Environmental regulation and the export dynamics of energy technologies

The pollution haven hypothesis affirms that an open market regime will encourage the flow of low-technology polluting industries toward developing countries because of potential comparative advantages related to low environmental standards. In contrast, the hypothesis suggested by Porter and van der Linde claims that innovating firms operate in a dynamic competitive situation which allows global diffusion of environmental-friendly technologies. Environmental regulation may represent a relevant mechanism through which technological change is induced. In this way, countries that are subject to more stringent environmental regulations may become net exporters of environmental technologies. This paper provides new evidence on the evolution of export flows of environmental technologies across different countries for the energy sector. Advanced economies, particularly the European Union, have increasingly focused on the role of energy policies as tools for sustaining the development path. The Kyoto Protocol commitments, together with growing import dependence on energy products, have brought attention to the analysis of innovation processes in this specific sector. The analysis uses a gravity model in order to test the determinants and the transmission channels through which environmental technologies for renewable energies and energy efficiency are exported to advanced and developing countries. Our results are consistent with the Porter and van der Linde hypothesis where environmental regulation represents a significant source of comparative advantages. What strongly emerges is that the stringency of environmental regulation supplemented by the strength of the National Innovation System is a crucial driver of export performance in the field of energy technologies. (C) 2007 Elsevier B.V. All rights reserved.