical change towards solving environmental problems and oblige industry to procure effective environmental techniques through environmental innovation (Kemp et al., 2000). On 24th September 1996 the Council adopted Directive 96/61/EC on integrated pollution prevention and control (the IPPC Directive). IPPC represents the main piece of legislation for the prevention and control of industrial emission to air, water and land in the European Union, uniting all preceding Directives under one integrated framework. It sets out permitting procedures requiring that installations be assessed holistically with regard to the transfer of pollutants between media, seeking to avoid the shifting of pollutants that arose during the regulation of single media emissions. A huge research effort initiated under the Directive, the Sevilla Process, establishes technical benchmarks for the environmental performance of industrial installations from which local emission standards can be drawn. The Directive seeks to exploit the dynamic relation between technical change and environmental regulation by linking the setting of Emission Limit values (ELV) to a dynamic concept of Best Available Techniques (BAT). The European Commission recognises that a wide variation in polluting abatement expenditure and the environmental performance of industry exists across the European Union (Barton, 1999). One of the goals of IPPC Directive is to redress this imbalance, stating that: “the development and exchange of information at Community level will help to redress the technological imbalances in the Community, will promote the worldwide dissemination of limit values and techniques used in the Community and will help the Member States in the efficient implementation of this Directive.”. These ambitious goals emphasise the critical role that technology plays in improving industrial environmental performance. Implicit in the goal above is the wider dissemination in the Community of not just information but also the techniques themselves. Bolder still are aims to promote world-wide dissemination of the techniques and associated ELV adopted in the EU, so reducing the impact of pollution control costs upon the competitive position of European industry.