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The combination of supply and demand-side eco-innovation policies for regional sustainability transitions



The combination of supply and
demand-side eco-innovation
policies for regional sustainability
By Hendrik Hansmeier* (Fraunhofer Institute for Systems and Innovation
Research ISI, Karlsruhe, and Institute of Economic and Cultural Geography,
Leibniz University Hannover, Hannover, Germany) and Sebastian Losacker
(Institute of Economic and Cultural Geography, Leibniz University Hannover,
Hannover, Germany)
The need for eco-innovation policies
Although it is undisputed that innovations contribute significantly to the
competitiveness, economic development and growth of regions and countries, it is
becoming equally clear that the economic implications of their widespread
application are leading at least indirectly to environmental burdens such
as pollution, environmental degradation or climate change. However, since the
emergence of the innovation concept in the first half of the 20th century, the
(positive) economic effects associated with innovation have been the focus of
scientific, economic and political attention (Fagerberg et al., 2012). It is only
recently that the negative effects of technological change and innovation have
been increasingly discussed (Biggi & Giuliani, 2021). This paradigm shift is also
reflected in the emergence of transformative and mission-oriented innovation
policies aimed at better linking innovation with social and environmental
challenges (Schot & Steinmueller, 2018).
Transformations of unsustainable systems of production and consumption (i.e.
sustainability transitions), which are necessary to tackle global societal
challenges, involve fundamental changes of actor constellations and institutional
set-ups beyond the technological dimension. Along with changes in user practices,
lifestyles, infrastructures and organizational structures, technological innovations
are central and necessary conditions for socio-technical transitions (Markard et
al., 2012). Innovations “that contribute to a reduction of environmental burdens
or to ecologically specified sustainability targets (Rennings, 2000: 322) are
referred to as environmental or eco-innovations. These include climate change
mitigation technologies, improvements in energy efficiency, and environmentally
friendly alternatives to harmful products. From a theoretical perspective,
environmental innovations deserve special attention when compared to regular
innovations, as they are characterized by an additional externality. The so-called
double externality problem refers to the phenomenon that environmental
innovations often not only need support in the phase of innovation development
(IPR, R&D funding), but also suffer from an additional externality in the diffusion
phase, namely costs borne by adopters of environmental innovations whose
benefits are shared with other actors as well as with society in general (Rennings,
In the scholarly discussion on spatial dimensions of environmental innovation and
(regional) eco-innovation policy, we observe two distinct strands of literature
examining these two different phases of innovation: the supply side, which deals
with the emergence and production of environmental innovations, and the
demand side, which deals with diffusion and transitions of socio-technical
Supply and demand-side views on eco-innovation policies
Green industries are considered a growth engine to stimulate regional
development through creating new jobs and boosting innovation capabilities. The
literature on green regional path development emphasizes that regions, or
different types of regions, have varying possibilities and abilities to benefit from
local green industries (Trippl et al., 2020). This place-based approach is very
much echoed in current innovation policies, promoting the development of green
industries on the regional level (e.g. through smart specialization strategies (S3))
and justifying interventions with market failures on the supply side such as under-
investments in R&D. The S3 policy rationale explicitly targets the supply side and
addresses chronic issues related to investments in knowledge creation,
entrepreneurial activities and networking between actors, within and between
clusters, regional innovation systems etc. (Schot & Steinmueller, 2018).
On the demand side, the literature on geography of sustainability transitions
deals, among other things, with the question of how environmental innovations
diffuse within and across regions, helping to consolidate sustainable socio-
technical regimes. In this regard, place-specificities such as local market
formations or local informal institutions are particularly important (Hansen &
Coenen, 2015). But despite the prominence of the spatiality of transition
processes, policies meant to stimulate demand and diffusion of environmental
innovations are mainly designed at the national level (e.g. feed-in tariffs,
We argue that the double externality problem associated with environmental
innovations leads to a spatial imbalance of supply and demand-side innovation
support. It implies that supply-side innovation policy does not necessarily lead to
locally developed environmental innovations being adopted in the region of their
origin. At the same time, (regional) demand-side innovation policy, which aims to
support the diffusion of environmental innovations, may fail to stimulate local
invention and development of these technologies. It appears that the normative
turn in innovation policy (mission-orientation, sustainability) has not yet
succeeded in combining supply and demand sides on the regional level, thus
widely ignoring market failures along the innovation phases. This is surprising,
since the mainstreaming and up-scaling of these locally/regionally developed
solutions to the national and international level is central to system-wide
sustainability transitions (Späth & Rohracher, 2012).
The combination of supply and demand-side eco-innovation policies
In a recent article, Tödtling et al. (2020) provide a set of three scenarios for how
the supply (production) and demand (application) of environmental innovations
may differ across regions. We present a modified version of these scenarios in
Figure 1, following the simplified classification that production and/or application
either occur in the region or outside the region. Accordingly, regions produce
environmental innovations for the global market (region B, quadrant II), apply
them from outside the region (region C, quadrant III), or conduct both production
and application of environmentally friendly solutions within the region (region A,
quadrant I). While scenarios II and III lead to either economic or ecological
advantages for the region, the creation of green regional supply and demand
structures could be economically and ecologically advantageous (scenario I). In
addition, regional sustainability transitions might benefit from regional legitimacy
that stems from co-located demand and supply (Rohe & Chlebna, 2021).
The framework provided by Tödtling et al. (2020) is intentionally simplistic.
However, we argue that a dynamic perspective, at the very least, is needed to
conceptualize further pathways for green regional development. One possible
path is illustrated for region D. At an early stage of the industry life cycle, region
D produces green technologies that are also demanded locally. As such, region D
can build an early competitive advantage that, down the road, leads to region D’
producing for the global market and driving inter-regional and international
diffusion. This scenario requires the alignment of regional supply-side and
demand-side eco-innovation policies that leverage technological potentials while
creating local markets. As a consequence, three mutually reinforcing factors on
which regional lead markets for environmental innovation rely can take effect:
regional technological advantages, demand advantages, and advantages
stemming from regional regulations and policies (Losacker & Liefner, 2020).
Figure 1: A simplistic spatial perspective on supply and demand of green
technologies, adapted from Tödtling et al. (2020)
One example of a demand-side regional innovation policy, a de facto
environmental policy, is a regulation to mandate photovoltaic (PV) installations
for new (non-residential) buildings from 2022, stipulated in the climate protection
act of the state of Baden-Württemberg, Germany. Although this regulation has
great potential to create value, the region (and Germany) has already faced great
reductions in PV manufacturing capacities, with China being the lead market
(Quitzow, 2015). Therefore, while the regional transition towards sustainability in
Baden-Württemberg will be accelerated, only a part of the value creation (e.g.
through installations) will remain in the region. It is now up to policymakers to
drive forward the combination of supply and demand-side eco-innovation policies
in such a way that regional lead markets emerge and both ecological and
economic goals are met. In this respect, regional demand-side policies are lacking
in sectors that Baden-Württemberg already promotes in its supply-side innovation
policy, such as sustainable mobility, bioeconomy or circular economy.
Figure 2: Construction workers installing PV systems (Source: MEV Verlag
In conclusion, we support most of what Tödtling et al. (2020) propose and argue
that the combination of place-based supply-side and demand-side innovation
policies is particularly important for environmental innovations. Beyond that, we
call attention to the double externality problem of environmental innovations,
which requires (region-specific) policy support in the diffusion phase (Rennings,
2000). Finally, we posit that the successful combination of region-specific supply
and demand-side eco-innovation policies can create regional lead markets and
help to leverage sustainability transitions.
*corresponding author, Hendrik Hansmeier
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... Instead, these policies should be coordinated to deliver targeted green technology support that addresses invention and production. This should be done within specialised regions and within settings of proximate regions (Hansmeier and Losacker 2021;Tödtling, Trippl, and Frangenheim 2021). It is hence advisable, thirdly, not to develop regional policies for the technology invention phase and for the production phase independently, but to align the policy instruments at least in those technology fields and industries where competencies overlap. ...
A fast adoption and diffusion of green technologies will be essential for a successful transition of the world’s economies towards more sustainable modes of production and consumption. This article investigates the speed of green technology diffusion in China using a unique data set, which lists geocoded patent licence agreements for green technologies from 2000–2019. We focus on the relation between spatial determinants, including geographic proximity and regional technological specialisation, and the time-to-adoption, thus analysing the factors explaining the time between technology development (patent application) and technology adoption (licencing). The main finding is that geographic proximity to the innovator is associated with an accelerated time-to-adoption. Moreover, we find that the more a region specialises in green technologies, the faster a patent is licenced within that region.
... On the regional level, place-based innovation policies are important to support green industries and to leverage the application of sustainable technologies. In that sense, it is important to support both green technology development, i.e. the supply side, and diffusion processes, i.e. the demand side, depending on the regional context and place specificities (Hansmeier and Losacker 2021;Tödtling et al. 2021). In fact, regional administrative bodies exhibit great potential to support diffusion processes using green public procurements, also nurturing early market formation and early adoptions (Ghisetti 2017;Lauer and Liefner 2019;Nesterova et al. 2020). ...
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Environmental innovations make an important contribution to solving ecological and climate crises. Although these crises are global phenomena, the regional dimension plays a crucial role, as regions both provide the conditions for the development of environmental innovations and promote widespread use and diffusion. Against this background, this article has two objectives. Firstly, we critically review the state of research on regional determinants of environmental innovation. Secondly, based on these results, we develop an agenda for further research in regional studies that will help to better understand the geography of environmental innovation and to come up with useful region-specific policy recommendations.
... However, the results of this study suggest that this view is too simplistic, as positive effects of supply-oriented regulations may be limited to the respective administrative regions. Effective policies and regulations should thus be designed in a way that locally developed technologies are also useful for further regional markets and do not remain in local niches, and demand-oriented measures seem to be the favorable approach (Hansmeier and Losacker 2021;Tödtling et al., 2021). Apart from that, results suggest that innovation diffusion between two regions is symbiotic, as license agreements are often reciprocated. ...
Based on the concept of regional lead markets for environmental innovation, this paper fits exponential random graph models on a regionalized patent licensing network to explore how green technologies diffuse in space. The empirical analysis relies on a novel database of license agreements for Chinese patents, which are used to measure spatial innovation diffusion, as they indicate locations for both innovation development and adoption. Findings suggest, among other factors, that geographic proximity matters, that regions exhibit both network activity and popularity effects particularly in highly populated regions, that network effects such as mutual linking and triadic closure help to explain diffusion processes, and that local technology supply and demand are closely interconnected. In that regard, the role of environmental regulations is identified as being complex. The findings help to understand the formation of regional lead markets for environmental innovation, opening opportunities to accelerate innovation diffusion and a transition towards sustainability.
The consequences of the climate crisis for life on earth are already severe. In addition, the planet is facing a multitude of other negative environmental impacts of human activity, including the loss of biodiversity, the depletion of resources and environmental pollution, to name but a few. In response to these great challenges, there has been extensive research over the last few years directed towards the development of environmentally friendly technologies. These so-called green technologies or environmental innovations include, among other things, renewable energy technologies, energy-efficiency technologies and waste management technologies. In order to tackle the climate crisis and environmental damage, however, it is not sufficient simply to invent green technologies; they must also be used and diffused globally. In this dissertation, I shed light on the diffusion of environmental innovations from a spatial perspective, i.e. the process from invention to adoption and the geography thereof. My research focuses on diffusion processes taking place in China, which is a particularly important case. The pace of China's sustainability transition will have a decisive impact on global futures given its current environmentally adverse modes of production and consumption. At the same time, China ranks as the largest market for green technologies and leads the technological frontier in many domains. From an economic geography point of view, many Chinese regions therefore enjoy great prospects for green regional path development, which might lead to a win-win situation for the environment and the local economy. Against this background, I analyze the diffusion of environmental innovations in Chinese regions using a regional case study and quantitative analyses of patent licensing data. Drawing on the case study, I develop a conceptual framework that provides a rationale for the spatial diffusion of environmental innovations: the regional lead market framework. The quantitative analyses provide statistical evidence for how spatial patterns of green technology diffusion might evolve into lead market structures. The findings reveal, inter alia, that geographic proximity between innovators and adopters not only increases the likelihood of innovation diffusion processes, but also their speed. The results of this dissertation yield important lessons for regional eco-innovation policy.
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In spite of being considered an undisputed engine of growth, innovation can have noxious consequences for society and the environment. Using bibliometric techniques (i.e. bibliographic coupling and co-citation analysis), we conduct a review of the extant research on the noxious impacts of innovation. Although this is a relatively recent field of enquiry, we identified five strands of scholarly research, which, based on their focus, we have labelled: (A) Work-related consequences of technology acceptance; (B) Unsustainable transitions; (C) Innovation and growth downside effects; (D) The dangers of emerging technologies and (E) Open innovation’s dark side. We discuss the core ideas and research agendas in these research strands and the intellectual antecedents of each sub-community, and conclude by suggesting avenues for future research.
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Science, technology and innovation (STI) policy is shaped by persistent framings that arise from historical context. Two established frames are identified as co-existing and dominant in contemporary innovation policy discussions. The first frame is identified as beginning with a Post-World War II institutionalisation of government support for science and R&D with the presumption that this would contribute to growth and address market failure in private provision of new knowledge. The second frame emerged in the 1980s globalising world and its emphasis on competitiveness which is shaped by the national systems of innovation for knowledge creation and commercialisation. STI policy focuses on building links, clusters and networks, and on stimulating learning between elements in the systems, and enabling entrepreneurship. A third frame linked to contemporary social and environmental challenges such as the Sustainable Development Goals and calling for transformative change is identified and distinguished from the two earlier frames. Transformation refers to socio-technical system change as conceptualised in the sustainability transitions literature. The nature of this third framing is examined with the aim of identifying its key features and its potential for provoking a re-examination of the earlier two frames. One key feature is its focus on experimentation, and the argument that the Global South does not need to play catch-up to follow the transformation model of the Global North. It is argued that all three frames are relevant for policymaking, but exploring options for transformative innovation policy should be a priority.
Legitimacy is a key function within Technological Innovation Systems (TIS), influencing the development and diffusion of novel technologies such as onshore wind energy. By combining insights from TIS and from organization studies, we provide theoretical and empirical underpinnings to 'legitimacy', a concept often defined superficially and mapped at an aggregate, national level. We add a spatial perspective by comparing dimensions of legitimacy between two heterogenous regions in Germany. They have similar diffusion trajectories of wind energy but differ in structural features (socio-economic factors and TIS elements). To capture place-specific institutions and dynamics influencing regional legitimacy, we focus on decision makers and their perception of the TIS. Even though politicians and civil servants are crucial for wind development in their constituent regions and are thus important contextual actors to the TIS, their perspective has been mostly neglected. Applying a comprehensive, mixed methods approach, we conducted an online survey among these decision makers and complemented the insights with qualitative expert interviews. Our analysis shows that pragmatic and moral dimensions of legitimacy are particularly susceptible to place-specific influences. These spatially sensitive insights have been missing from the debate on legitimacy so far and might inform policy directed at advancing technological legitimacy in certain regions.
Green and sustainable developments have received increasing attention in recent years due to challenges emanating from climate change and worsening environmental conditions. Although these are problems of global nature, actions have to be taken often at lower spatial scales. We focus on innovation and industrial policies and on the regional level since green development often can be supported here by respective policies. However, effective policies have to consider that individual regions face different kinds of challenges for moving towards a ‘greener’ future. This article develops a framework that allows taking such differences into account. We distinguish between the production side of ‘green technologies’ (i.e. the industries that develop and produce such technologies) and the application side (i.e. the adoption of such technologies by firms and the wider society), and we investigate what challenges might prevail on both sides and explore the potential role of policies for different types of regions.
The success of environmental innovations and sustainability transitions critically depends on market formations and diffusion processes. As of today, the geography of transitions literature provides suitable terms and case study evidence that these processes are highly regional phenomena. However, pertinent conceptual frameworks such as the multi-level perspective, technological innovation systems, or the somewhat less prominent lead market concept lack an explicit regional perspective. This paper develops a regionalized framework (‘regional lead markets (RLM)’) in order to provide a more appropriate conceptual lens for analyses of regional transition and innovation diffusion processes. We argue that regional lead markets are determined by regulatory advantages, demand advantages and technological advantages. A regional lead market adopts a later successful innovation at an early stage and gains competitive advantage in the respective industry, driving national and international diffusion. We demonstrate the concept’s applicability by providing illustrative evidence on Shanghai’s lead market potential for waste management.
Regions across the world are searching for ways to fashion new green growth paths and to promote green shifts in mature industries. The article aims to explore conceptually and based on illustrative empirical examples from the literature how green restructuring unfolds in regions. We propose a framework that explicates how regional preconditions in form of pre-existing industrial structures, organisational support structures, institutional set-ups and natural assets are transformed into various types of green path development through agentic processes of asset modification.
This review covers the recent literature on the geography of sustainability transitions and takes stock with achieved theoretical and empirical insights. The review synthesises and reflects upon insights of relevance for sustainability transitions following from analyses of the importance of place specificity and the geography of inter-organisational relations. It is found that these contributions focus on the geography of niche development rather than regime dynamics, and that there is an emphasis on understanding the importance of place-specificity at the local level. While there is a wide consensus that place-specificity matters there is still little generalisable knowledge about how place-specificity matters for transitions. Most contributions add spatial sensitivity to frameworks from the transitions literature, but few studies suggest alternative frameworks to study sustainability transitions. To address this, the review suggests promising avenues for future research on the geography of sustainability transitions, drawing on recent theoretical advancements in economic geography.
Sustainability oriented innovation and technology studies have received increasing attention over the past 10-15 years. In particular, a new field dealing with "sustainability transitions" has gained ground and reached an output of 60-100 academic papers per year. In this article, we aim to identify the intellectual contours of this emerging field by conducting a review of basic conceptual frameworks, together with bibliographical analysis of 540 journal articles in the field. It is against this background that we position the six papers assembled in a special section in Research Policy. These papers pave the way for new conceptual developments and serve as stepping-stones in the maturation of sustainability transition studies, by linking with the scholarly literatures of management studies, sociology, policy studies, economic geography, and modeling.
While innovation processes toward sustainable development (eco-innovations) have received increasing attention during the past years, theoretical and methodological approaches to analyze these processes are poorly developed. Against this background, the term eco-innovation is introduced in this paper addressing explicitly three kinds of changes towards sustainable development: technological, social and institutional innovation. Secondly, the potential contribution of neoclassical and (co-)evolutionary approaches from environmental and innovation economics to eco-innovation research is discussed. Three peculiarities of eco-innovation are identified: the double externality problem, the regulatory push/pull effect and the increasing importance of social and institutional innovation. While the first two are widely ignored in innovation economics, the third is at the least not elaborated appropriately. The consideration of these peculiarities may help to overcome market failure by establishing a specific eco-innovation policy and to avoid a ‘technology bias’ through a broader understanding of innovation. Finally, perspectives for a specific contribution of ecological economics to eco-innovation research are drawn. It is argued that methodological pluralism as established in ecological economics would be very beneficial for eco-innovation research. A theoretical framework integrating elements from both neoclassical and evolutionary approaches should be pursued in order to consider the complexity of factors influencing innovation decisions as well as the specific role of regulatory instruments. And the experience gathered in ecological economics integrating ecological, social and economic aspects of sustainable development is highly useful for opening up innovation research to social and institutional changes.