Environmental innovation adoption, sector upstream/downstream integration and policy. Evidence from the EU

Eco innovations in the climate change realm requires pressures and knowledge from outside the firm's and sector's boundaries. The role of policies is well known, as a tool that potentially tackle two externalities: innovation and environmental market failures. Sector integration is also increasingly relevant for understanding the economic, environmental and innovation performances of countries. We integrate these two perspectives to provide evidence on the policy effects behind the adoption of eco innovations in EU sectors. We take a sector perspective by exploiting EU CIS data over 2006-2008. By using past CO2 emission intensity (CO2 on value) as a proxy of policy stringency, we find that emission intensive sectors are more likely to adopt CO2-related eco-innovations. The aforementioned results are valid for both the economy as a whole and for industrial sectors specifically. We additionally show that not only environmental policies are important to sustain EI adoptions. Other 'external' drivers playa role. Looking at the role of inter sector integration and knowledge sources, we observe that sectors with more emission intensive upstream 'partners' eco-innovate more to reduce their CO2 footprints. The positive and significant effect of upstream emission intensity (supplier's emission intensity) is actually stronger than the effect of 'direct' CO2 emission intensity (policy effect).