The Environmental Regulation Paradox for Clean Tech Ventures

Erik Stam, Neil Thompson, Andrea Herrmann and Marko Hekkert

No H201217, Scales Research Reports from EIM Business and Policy Research

Abstract: Traditionally, regulations are seen as harmful for the starting and growing of firms. However, strict environmental regulation can also trigger the discovery and introduction of clean technologies, and this innovation might improve the competitiveness of the firm (the so-called Porter hypothesis). This project focuses on the environmental regulation paradox in the context of new venture growth. The key questions are: 1) to what extent do new ventures perceive environmental regulation to be a bottleneck; and 2) how does environmental regulation affect the growth of clean tech ventures? The characteristics of a panel of new ventures are analyzed during their emergence, and in particular the effect of environmental regulation on the subsequent growth of these new ventures. These analyses are also performed on a subsample of firms that is especially liable to environmental regulations, namely clean tech ventures. The empirical evidence shows the paradox of environmental regulation for clean tech ventures: they more often perceive this to be a bottleneck, but environmental regulation also seems to drive their growth. Our interpretation of the environmental regulation paradox is that environmental regulation should be treated as a barrier to growth: entrepreneurs that aim to expand their business in markets that are sensitive to environmental regulation face these regulations as a bottleneck for their activities, but this necessary evil informs them how to successfully expand in these markets giving them a competitive edge over other less well informed firms. Without this hurdle they would probably not be sufficiently informed about the possibilities and impossibilities in these markets. This especially counts for clean tech ventures, but also for the group of non-clean tech ventures that is active on markets liable to environmental regulations. This interpretation does justice to the initial Porter hypothesis - environmental regulation can trigger innovation that may partially or more than fully offset the costs of complying with them – as environmental regulation is both perceived as a cost, but in the end seems to more than fully offset these costs indicated by the growth inducing effect of environmental regulation.

Pages: 26 pages
Date: 2012-12-18
New Economics Papers: this item is included in nep-ent, nep-env and nep-res
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