Tracking the Impact of Environmental Regulations on Development and Diffusion of Innovations: Evidence from Waste Management Technologies in Japan Helmut Yabar 1,* , Michinori Uwasu 2 and Keishiro Hara 2 1 University of Tsukuba, Graduate School of Life and Environmental Sciences, Japan; 1-1-1 Tennodai, Tsukuba, Ibaraki, Japan 305-8572 2 Osaka University Center of Environmental Innovation Design for Sustainability, Japan * hyabar@jsrsai.envr.tsukuba.ac.jp Abstract While there are many studies that have addressed the impact of market-based environmental policy instruments on innovations, there are rather few studies that focus on the impact of performance standard approaches. Taking dioxin emissions from incineration and the recycling of home electric appliances, this paper clarifies the impact of Japanese environmental policy on innovation. Relevant Japanese patent data were gathered and analyzed for the period 1990–2008. We conducted statistical analysis to compare the number of patents related to each regulation between the periods under and outside these regulations. The results show that after the regulations were introduced, new technological developments occurred for most technological types and the total number of related patent applications was larger even when controlling for other exogenous and endogenous factors. We argue that while a possible weakness in this type of performance-based regulations is the lack of incentives for further innovations after the targets have been met, they can still induce innovations if they are flexible and with specific targets such as in the case studies. The paper also discusses the potential benefit of the diffusion of these and other environmental technologies. Keywords: induced innovation, environmental regulation, environmental technologies, patent data, waste management 1. Introduction Technology innovation has played a central role in providing safer and comfortable lives for people. However leaving technology innovation to the market alone has been one of the causes of technological lock-in, which has prevented the emergence of sustainable technologies [1]. There have been many studies that challenged the belief that environmental regulations would affect the industrial competitiveness of countries. Porter for instance argued that stricter environmental regulations would trigger innovations and increase the competitiveness of firms [2]. On the other hand there have also been studies that didn’t find any significant impact of environmental regulations on innovation [3]. This paper analyzes the impact of policies and regulations on technology innovation using the Japanese experience in dealing with dioxin emissions from incineration and the recycling of specific wastes as case studies. We found out a pattern regarding the environmental technology innovations in Japan. Usually these innovations start with social concerns regarding environmental issues or resource scarcity (demand pull). The government then introduces stricter regulations to meet those concerns (policy push) such as emission standards for dioxin, SO2, etc, or recycling targets for end-of-life products. Finally the technology community and industrial sector develop the innovations necessary to comply with those regulations. 2. Induced Innovation: Overcoming Lock-in The concept of induced innovation states that changes in the relative price of the factors of production will spur innovation to economize the use of that factor [4]. Technological lock-in refers to the difficulty in escaping the specific paths followed by technologies and technological systems [5]. Dosi [6] introduced the term technological paradigm to explain the lock-in mechanism i.e. technological progress shaped by the following of specific rules and principles in the way of thinking. Arthur [7] argued that the increasing return to adoption mechanism enhances the attractiveness of adopting a specific technology once it has secured an initial lead and will eventually lock in the market. Such technologies create barriers that try to prevent the emergence of new alternatives. By supporting specific technologies, institutions also show increasing return to adoption and the interaction between both systems will reinforce their lock- in [8]. Other mechanisms such as policies and regulations could also trigger environmental innovations by breaking lock in, promoting niche markets, encouraging feedback from market formation, etc.