This paper aims to review how current policy instruments drive (or not) environmental innovation and, by doing so, to reinvestigate the relationship between innovation and regulation.
A comprehensive literature review on innovation and environmental regulation created a theoretical foundation of the paper. Using the grounded theory, a model was developed and evaluated using interviews. This is a timely topic as the new shape of recent environmental regulation appears to be fairly strict. A new model is presented to encapsulate highly dynamic interaction of environmental innovation and regulation to provide results that reflect on the present innovation behaviour and its implications.
The model highlights various diffusion pathways that are triggered by the main three drivers of innovation namely government (regulation), market (competition and cost) and technology which has the possibility of an autonomous diffusion.
The empirical data are limited to 13 qualitative experts' interviews within industry, consultancies and governmental departments.
The suggested model is particularly useful for policy makers to better understand the innovation dynamics and its diffusion pathways to design smarter regulations that incentivise rather than force organisations to comply with regulation.
The paper shows how regulation drives (or not) innovation and how various diffusion pathways can be used by external stakeholders to direct and promote innovation.
