The Impact of Water Quality Management Policies on Innovation in Nitrogen and Phosphorus Technology

Abstract

The purpose of this study is to examine the effects on innovation of environmental regulations aimed at reducing eutrophication. We focus on innovations in nitrogen and phosphorus management technology in the wastewater treatment sector and the agricultural sector. Patent data from Sweden over a 50-year period is used as a measure of innovation. We estimate a negative binomial regression model in a reduced form and by the use of control-functions, taking into account environmental regulation as well as more general determinants of innovation. Our results suggest that increased regulation has induced innovation in the wastewater treatment sector, both in the long and short run. The short-run effect was estimated to 40–70% in the years immediately following the introduction of new environmental regulations. A corresponding effect could not be identified in the agricultural sector. The difference between the sectors is likely explained by differences in policy design, where performance standards are applied in the wastewater sector, while design standards and technology-specific subsidies dominate in the agricultural sector.