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About this book

The book examines innovation in environment-friendly technologies in the automobile industry. The focus of the book are Germany (a technology leader in the global automobile industry), on the one hand, and India, China and Brazil (technologically proficient emerging technology leaders) on the other hand. Patents have been used as a metric to measure and understand innovation. The book traces the evolution of regulatory standards in the automobile industry, relies on a unique patent dataset, and draws on a number of interviews conducted with regulators and engineers to get a better picture of how environmental policies and standards, including emission norms and fuel requirements, have developed overtime and now the industry has responded. The book’s core argument is that technological innovation is what has driven the industry in the past 125 years, but, at the same time, the industry has created problems and faced controversies with regard to its path dependency on carbon-intensive technologies. As a result, we have witnessed growing role of environmental regulators in ensuring that the growth path of the automobile industry, a powerhouse of growth of several economies, is aligned with the larger goals of addressing climate change and energy concerns. Against the backdrop of the emergence of Brazil, China and India in the global economy, the book focuses on the developments in these three countries, and draws parallels with Germany, which benefited from first mover advantage in technology and a substantial head-start in implementing cogent environmental policies. A standardized International Patent Classification (IPC) system has been used to, first, construct an index of regulatory stringency, based on regulations that came about between 1985 and 2010; and second, construct a unique cross-country weighted patent dataset for technologies invented in the past two and a half decades.

Table of Contents


Chapter 1. Evolution of the Global Automobile Industry

The global automotive industry has undergone significant changes since the invention of the automobile. The industry has transformed from being dominated by the USA in the early 1900s to being divided between a variety of different countries, each with their own unique strengths and weaknesses. The underlying technology has also experienced radical technological innovations, with the increasing popularity of diesel, hybrid and fully electric vehicles helping to diversify the market. Changes in the regulatory environment and internal production processes have also molded the industry, making more efficient cars accessible to the mass public. In years to come, automotive companies in Brazil, India and China (part of the BRIC group) are likely to continue to grow their share of the global market, while concomitant rise in environmental concerns are likely to bring substantial changes in how the industry adapts and evolves in the future. This study has three broad objectives. First, to trace how regulations pertaining to vehicular pollution have changed and what factors caused them to become more stringent over time. Second, how patenting of promising environment-friendly inventions, as a result of continuous technological innovation, promises to ameliorate some environmental concens. Third, in order to relate these two phenomena, an attempt is made to understand the impact of regulatory stringency on the level of patenting of technologies that are both fuel-saving as well as emission-reducing.
Ashish Bharadwaj

Chapter 2. Changing Dynamics of the Industry

An overview of the global automotive industry and how it is inextricably linked with growth of economies is presented in this chapter. For several developed economies, the automobile industry has been a driver of economic growth, contributing significantly to GDP and to the exchequer. Nowadays, conventional engines are remarkably cleaner and more powerful than their counterparts from a few decades ago. Several important technologies are responsible for this paradigm shift in internal combustion engine technology from lowly carburetors to efficient fuel injectors to precise (gasoline) direct injectors, from heavy iron to lighter aluminum, from multivalve to enhanced variable valve timing, from overhead valve to improved overhead camshafts and finally the advancements in the embedded computer systems, engine controls units and onboard diagnostics to optimize overall performance. This chapter also throws light on the environmental challenges the industry poses, and its responsibilities in tackling these challenges.
Ashish Bharadwaj

Chapter 3. Environment, Health, and New Technologies

This chapter presents a comprehensive review of the literature covering various facets of environmental regulations. The multidimensional association of environmental regulation with economic growth, innovation, and industrial competitiveness are laid down. The cost of regulation is considered as a major reason for the decline in industrial production. This is not only due to the institutional cost of regulation but also because of the cost imposed on firms as a result of restricted resource use. The results of studies investigating the Porter hypothesis are balanced almost equally on both sides of the inconclusive induced innovation debate. The innovation economics literature still has not gained ground in studying innovation activity, particularly environmental innovation, in developing countries. Lack of reliable, comprehensive, and accessible macroeconomic and innovation related studies was certainly one of the reasons few years ago. With the emergence of India, China, and Brazil as new economic powerhouses, new variants of policymaking, governance, and regulatory intervention are surfacing. This section attempts to bring focus on the neglected but critical issue of environmental regulation and innovation in economies, which are currently in a phase of economic, social, and technological transition.
Ashish Bharadwaj

Chapter 4. Role of State and Regulatory Instruments

The aim of this chapter is to obtain present information about the environmental legislations and the overall development of standards and norms relevant to the transport industry in Germany, India, China, and Brazil. It is evident that Germany, as part of a bigger commitment by Europe, led the way in setting performance targets, imposing binding emission limits, and helping the industry adjust to all these changes. The other countries followed this path making necessary technical changes to the regulations to suit local needs. The implementation and adoption of new measures were done at different times in these countries. Even though India has had a structured vehicular pollution control plan since early 1990s, it was very slow in keeping pace with the changing environment and industrial development. China, on the other hand, joined the regulatory bandwagon very late but it took the right decisions within the last decade to catch up with others. The Brazilian case was slightly different from its counterparts. Brazil, like India, started early and, like China, decided to push its reform agenda in the right direction in the 1990s and early 2000s. However, Brazil failed to keep the momentum going because of which it now lags behind other countries in adopting stricter regulations.
Ashish Bharadwaj

Chapter 5. Where Do Brazil, India, and China Stand?

This chapter explores the technical aspects of green technologies that are being developed to mitigate the challenges posed by vehicular pollution and fuel consumption. The use of standardized International Patent Classification (IPC) system of technologies is described to get a better understanding of the underlying green technologies. This is followed by an exercise that matches pollutants targeted in the regulations with selected patent-technology classes to develop a composite regulatory stringency index for Germany, India, Brazil, and China. The construction of a regulatory stringency index for each country builds on the information gathered in the fieldwork where interactions with technicians, industry representatives, government officials, and academicians were held.
Ashish Bharadwaj

Chapter 6. Insights from the World of Patents

The previous chapter analyzed the regulations to construct a regulatory stringency index for Germany, India, China, and Brazil. This chapter introduces patent data for the four countries and explores various characteristics of the data. An illustration of patenting trends across technologies and markets is followed by a discussion of metrics of innovation highlighted in the literature. Special emphasis is given to patenting as a metric of innovation and its suitability in this study. After this, the patent data used in this study is introduced along with details of patent filings, priorities, and composition of assignees across the four countries.
Ashish Bharadwaj

Chapter 7. Empirical Methodology and Findings

This chapter investigates the impact of the regulatory stringency index constructed in Chap. 5 on patenting in Germany, Brazil, India, and China from 1985 to 2010. The index is based on an aggregation of all relevant environmental regulations that were adopted in these countries since 1985. The index (core explanatory variable) is a good measure of strictness of environmental policies and regulations because it relies on all (incremental) interventions, i.e., vehicular emissions, fuel consumption level, and the technological developments to meet these requirements.
Ashish Bharadwaj

Chapter 8. Conclusion

The existing economic literature lacks consensus on an appropriate method to quantify the strictness of environmental regulations. The objective of creating a stringency index for environmental regulations in this study was to understand the evolution of incrementally strict regulations to reduce vehicular emissions and fuel consumption. The empirical results provide preliminary evidence of an inducement effect of regulatory stringency to innovation activity as measured by weighted patent counts. The hypothesis that domestic regulatory stringency positively affects innovation was not rejected. Only in India and China, domestic stringency was found to stimulate domestic innovation. The finding reaffirmed that key emission norms implemented in the year 2000 and 2005 did induce innovation in both of these developing countries. These results support the Porter hypothesis that regulations can lead to more innovation. The results of this study are in line with Newell et al. (1999) who found that the direction of innovation was positive (inducement) for products covered under energy efficiency standards. The results also corroborate with findings of Popp (2006) who studied the effect of emission standards for NO x and SO2 on patenting in three countries including Germany between 1970 and 2000. He found that the innovators responded to environmental regulation of their home country but not to regulations of foreign countries. In the same year, Johnstone and Labonne (2009) also found that perceived stringency of environment regulation is a very strong driver of innovation. Hence, the results corroborate the argument that environment policy has a discernible (positive) impact on the direction of technological change and innovation. Based on the findings and background research of this study, some managerial and public policy implications are suggested below.
Ashish Bharadwaj
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