Increasing Energy and Resource Efficiency Through Innovation - An Explorative Analysis Using Innovation Survey Data

Environmental innovations may contribute to both improving the environmental quality of products and increasing the resource efficiency of products and processes. In particular, energy and resource efficiency innovations (hereafter: EREIs) are seen as win-win opportunities. The German sustainable development strategy has also formulated the goal of doubling resource efficiency until 2020 compared to the reference year 1994. Between 1994 and 2007 resource productivity increased only by 35%, thus additional efforts are needed to reach this goal. This raises the question of how well firms perform with regard to energy and resource efficiency innovations. This paper contributes to the literature one of the very few empirical econometric studies analysing determinants and impacts of environmental innovations in the field of energy and material efficiency. In the years from 2002 to 2004, approximately 6,600 firms in Germany introduced EREIs. Analysing German innovation data, we find statistically significant differences in the innovation activities between firms with EREIs and other innovators: For example, firms with EREIs are more productive, i.e. sales per employee are approximately 15% higher. In compliance with the definition of EREI firms, their process innovations are more strongly aimed at cost reduction, since increasing energy and/or material efficiency is associated with lower costs per unit. Interestingly, they also more often aim at and achieve an improvement in the quality of processes. This reveals that successful resource efficiency efforts also tend to change product characteristics. More efficient processes have to meet higher quality standards and thus improve product quality. EREI firms also achieve higher rationalisation effects of their process innovations. This clearly indicates that a main incentive for investing in higher resource efficiency are cost savings. Moreover, firms with EREIs perceive innovation barriers more intensely, and more often introduce knowledge management systems and innovative marketing improvements in the field of design and packaging. It may be concluded that - as expected - EREIs are determined by many technology-push and market-pull factors. On the supply side, R&D budgets, research infrastructure and networking with other firms are important distinguishing factors, while on the demand side increased productivity and higher cost reductions are decisive, as well as improved product quality. On the other hand EREIs are complex activities which also need regulatory incentives. Although EREIs are not more successful compared to conventional innovations, they contribute substantially to the economic success of firms