Environmental regulations and innovation in advanced automobile technologies

From Steam and Electricity to Petrol and Diesel

This chapter provides an overview of the evolution of the automobile industry over the past two hundred years globally The mass demand for cars surged with the invention of the combustion engine, marking a significant turning point (McNally2017, p 42) The widespread adoption of automobiles was driven by technological advancements and enhanced production efficiency, making vehicles more affordable and accessible to the public.

A Bharadwaj, Environmental Regulations and Innovation in Advanced Automobile Technologies, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-10-6952-9_1

1 describing the way in which the industry has evolved, and the various different changes that its economic structure and customer base have undergone.

Early automobiles, predating the internal combustion engine, relied on steam power and electricity, marking a significant technological advancement of their time Initially, the market for steam-powered cars developed slowly due to their cumbersome nature; however, by the early nineteenth century, a modest demand emerged in England for these vehicles to transport cargo and passengers Innovations like multi-speed transmissions and smoother steering mechanisms spurred interest in France and the U.S Despite this, public backlash arose against motor vehicles, with horse carriage manufacturers protesting their impact on traditional transport methods This opposition culminated in the Locomotive Act of 1865, which severely restricted the use of self-propelling vehicles on public roads, effectively stifling the steam-powered automobile market in England.

In 1876, Nicklaus Otto developed the four-stroke internal combustion engine, which German engineer Karl Benz later incorporated into a vehicle By 1904, advancements in engineering had reduced issues related to odor, vibrations, and noise, significantly increasing the popularity of cars as the preferred mode of transportation A pivotal innovation occurred in 1892 when Rudolf Diesel invented the diesel engine, offering a cheaper and safer alternative to petrol engines However, due to initial reliability issues, diesel engines did not gain market traction until later, allowing the petrol-powered Model T to become the first mass-produced car.

In 1896, Henry Ford revolutionized the automotive industry by producing the first Model T, designed to be affordable and accessible to the general public This innovation shifted cars from being exclusive to the wealthy to becoming popular among the masses Ford's belief in high-volume production led him to implement assembly line techniques, significantly reducing manufacturing costs By 1914, his system allowed workers to assemble a car in just one and a half hours By 1916, the Model T was priced at $400, making it the most affordable car on the market.

Ford had originally intended to produce several different models but abandoned these plans due to the success of the Model T, focusing all of his efforts on it By

2 1 Evolution of the Global Automobile Industry

By 1921, the Model T dominated the global automobile market with a 60% share, revolutionizing transportation for the public in developed countries Its widespread adoption was facilitated by thousands of local assembly kits and a vast network of agents and dealerships When Ford ended production in 1927, a remarkable 15 million Model T cars had been sold worldwide, shifting the automobile market from catering to the wealthy elite to serving ordinary working- and middle-class consumers.

Historically, cars were largely dismissed by the working population and seen as symbols of luxury, particularly in markets beyond Europe and the USA However, the introduction of the Model T transformed this view, making automobiles accessible and appealing to the general public.

The Big Three

In the 1920s, General Motors and Chrysler emerged as significant competitors to Ford's Model T, challenging its dominance in the automobile industry General Motors implemented systematic market research to gain insights into sales potential, utilizing vehicle registration data to track demand shifts Unlike Ford, which focused on a single low-cost model, General Motors differentiated itself by offering a diverse range of vehicles and staying attuned to consumer preferences and trends.

General Motors' need to adapt its assembly techniques to meet customer demands led to the introduction of flexible machines for efficient mass production In 1920, Walter Chrysler left General Motors after a dispute with founder William Durant and founded Chrysler Motor Corporation, which quickly became a competitor to General Motors and Ford by offering innovative components and accessories Together, Ford, General Motors, and Chrysler formed the "Big Three," dominating the global automobile market for decades and establishing the U.S as a leader in the industry However, the emergence of the diesel engine soon posed a new challenge to the traditional petrol engine.

In the 1930s, F Perkins Ltd., a British company, pioneered a more efficient diesel engine, which was first utilized by the French car manufacturer Citroen in its Rosalie model in 1934 Following Citroen's lead, Mercedes-Benz incorporated the new diesel technology into its 260d model, launched in 1935.

The rise in diesel's popularity can be attributed to its extensive use in military applications during wartime, which solidified its presence in public awareness This led to increased adoption in road haulage and agricultural vehicles By the 1950s, British manufacturers like Austin, Rover, and Standard, along with Italy's Fiat, began offering diesel versions of their cars The trend continued in the 1960s with the entry of Japan's Isuzu Bellel into the market The growing preference for diesel-powered vehicles was driven by heightened energy efficiency concerns and the search for a more affordable alternative to petrol, especially as fuel prices surged following Middle Eastern conflicts.

Rise of Non-U.S Companies

As diesel's popularity surged, competition from foreign automakers intensified against the Big Three—Ford, General Motors, and Chrysler In the 1960s, rising consumer interest in imported vehicles led to significant growth for foreign models, prompting domestic companies to criticize the government for not supporting the American auto industry To maintain their market dominance, these companies labeled buyers of imported cars as unpatriotic By the early 1970s, soaring oil prices and growing environmental awareness shifted some American consumers towards smaller, more eco-friendly European and Japanese cars.

Until the mid-1960s, Japanese car designs primarily aimed to replicate American and European models, focusing on domestic production with minimal exports However, in the late 1960s, Japanese manufacturers shifted their attention to small cars with engines of 360 cc or less to evade taxes, which significantly boosted exports This strategy, combined with a growing domestic market, positioned Japan as a formidable player in the global automobile industry.

Toyota enhanced flexible mass production techniques originally developed by General Motors, allowing for product customization in response to global trends The company implemented interchangeable spare parts across various models, enabling rapid and cost-effective promotion of new releases Additionally, Toyota introduced "just-in-time manufacturing," ensuring components were available in the right quantity at the precise moment needed, which reduced waste This approach was supported by cultural factors, including a strong Japanese work ethic, a sense of equality, and high levels of teamwork among employees, which were particularly pronounced in the post-World War II era.

4 1 Evolution of the Global Automobile Industry precedence over other activities in Japanese society (Lai and Cheng2009, pp 9–

Honda and Nissan adopted innovative techniques that allowed them to produce high-quality vehicles at competitive prices The "just-in-time" method significantly contributed to Japan's rise in the global automotive market, diminishing America's dominance (Shimokawa 2010, p 2) Additionally, the Japanese practice of kaizen played a crucial role in the expansion of car companies, promoting internal consolidation and encouraging shop-floor workers to make continuous improvements in manufacturing processes This approach highlights that incremental innovation, involving the entire workforce, can lead to sustained enhancements in both technical and managerial functions.

In the mid-20th century, European manufacturers shifted their focus to compact vehicles, capitalizing on their growing popularity By 1959, Germany's Volkswagen Beetle captured 10% of the American market, becoming the top imported vehicle until the 1970s This surge in demand for small foreign cars prompted British and Italian companies to expand beyond their domestic markets and explore non-European opportunities.

By 1981, major American automobile manufacturers were facing a decline in their global competitiveness, while Japanese and German companies were rising in prominence In response to this crisis, Ford began integrating aspects of the Japanese production system into its operations, Chrysler received a government loan to prevent bankruptcy, and General Motors partnered with Toyota in a successful joint venture called New United Motor Manufacturing Inc., which helped stabilize the company.

Tightening Environmental Regulations

The declining profitability of the Big Three automakers can be attributed to stringent environmental regulations imposed on the American automotive industry, originating from the Californian environmental crisis of the mid-1960s, which linked "pollution" with "LA" in the public consciousness This led to the enactment of the Federal Air Quality Act in 1967, establishing minimum federal standards while allowing states to impose stricter requirements as necessary The Act heightened awareness of pollution issues, culminating in the Clean Air Act of 1970, which mandated the use of catalytic converters in new vehicles and introduced further restrictions on harmful emissions.

The Energy Policy Conservation Act of 1975 established minimum fuel efficiency standards, leading to progressively stricter regulations on fuel efficiency and emissions These evolving rules have presented both challenges and opportunities for car manufacturers.

In addition to additional environmental and business responsibilities, there was growing public demand for companies to place environmentalism at the forefront of their businesses.

Car companies overseas managed to get their act together around the same time.

In the mid-2000s, Toyota gained recognition as an environmentally friendly brand primarily due to its hybrid Prius model, which, despite its reputation, only represented 3% of the company's sales, with larger SUVs making up a significant portion Meanwhile, European automotive manufacturers leveraged the growing environmental movement by innovating technologies to adapt their business models and meet stricter regulations They sought opportunities to produce less polluting and more efficient vehicles As the global automotive market expands, BRIC countries are emerging as key players, signaling the decline of an era dominated by a few nations in the industry.

The Rise of Brazil, India, and China

By 2009, the combined share of global automobile production held by Europe, Japan, and the USA dropped to around 50%, a decline attributed to the rising market presence of BRIC nations—Brazil, Russia, India, and China This growth in the automotive sectors of these emerging economies has been driven by increasing per capita incomes, enhanced road infrastructure, and the mass production of various vehicle types Notably, several established car brands have shifted ownership to firms in these regions, exemplified by Tata's acquisition of Jaguar Land Rover and Geely's ownership of Volvo.

China's share of the global automobile market surged from 3% in 1997 to 22% in 2009, establishing it as the world's largest car manufacturing nation Chinese automotive companies are advancing their capabilities in complex research and development, as well as assembly processes, positioning themselves to become an even more dominant force in the industry in the future.

Brazil's automotive industry has rapidly grown to become the seventh largest in the world, contributing nearly 20% to the nation's GDP Prior to the 1990s, the industry struggled, heavily influenced by foreign firms To foster a domestic automotive sector, industry representatives and union leaders collaborated with the government to lower vehicle prices, promote exports, and increase investments.

Brazilian factories aimed at modernizing production techniques These measures enhanced productivity and brought the quality of the country’s automobiles up to a globally competitive standard.

Since the 1990s, India's automotive industry has experienced significant growth due to various government initiatives, including the Automotive Mission Plan launched in 2016, which focuses on boosting vehicle exports While Japanese companies continue to dominate the domestic passenger car market, Indian manufacturers have successfully secured a 60% share of the commercial vehicle market and are actively exporting cars globally.

In addition to new key players entering the global automobile industry, the other major development in recent years is the resurgence of the popularity of the electric car.

Conclusion

Over the past fifty years, U.S environmental laws have aimed to balance state enforcement of pollution control with a national framework of minimum standards, exemplified by the Clean Air Act, which addresses air quality concerns linked to industrial growth While the federal government establishes National Ambient Air Quality Standards (NAAQS), states have the discretion to determine their compliance, with no obligation to exceed federal regulations The automotive industry has evolved significantly over three centuries, influenced by diverse market forces and rising environmental concerns that have led to unconventional transport technologies Technological innovation plays a crucial role in enhancing mobility and improving air quality, with patents serving as an imperfect but valuable measure of industry innovation and adaptability to regulations Recently, fears surrounding the decline of internal combustion engine (ICE) technology echo historical anxieties from the horse carriage industry, highlighting the ongoing transformation within the automotive sector.

The ongoing 'perennial gale' of creative destruction is driving advancements in transportation technologies, as governments respond to climate change and energy security concerns by incentivizing investments in clean energy While electric mobility represents the future, it faces significant technical and non-technical challenges, making a complete global transition from conventional combustion technologies unlikely in the near term Europe, spearheaded by German automotive giants, is pioneering a shift towards hybrid and fully electric vehicles, with lawmakers actively promoting this transition Understanding the impact of innovation and regulation on the automobile industry over recent decades is essential, as explored in this book Subsequent chapters examine the industry's evolution alongside economic growth, its environmental implications, and the responses of innovators and governments to environmental crises Chapter 2 reviews significant global developments in automobile technology from the last decade, presenting theoretical and empirical insights from academic literature on environmental regulation, innovation, and economic growth Chapter 3 synthesizes key scholarly works on the interplay between environmental regulations, economic growth, technological innovation, and industrial competitiveness Chapter 4 details various environmental regulation instruments, compiling relevant legislation and standards for the automobile sectors in Germany, India, China, and Brazil Finally, Chapter 5 delves into environmentally friendly technologies within conventional powertrains, addressing challenges related to vehicular pollution and fuel consumption, and discusses the use of the International Patent Classification system in this research.

This article introduces a new regulatory stringency index specifically developed for Germany, India, China, and Brazil Building on prior research, it highlights various characteristics of patent data utilized in the study The analysis reveals patenting trends in key technologies from 1985 to 2011 across these four countries.

Chapter 7 outlines the empirical methodology employed to assess the influence of regulatory stringency on patenting, which serves as an indicator of technological innovation within the industry across four countries It highlights significant findings derived from this investigation Subsequently, Chapter 8 discusses the managerial and public policy implications drawn from these insights.

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Changing Dynamics of the Industry

The global automotive industry is crucial for economic growth, significantly impacting GDP in developed economies Modern conventional engines are cleaner and more powerful, thanks to advancements in technology such as efficient fuel injectors, lightweight materials, and improved engine controls However, the industry also faces environmental challenges and has a responsibility to address these issues.

The Automotive Industry and Economic Growth

The automobile industry has been a key driver of economic growth for many developed economies, significantly impacting GDP and government revenues As substantial investments flow into this sector, the emphasis is increasingly on low emissions and high fuel efficiency Additionally, production is progressively relocating to emerging markets like China, India, and Brazil.

Financial crises can strengthen and hasten the transition towards emerging economies The BRICS nations—Brazil, Russia, India, China, and South Africa—played a significant role in the modest recovery of global GDP following the 2008-09 financial crisis.

Currently, even with relatively smaller real incomes in these emerging economies, the average cost of purchasing and running a car is drastically higher than in

This chapter contains some portions from a previous publication: Bharadwaj, A (2015).

‘Technological and Socio-Economic Issues in the Global Automobile Industry’, Transp in Dev. Econ 1: 33.https://doi.org/10.1007/s40890-015-0005-2 © The Author(s) 2018

According to IMF data analyzed by the Economist Intelligence Unit, cities like Shanghai, Sao Paulo, and New Delhi have higher average car ownership costs than traditional economic hubs such as London, Berlin, Tokyo, and New York Despite this, car manufacturers are increasingly targeting emerging markets to meet rising demand and mitigate the impact of increasing taxes on imported vehicles Notably, Daimler plans to establish a new assembly plant in Brazil for its C Class model starting in 2015, while other German automakers like BMW and Audi are also expanding their presence in Brazil, which is primarily dominated by Fiat, Volkswagen, GM, and Ford In India, Daimler is enhancing its Pune facility and began assembling the E Class there in 2013 to reduce import duties The movement of small and medium-sized ancillary industries alongside major manufacturers fosters value addition, job creation, and technology transfer within the local economies of these host countries.

The United States, Germany, and Japan have long been leaders in automobile engineering and sales; however, from 2000 to 2007, their global production share decreased from 40% to 30%, while non-OECD countries increased their share from 10% to 20% (OECD 2009a, 2009b) This shift in demand across various regions has raised the minimum efficient scale of production for many manufacturers, resulting in a surge of mergers, acquisitions, and collaborations to leverage economies of scale The financial crises of the last decade severely impacted the global transport sector, marked by a dramatic decline in car sales, restricted credit access, and rising input costs Notably, the European Automobile Manufacturers’ Association (ACEA) reported a historic low in new car demand in the EU in 2012, the lowest since 1990 Additionally, General Motors' bankruptcy in 2009 sparked significant corporate reorganizations and stimulus packages, further straining the global economy.

Global car manufacturers are increasingly relying on the sales growth in Asian economies and the recovering automotive market in America to navigate current challenges This strategy is essential for sustaining their competitive edge in the industry.

In emerging economies, the purchase price of a typical family car with a 1.8 – 2.5L engine was nearly three times higher, averaging between $90,000 and $120,000 in 2010 This purchase cost is a significant component of ownership, alongside the running costs, which encompass road tax, registration fees, service, insurance, and petrol consumption for 10,000 miles (16,100 km) at an efficiency of 35 mpg (12.4 km/L) over three years.

In August 2013, Reuters reported through the German weekly Der Spiegel that Mercedes had been producing the A Class hatchback at its Juiz de Fora plant since 1999 However, the plant transitioned to manufacturing commercial trucks, leading to the cessation of passenger car production in 2010 Additionally, Europe has consistently emphasized the need for car manufacturers to comply with fuel efficiency and emission targets, highlighting the importance of low-emissions engine technology.

In 2025, the European Parliament’s Environment Committee established a carbon dioxide emission limit of 95 grams per kilometer for vehicles, indicating that the average car should achieve a fuel efficiency of around 4 liters per 100 kilometers.

100 km Further, it was decided that emissions should be brought down to 68–78 g per kilometer at a mileage of 100 km in 3 litres by 2025.

Innovation in the Automotive Industry

The 2009 UNFCCC meeting in Bonn highlighted the crucial role of clean technology in emission reduction within intellectual property discussions The June 2012 Rio summit addressed two main themes: the green economy and sustainable development frameworks This event marked the first significant debate between opposing environmental groups regarding intellectual property, particularly focusing on patent law and technology transfer Critics argued that patents contribute to the high costs of low-carbon technologies, while developed nations contended that patents incentivize innovation and that weak intellectual property protections hinder the transfer of these technologies.

Despite a century of advancements, internal combustion technology is still perceived as superior to electric propulsion Gas-electric hybrids, while seen as a transitional solution, still rely on fuel Consumer concerns about electric vehicle range, known as range anxiety, persist, and current fuel cell and battery technologies are insufficient for heavy-duty applications like tractors and long-haul trailers without significant breakthroughs This skepticism contributes to the slow market growth for battery-powered vehicles, despite extensive media coverage, government subsidies, and a growing variety of models However, the shale gas boom in the U.S is expected to benefit the commercial vehicle sector, which plays a crucial role in interstate goods transport.

Cummins, a leading automotive engine manufacturer, has responded to the slow advancement of battery technology for medium and heavy commercial vehicles (MHCVs) by launching heavy engines powered by liquefied natural gas (LNG) This alternative fuel offers a lower cost and a smaller carbon footprint compared to traditional options However, compressed natural gas (CNG) presents challenges due to its reduced energy density, which limits vehicle range and necessitates more frequent refueling.

3 The promising rechargeable non-aqueous lithium-air battery, being developed by researchers at the University of St Andrews, is receiving a great deal of interest.

The primary demand for heavy commercial vehicles is driven by major shippers in the FMCG and logistics sectors, including Procter & Gamble, United Parcel Service, FedEx, and Walmart These companies aim to lessen their dependence on transport fuel while enhancing their environmental sustainability credentials.

The automotive industry is experiencing economic growth, particularly in vehicles designed for shorter distances, such as shuttle buses, garbage haulers, and small delivery vans Government support through federal and state tax incentives and grants for natural gas station installations has facilitated the shift to non-conventional fuels According to the Global Innovation Index 2013, innovation remains robust despite the economic crisis, with R&D spending surpassing 2008 levels in many countries Notably, dynamic middle- and low-income nations like China, Costa Rica, India, and Senegal are advancing rapidly, although they have yet to reach the top of the global rankings.

New Technology and Related Issues

Modern conventional engines are significantly cleaner and more powerful than those from previous decades, thanks to advancements such as efficient fuel injectors, lighter materials like aluminum, and improved variable valve timing Automotive engineers agree that diesel-turbo engines offer superior torque and mileage compared to petrol engines under standard driving conditions However, diesel vehicles face challenges in controlling nitrogen oxide (NOx) emissions, which contribute to smog and acid rain, and are costlier to develop due to complex hardware requirements In Europe, diesel is often favored over petrol due to higher cetane ratings that help reduce NOx emissions, while stricter NOx regulations in the USA necessitate costly after-treatment systems, further increasing the price of diesel vehicles.

For a long time, diesel has been viewed negatively in India, primarily due to overloaded public transport buses, aging passenger vehicles, and poorly maintained commercial vehicles that emit harmful fumes These diesel-powered vehicles became emblematic of the dirty fuel, dominating the Indian roads However, recent advancements have begun to shift this perception.

5 Diesel is inherently a more combustible fuel at high pressures than gasoline, which is a reason why diesel engines do not require spark plugs.

The negative perception of diesel vehicles is largely attributed to increased noise and vibration levels from their explosive combustion process However, advancements in diesel engine technology have enhanced fuel efficiency and reduced operational costs, making diesel cars more economical to run and maintain compared to petrol vehicles Additionally, the implementation of stricter emission regulations in India has further influenced the market dynamics.

With the introduction of BS III and IV standards, diesel fuel has seen a significant reduction in sulfur content to 50 ppm, making it a cleaner option Initially, China planned to implement the nationwide China IV diesel standard, comparable to Euro IV, in January 2011, but this was later postponed to July 2013.

Recent Developments

Car manufacturers are adapting to stricter fuel economy and emission standards by altering vehicle dimensions Notably, iconic models like the Volkswagen Golf Series and Peugeot 20 Series have been downsized in both length and weight, despite advancements in fuel efficiency and the addition of safety and infotainment features.

As major manufacturers like Nissan, GM, VW’s Audi, and Toyota reduce their electric vehicle plans or lower prices to boost sales, BMW is making a bold move by introducing the i3, its first all-electric hatchback This launch highlights BMW's commitment to the electric vehicle market amidst a shifting industry landscape.

VW’s“e-Co-Motion”concept and the “XL1”(acclaimed as a superefﬁcient vehicle),Land Rover’s“Electric Defender”concept car, andVolvo’s“V60D6”plug-in diesel electric hybrid.

In the past decade, significant advancements have been made in hybrid and electric vehicle technologies; however, the necessary infrastructure, particularly the installation of charging stations, remains a challenge Addressing range anxiety and altering consumer perceptions and driving habits are crucial for widespread adoption While Tesla Motors exemplifies success in this sector, several American companies, including Fisker Automotive, Coda Automotive, Better Place, and A123 Systems, have recently filed for bankruptcy, highlighting the industry's volatility Additionally, recent registration figures from ACEA indicate ongoing developments in the European electric vehicle market.

In the first quarter of 2013, European car sales experienced positive growth for the first time in 19 months, driven primarily by heightened consumer confidence in the German market Notably, Daimler, Volkswagen, and Renault recorded significant sales increases of 11% and 9.7%, respectively.

The subsidization of diesel, particularly for agricultural purposes, has led to an artificially maintained price difference between diesel and other fuels in India.

8 It should be noted that the allowed sulfur content internationally is 10 ppm.

Heavy fuel consumption subsidies are deemed inefficient for several reasons: they exacerbate budget and trade deficits, divert public funds away from essential social sectors, and introduce volatility in fiscal planning due to fluctuating crude oil prices.

(4) subsidies encourage consumers to buy vehicles which further adds pressure on roads and contributes to air pollution, (5) discourages investment in clean vehicle technologies.

Toyota Motors has established itself as a leader in the electric hybrid segment, selling 5 million hybrid vehicles since the launch of the first Prius in July 2000 With a global fleet of 20 hybrid models, Toyota collaborates with the US Department of Energy and the National Renewable Energy Laboratory, expanding its electric hybrid vehicle sales to 80 countries worldwide.

Environmental Regulation and Innovation

Theoretical and Empirical Evidence

The Porter Hypothesis, although often cited in the management and business economics literature, is based on anecdotal evidence relying on several case studies.

It lacked a strong empirical grounding for a long time until researchers started to give empirical scrutiny to the causal relationship between environmental regulation and innovation.

In their 1987 study, Atkinson and Garner highlighted the positive effects of environmental regulations on the U.S automobile industry from 1960 to 1980, focusing on measures like Corporate Average Fuel Economy (CAFE) standards, emission norms, and the 1963 Clean Air Act They concluded that increased competition from Japanese automakers prompted the adoption of disruptive environmental regulations, which ultimately led to reduced emissions and enhanced profitability for innovative firms Charles Heinen, Director of Vehicle Emissions at Chrysler, provided a noteworthy perspective on these developments.

The United States Environment Protection Agency (EPA) has significantly expedited research on combustion, leading to valuable insights that are crucial for both emission control and fuel economy.

Pilkington and Dyerson (2006) investigated the growth of the electric vehicle industry in the USA by analyzing 268 US patents related to electric propulsion technology since 1976 Their research highlighted that while emission standards spurred incremental innovation in traditional vehicle technologies like internal combustion engines, they failed to promote innovation in non-conventional electric vehicle technologies Utilizing a simplified content analysis and basic patent count indicators, the study focused on a limited number of automobile companies engaged in the electric vehicle sector.

The authors highlight that the automotive industry's achievements were influenced by its nature and the significant transformations it underwent, marked by increased international competition and a surge in demand for automobiles They note that emission reduction regulations have significantly pushed the vehicle industry to explore alternative technologies Newell et al (1999) expanded on the Hicksian notion of inducement to assess the impact of government regulations, specifically the National Appliance Energy Conservation Act (NAECA) of 1987, on energy-efficiency innovation Their findings indicate that regulations have enhanced the energy efficiency of consumer appliances, such as air conditioners and gas water heaters, over the last four decades, although improvements in energy efficiency also occurred independently of price changes or regulations.

The existing literature on induced innovation within developing countries is limited, often overlooking the diversity of technological capabilities among domestic firms Rosenbaum (2002) suggests that firms with similar characteristics generally exhibit comparable efficiency levels, while variations in technological traits lead to differing efficiency outcomes Aghion et al (2004) further elaborate on this concept through technology frontier analysis within a Schumpeterian framework, highlighting the significance of these differences in driving innovation and efficiency among firms.

Firms' motivation to innovate relies not only on post-innovation profits but also on their technological efficiency The strong version of the Porter Hypothesis posits that well-crafted regulations can enhance competition, thereby incentivizing innovation However, Aghion et al (2004) contend that increased competition primarily stimulates innovation in firms that are most efficient, while discouraging it in less efficient firms Despite a wealth of studies examining the relationship between regulation and innovation, Blind (2012) notes that recent research has only begun to explore how regulation affects firms' innovative capabilities, and there remains uncertainty about whether the negative impacts of regulation outweigh the positive effects.

Binswanger and Ruttan (1978) conducted the first comprehensive evaluation of the induced innovation hypothesis, utilizing transformation frontier analysis to confirm an inducement effect in the agricultural sector Until the 1990s, most induced innovation literature examined this relationship through a macroeconomic production function framework However, as Newell et al (1999) highlighted, innovation and technological change are fundamentally microeconomic phenomena at the product level.

The efficiency disparity among firms within an industry across different countries is assessed using the Mahalanobis distance A larger distance value indicates that the domestic firm is significantly less efficient compared to the benchmark firm at the technology frontier.

Overview of Green Automotive Technology

To meet stricter emission regulations, advanced emission control and fuel-saving technologies are being developed to target specific pollutants generated by automotive engines Typically, engines do not achieve complete combustion, leading to the release of harmful pollutants Key emissions include nitrogen oxides (NOx), which form from the reaction of nitrogen and oxygen during combustion and contribute to ozone formation and acid rain Carbon monoxide (CO) results from incomplete combustion, where fuel is not fully oxidized to carbon dioxide While carbon dioxide (CO2) is produced during complete combustion, it is a significant greenhouse gas that contributes to global warming These pollutants pose serious risks to both human and animal health.

Some of the most relevant technologies for the IC Engine to reduce HC, CO,

NOxemissions include the catalyst technologies such as (1) substrate and coating technologies, (2) Three-way catalysts, (3) oxidization catalysts Out of these, the

Nitrogen oxide (NOx) control technologies are gaining significant attention due to the rising prevalence of diesel vehicles and the harmful effects of uncontrolled emissions Effective technologies that can significantly reduce particulate matter (PM) emissions are essential for mitigating environmental and health impacts.

(1) Wall-flowfilters, (2) Partial-flowfilters, (3) Open-filters According to Johnson

Since the mid-1990s, the diesel engine and emission control technology sector has experienced significant changes, largely driven by evolving regulations that are currently being implemented.

Lean NOx catalysts (LNCs) offer a straightforward installation process with minimal engine modifications and effectively reduce NOx emissions by utilizing exhaust hydrocarbons (HCs) In contrast, lean NOx traps (LNTs) provide a more efficient solution by capturing nitrous emissions and leveraging the vehicle's fuel injection system to regenerate and release the trapped gases Selective Catalytic Reduction (SCR) technology utilizes urea as a reducing agent to further lower NOx emissions, enhancing overall vehicle performance and compliance with environmental standards.

NOx, HC, and PM emissions This technology is available in almost all Euro IV and

V compliant heavy vehicles in Europe (MECA2007).

Gasoline-powered vehicles utilize advanced technologies such as multiple valves, variable valve timing, gasoline direct injection, and supercharging to enhance performance and efficiency Modern vehicles typically feature a four-valve configuration per cylinder, which, facilitated by an overhead camshaft, optimizes valve timing, fuel mixture, and spark plug positioning for improved combustion and fuel efficiency Additionally, research by Jayat et al (2011) highlights the potential of Selective Catalytic Reduction (SCR) technology and its derivative, SCRi, in reducing NOx and particulate matter emissions from diesel engines, suggesting its significance for meeting future emission regulations in India.

ACEA (2013) The Automobile Industry Pocket Guide 2010, Communication Department. Brussels: European Automobile Manufacturers Association.

Aghion et al (2004) explore the complex relationship between competition and innovation, suggesting an inverted-U relationship where moderate competition fosters innovation, while excessive competition may hinder it Meanwhile, Atkinson and Garner (1987) analyze the role of regulation as an industrial policy, using the U.S auto industry as a case study to illustrate how regulatory frameworks can impact economic development and industry performance.

Barton (2007) explores the relationship between intellectual property rights and access to clean energy technologies in developing countries, focusing on solar photovoltaic, biofuel, and wind technologies The analysis highlights the challenges that developing nations face in obtaining these technologies due to restrictive intellectual property frameworks It emphasizes the need for balanced policies that promote innovation while ensuring equitable access to sustainable energy solutions This research contributes to the broader discussion on trade and sustainable energy, offering insights into how intellectual property can impact the deployment of clean energy technologies in emerging economies.

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Blind, K (2012) The impact of regulation on innovation: Compendium of evidence on the effectiveness of innovation policy intervention Manchester Institute of Innovation Research, Manchester Business School, University of Manchester.

Decanio, S.J (1997) Economic Modelling and the false tradeoff between environmental protection and economic growth Contemporary Economic Policy 15 (4):10-27

Jayat, F., Reck, A., & Babu, K (2011) SCR and SCRi as after-treatment systems for low CO 2 and Low NO x vehicles SAE Technical Paper 2011-26-0038.

Johnson, T (2009) Diesel emission control in review SAE International Journal of Fuels and Lubricants, 2(1), 1 – 12.

MECA (2007) Emission control technologies for diesel-powered vehicles, manufacturers of emission controls association paper, December 2007, Washington, D.C.

The induced innovation hypothesis suggests that energy-saving technological change is driven by economic factors, highlighting the relationship between innovation and energy efficiency In response to economic crises, fostering industrial restructuring and renewal is crucial for sustainable development, as outlined by the OECD Emphasizing these concepts can lead to significant advancements in energy technology and economic resilience.

OECD (2009b) Effects of environmental policy on the type of innovation: The case of automotive emission-control technologies In I Hascic, F de Vries, N Johnstone, & N Medhi, OECD Journal: Economic Studies, Vol 2009.

Pilkington, A., & Dyerson, R (2006) Innovation in disruptive regulatory environment: A patent study of electric vehicle technology development European Journal of Innovation Management, 9(1), 79 – 91.

Porter, M E (1991) Americas green strategy Scienti ﬁ c American, 264(4), 168.

Porter, M E., & van der Linde, C (1995) Green and competitive: Ending the stalemate Harvard Business Review, September 1.

Rosenbaum, P R (2002) Observational studies New York: Springer.

Swanson, T (2008) Economic Growth and Environmental Regulation: A Discussion of International Experiences, Paper presented at an ADB Workshop on ‘ A Macro-environmental strategy for China ’ on 19 October 2008.

This chapter provides a thorough review of environmental regulations, highlighting their complex relationship with economic growth, innovation, and industrial competitiveness It addresses how the costs associated with regulation contribute significantly to a decline in industrial production, stemming from both institutional expenses and limitations on resource use The discussion on the Porter hypothesis reveals a balanced debate regarding induced innovation, yet the field of innovation economics has been underexplored, particularly in developing countries The scarcity of reliable macroeconomic and innovation data has hindered research in this area However, with emerging economies like India, China, and Brazil, new approaches to policy-making and regulatory interventions are evolving This section emphasizes the crucial yet overlooked connection between environmental regulation and innovation in transitioning economies.

Environment and Health Concerns

Five months after the June 2012 Rio Summit on green economy and sustainable development, an agreement was reached to extend the Kyoto Protocol, which has two key deadlines: 2015 for its development and 2020 for implementation However, global emissions could not be effectively reduced leading up to 2012, as they increased again after a temporary decline during the economic downturn of 2008 to 2009.

This chapter is based on the article "Technological and Socioeconomic Issues in the Global Automobile Industry," published in *Transport in Developing Economies* by Springer International The work has been recognized and included in the database of the US National Academy of Sciences © The Author(s) 2018.

23 gas emissions in 2012 were found to be 20% more than the level in 2000 which, in absolute terms, amount to an additional 50 giga tones of carbon equivalent (UNEP

The transport sector accounts for over 50% of global oil consumption, with road transport responsible for 75% of this usage Notably, transport fuel is often taxed more heavily than fuel used for electricity or heating in many industrialized nations.

Rising vehicle emissions in major cities, particularly from cars, significantly contribute to air pollution, with the issue worsening in developing countries due to inefficient public transportation, lenient emission regulations, and the slow adoption of clean automotive technologies Notably, Beijing has been identified as having some of the poorest air quality among global megacities.

In 2010, outdoor air pollution caused 1.2 million premature deaths in China, accounting for about 40% of global premature deaths, with vehicle emissions identified as the fourth leading risk factor This alarming statistic prompted China to implement stricter environmental standards, promote cleaner transport technologies, and revitalize the electric car industry The debate over biofuels, particularly the blending of ethanol derived from corn with gasoline, remains contentious, as U.S maize farmers advocate for higher ethanol levels despite concerns from powertrain developers and fuel distillers about potential engine damage Consequently, manufacturers are focusing on improving the efficiency of internal combustion engines, with innovations like turbocharging and direct fuel injection enhancing their competitiveness against hybrid and electric vehicles The green movement and environmental legislation are increasingly pushing the automotive industry towards greater sustainability.

Environmental Regulations and Growth

The relationship between economic growth and environmental quality is complex and significant, influenced by international trade Critics argue that unrestricted access to global markets harms the environment by escalating economic activity, while proponents contend that trade enhances real income and promotes environmental advancements.

The interplay between rising incomes and environmental quality is significant, as increased wealth often leads to a greater demand for improved environmental standards This heightened demand can prompt stricter environmental policies, which may reduce reliance on harmful production technologies As a result, the adoption of cleaner practices is likely to mitigate adverse environmental impacts.

The trade-environment literature examines the debate surrounding environmental regulations across countries and their impact on developing nations with lower regulations The "pollution haven effect" suggests that stricter pollution regulations influence plant location and trade flows, supported by theoretical evidence (Copeland and Taylor, 2004) This differs from the "pollution haven hypothesis," which posits that stringent regulations deter exports and capital inflows, leading to the relocation of polluting industries to countries with lax regulations However, Copeland and Taylor argue that the theoretical backing for this hypothesis is weak, as trade flows are influenced by various factors beyond pollution regulation Consequently, while the pollution haven effect is essential, it alone does not validate the pollution haven hypothesis (Copeland and Taylor, 2004).

Testing the pollution haven hypothesis for foreign investors in China, Dean et al.

Research indicates that pollution haven behavior exists, particularly in highly polluting industries, although it is not attributed to investors from developed countries (2009) Jaffe et al (1995) noted weak evidence linking stringent environmental regulations to reduced net exports in US industries Furthermore, Jorgenson and Wilcoxen (1990) reported that environmental regulations contributed to a 0.2% annual decrease in US economic growth from 1973 to 1985.

Environmental Regulation and Innovation

Lyon (1995) discovered that there is an inverse relationship between regulatory oversight and innovation among electric utilities in the USA His research utilized a theoretical model to analyze the investment behavior of electric utility firms, highlighting how increased regulation can hinder their innovative capabilities.

1 Polluting ﬁ rms in developed countries may also move to countries for other reasons.

2 Grossman and Krueger (1993), Kalt (1988), Tobey (1990) all use US trade data and do not ﬁ nd signi ﬁ cant effects.

Recent research by Copeland and Taylor (2004) indicates that earlier studies on the relationship between regulatory stringency and trade investment flows, conducted before 1997, had significant limitations These studies primarily relied on cross-sectional data, failed to account for unobserved heterogeneity among countries, and treated environmental regulations as independent variables Furthermore, the findings revealed that regulatory interventions, such as earnings ceilings, deter firms from adopting innovative technologies, while earnings floors encourage such adoption The study ultimately suggests that well-designed profit-sharing schemes can effectively foster investment in innovative technologies.

Lanjouw and Mody (1996) analyzed innovation in environmentally responsive technologies using patent data from the USA, Japan, and Germany between 1972 and 1986, concluding that heightened interest in environmental protection during the 1970s and 1980s spurred the development of new pollution control technologies Their study indicated a strong correlation between pollution abatement expenditure and patent activity, despite being limited to central tendencies and variance In a subsequent investigation, Jaffe and Palmer (1997) examined the relationship between pollution abatement costs in US manufacturing and R&D expenditure as a measure of environmental policy stringency, finding a positive and statistically significant link However, they did not establish a significant relationship between regulation and overall innovation, as measured by the count of successful patent applications.

Bhatnagar and Cohen (1997) investigated the impact of stringent regulations, indicated by increased pollution abatement costs and enhanced monitoring and enforcement, on environmental innovation Their study utilized a multivariate regression analysis based on a panel dataset encompassing 146 US manufacturing industries.

From 1983 to 1992, research indicated that stricter environmental regulations drive innovation in environmental protection, as evidenced by an increase in environmentally related patent applications However, this innovation does not translate into higher industry profitability, aligning with findings from Bhatnagar and Cohen.

In 1998, Pickman revisited the findings of Jaffe and Palmer regarding induced innovation in the U.S manufacturing sector, specifically analyzing environmental patents Utilizing pollution abatement and control expenditure (PACE) data to assess environmental regulation, she discovered a statistically significant and positive correlation between regulation and innovation through both ordinary least squares and two-stage least squares estimation methods.

4 Innovation not only refers to technological innovation but can take various other forms such as design innovation, process innovation, or even innovation in marketing techniques (Porter and vander Linde 1995, p 98).

26 3 Environment, Health, and New Technologies

Environmental Regulation, Competitiveness,

Porter (1991) argued that environmental regulations can enhance the international competitiveness of firms and positively impact the economy This perspective has been supported by various studies, while an equal number have challenged his claims Gabel and Sinclair-Desgag (1998) suggested that X-efficiency, as defined by Leibenstein (1966), may contribute to firms moving closer to the production possibility frontier by minimizing internal inefficiencies and failures triggered by external environmental regulations.

In a pioneering empirical study, Tobey (1990) utilized the Heckscher–Ohlin–Vanek (HOV) model to investigate the effects of stringent environmental policies on trade patterns in pollution-intensive industries His research revealed that, despite the strict regulations imposed in industrialized nations during the 1960s and 1970s, there was no significant impact on the trade patterns of these polluting industries.

Ratnayake (1998) found no negative impact of environmental regulations on New Zealand's trade competitiveness using the HOV methodology In contrast, Larson et al (2002) and Xu (2002) reported mixed results regarding the regulatory impact on trade competitiveness Additionally, Stewart (1993) explored the potential conflicts between environmental protection and international trade, concluding that stringent environmental regulations and liability rules could harm a nation's international competitiveness, despite most empirical studies not establishing a strong causal link between the two.

In their influential 1995 paper, Jaffe et al examined the relationship between environmental regulation and the competitiveness of U.S manufacturing firms They found that variations in the strictness of environmental regulations across countries did not significantly affect the competitiveness of U.S firms, indicating that regulatory tightening in the manufacturing sector was not necessary More importantly, despite the costs associated with these regulations, they observed no negative impact on the international competitiveness of these firms, as evidenced by their import and export performance The authors concluded that there is limited evidence supporting the idea that environmental regulations have a substantial adverse effect on competitiveness, regardless of how that term is defined.

The Heckscher-Ohlin-Vanek (HOV) model analyzes factor intensities and trade flows to comprehend how resource endowments influence trade By employing a variation of the HOV model, it examines the cross-country impacts of individual nations' resources—such as land, labor, capital, oil, and coal—on the trade of specific goods, particularly those considered "dirty."

Xepapadeas and Zeeuw (1999) distinguish between the "down-sizing effect" and the "modernization effect" of environmental regulations, specifically emission taxes The modernization effect aligns with Jaffe et al (1995), who noted that regulations in the 1970s accelerated the modernization of the US steel manufacturing industry, a concept supported by Porter and van der Linde.

In their 1995 study, it was argued that regulation enhances industrial competitiveness by increasing production costs, which, in turn, facilitates a more efficient reorganization of existing capital stock The findings indicate that when both the downsizing effect and modernization are considered, the marginal decrease in profits is less significant, while the reduction in emissions is more pronounced compared to scenarios where only downsizing is factored in The authors conclude that although a trade-off between environmental conditions and industry profits persists, it is mitigated by the dual effects of downsizing and modernization, resulting in a less pronounced conflict.

In 2005, the Network of Heads of European Environmental Protection Agencies released a report that highlights the positive relationship between environmental regulation and competitiveness in Europe The report outlines numerous benefits of such regulations, including lower industry costs, the creation of markets for environmental goods and services, reduced business risks, job creation, enhanced innovation, increased competition and investment confidence, improved workforce health, and better protection of natural resources.

More recently, Babool and Reed (2010) test the effect of strict regulations on export competitiveness of manufacturing sectors in 100 ECD countries between

Research from 1987 to 2003 indicates that environmental regulations effectively reduce the relocation of industries producing eco-friendly goods from developed countries The study revealed a positive correlation between regulation and net exports in sectors like paper, wood, and textiles, while most manufacturing industries showed a negative relationship Additionally, Greenstone and Syverson (2012) analyzed US manufacturing data from 1972 to 1993, focusing on the impact of fair quality regulation on total factor productivity.

6 The downsizing effect is the reduction of total capital stock (and consequently the size) of the

ﬁ rm, while the modernization effect is the reduction in the average age of the total capital stock (consequently increases productivity) (p 167).

Feichtinger et al (2005) present an opposing perspective, demonstrating that an emission tax can inadvertently increase the average age of the total capital stock, which may ultimately lead to a decline in productivity.

The 1970 Clean Air Act mandated that all states comply with National Ambient Air Quality Standards for key pollutants, including carbon monoxide, sulfur dioxide, total suspended particulates, ozone, and lead In non-attainment counties, environmental regulations are strict, while facilities in attainment areas are subject to more lenient standards.

A study on manufacturing plants revealed a 2.6% decrease in total factor productivity linked to stricter air quality regulations, resulting in an annual economic burden of $21 billion during the analyzed period.

Babool, B., & Reed, M (2010) The impact of environmental policy on international competitiveness in manufacturing Applied Economics, 42, 2317 – 2326.

Barrett, S (1994) Strategic environmental policy and intrenational trade Journal of Public Economics, 54 (3), 325 – 338.

Bhatnagar, S., & Cohen, M A (1997) The Impact of Environmental Regulation on Innovation: A Panel Data Study, Vanderbilt University (Tennessee) Working Paper.

Copeland, B R., & Taylor, M S (2004) Trade, Growth, and the Environment, Journal of Economic Literature, XLII, 771.

Dean, J., Lovely, M., & Wang, H (2009) Are Foreign Investors Attracted to Weak Environmental Regulations? Evaluating the Evidence from China, Journal of Development Economics, 90, 1 – 13.

Feichtinger, G., Hartl, R.F., Kort, P.M., & Veliov, V.M (2005) Environmental Policy, the Porter Hypothesis and the Composition of Capital: Effects of Learning and Technological Progress, Journal of Environmental Economics and Management, 50(2), 434 – 446.

Gabel and Sinclair-Desgagne (1998) explore the relationship between firms, their operational routines, and the surrounding environment in their contribution to the International Yearbook of Environmental and Resource Economics This work, edited by Folmer and Tietenberg, provides a comprehensive survey of contemporary issues in environmental economics, highlighting the significance of firm behavior in relation to ecological sustainability The findings underscore the critical role that organizational practices play in addressing environmental challenges, making it a vital resource for understanding the intersection of business operations and environmental stewardship.

Greenstone, M., & Syverson, C (2012) The effects of environmental regulation on the competitiveness of U.S manufacturing Department of Economics working paper, University of Chicago.

Grossman, G M., & Krueger, A B (1993) Environmental Impacts of a North American Free Trade Agreement, in Peter M Garber, ed., The U.S.Mexico free trade agreement Cambridge, MA: MIT Press, pp 1356.

Jaffe, A.B., & Palmer, K (1997) Environmental Regulation and Innovation: A Panel Data Study Review of Economics and Statistics, 79(4), 610 – 6.

Jaffe, A B., Peterson, S R., Portney, P R., & Stavins, R N (1995) Environmental regulation and the competitiveness of U.S Manufacturing: What does the evidence tell us? Journal of Economic Literature, 33(1), 132 – 163.

Jorgenson, D W., & Wilcoxen, P J (1990) Environmental Regulation and U.S Economic Growth The Rand Journal of Economics, 21(2), 314 – 340.

Kalt, J (1988) The political economy of protectionism: Tariffs and retaliation in the timber industry, in R Baldwin, ed., Trade policy issues and empirical analysis Chicago: University of Chicago Press, pp 339 – 364.

Lanjouw, J.O., & Mody, A (1996) Innovation and the international diffusion of environmentally responsive technology, Research Policy, 25(4), 549 – 571.

Larson, B., Nicolaide, E., Zu ’ b, B.A., Sukka, N., Larak, K., Matouss, M.S., Zaim, K., & Chouchani, C (2002) The Impact of Environmental Regulations on Exports: Case Study Results from Cyprus, Jordan, Morocco, Syria, Tunisia, and Turkey, World Development, 30(6),

9 They found negative effects in regulations governing ozone, particulates, and sulfur dioxide,while carbon monoxide regulations were found to be positively associated with productivity.

Leibenstein, H (1966) Allocative ef ﬁ ciency vs X-ef ﬁ ciency American Economic Review, 56,

Lyon, T.P (1995) Regulatory hindsight review and innovation by electric utilities Journal of Regulatory Economics, 7(3), 233 – 254.

Pickman, H (1998) The effect of environmental regulation on environmental innovation Business Strategy and the Environment, 7 (4), 223 – 233.

Porter, M E (1991) Americas green strategy Scienti ﬁ c American, 264(4), 168.

Porter, M E., & van der Linde, C (1995) Toward a new conception of the environment competitiveness relationship Journal of Economic Perspectives, 9(4), 97 – 118.

Ratnayake, R (1998) Do stringent environmental regulations reduce international competitiveness? Evidence from an inter-industry analysis International Journal of Economics of Business, 5(1), 77 – 96.

Rauscher, M (1994) On Ecological Dumping Oxford Economic Papers, 46, 822 – 840. Stewart, Richard B (1993) Environmental regulation and international competitiveness Yale Law Journal, 102(8), 2039 – 2106.

Tobey, J A (1990) The effects of domestic environmental policies on patterns of world trade: An empirical test Kyklos, 2, 191 – 209.

UNEP (2012) The Emissions Gap Report 2012, United Nations Environment Programme, Nairobi.

Ulph, A (1996) Environmental Policy and International Trade when Governments and Producers Act Strategically Journal of Environmental Economics and Management, 30(3), 265 – 281.

Xu, X (2002) International Trade and Environmental Regulation: Time Series Evidence and Cross Section Test Environmental and Resource Economics, 17, 233 – 257.

Xepapadeas, A & Zeeuw, D A (1999) Environmental Policy and Competitiveness: The Porter Hypothesis and the Composition of Capital Journal of Environmental Economics and Management, 37, 165 – 182.

30 3 Environment, Health, and New Technologies

Role of State and Regulatory Instruments

This chapter reviews environmental legislation and standards in the transport sectors of Germany, India, China, and Brazil Germany has taken the lead in establishing performance targets and binding emission limits, influencing other countries to adapt their regulations accordingly While India has had a vehicular pollution control plan since the 1990s, its progress has been slow In contrast, China joined the regulatory efforts later but has made significant advancements in the past decade Brazil initially started strong in the 1990s but has struggled to maintain progress, resulting in a lag behind other nations in implementing stricter environmental regulations.

Environmental Regulation — Design and Instruments

Regulation is defined as the establishment of rules by public authorities to shape market activities and influence the behavior of private entities within the economy Environmental regulation specifically refers to government interventions aimed at safeguarding the environment by directly or indirectly affecting human actions The main goal of environmental regulation is to protect the environment and the health of all living beings from human-induced damage, which often results from exposure to harmful substances and pollutants generated by various products and industrial processes There are three primary categories of regulatory instruments that facilitate this protective function.

1 Classi ﬁ cation by OECD (1997) and Nelissen and Requate (2004). © The Author(s) 2018

Environmental regulation primarily employs command-and-control instruments, such as emission standards and technological limits, which compel polluters to implement the best available technology These legal instruments, including administrative obligations and prohibitions, directly influence activities that harm the environment In contrast, market-based instruments utilize economic incentives, such as pollution taxes, permits, and subsidies, to encourage emission reductions Additionally, voluntary agreements, which can be public or private, aim to enhance firms' environmental performance through credible commitments and transparency.

In their seminal 1971 work, Baumol and Oates explored economic instruments that incentivize firms to achieve the optimal environmental quality benchmark, known as the "ambient standard." In contrast, the legal perspective on environmental standards focuses on regulatory measures enforced by government agencies targeting the sources of negative environmental externalities Despite this difference, both legal and economic regulatory instruments are categorized as ex-ante regulation.

According to Cropper and Oates (1992), establishing environmental policy involves a two-step process: first, setting standards for environmental quality, and second, creating a regulatory framework to achieve those standards Specifically, they note that under the Clean Air Act, the initial responsibility of the US Environmental Protection Agency (EPA) was to establish maximum permissible concentration levels for key air pollutants, followed by the development of a regulatory strategy to meet these air quality standards.

Ex-post regulation addresses the identification of polluters, cleanup costs, and restoration of environmental damages, while ex-ante regulations incentivize parties to take preventive measures against environmental harm Together, these regulatory approaches can complement each other, facilitating cost recovery for damages and compensation for victims Ultimately, selecting the appropriate regulatory instrument is a complex decision influenced by the pollution source and the specific nature of the environmental damage.

Shavell (1984) compares two regulatory systems using four key factors: the disparity in knowledge regarding risky activities between private parties and regulatory authorities, the ability to compensate for the total harm caused, the potential for lawsuits related to inflicted harm, and the administrative costs faced by both private entities and the public in relation to legal and regulatory processes.

32 4 Role of State and Regulatory Instruments

Environmental regulations in the transport sector focus on protecting the environment and human health, primarily through emission standards that set limits on pollutants These standards are crucial regulatory measures that effectively control both the quality and quantity of major pollutants emitted by transportation activities.

Environmental Regulations in the Automotive Industry

Germany

Vehicular emissions in the European Union have been governed by Directive 70/220/EEC for light-duty vehicles and Directive 88/77/EC for heavy-duty vehicles, along with their subsequent amendments Over time, these regulations have evolved to become increasingly stringent, reflecting a commitment to reducing emissions in the transport sector This overview highlights the historical progression of environmental legislation within the EU aimed at improving air quality and promoting sustainable transportation.

The Council Directive 70/220/EEC, adopted on March 20, 1970, was the first legislation aimed at harmonizing Member States' laws to combat air pollution caused by gases from positive-ignition engines in motor vehicles This directive served as the foundation for EU regulations concerning vehicular emissions from passenger cars and light commercial vehicles until it was superseded by Regulation 715/2007, which established new standards that are directly enforceable across all Member States.

Council Directive 88/77/EEC established regulations for emissions from heavy-duty diesel trucks and buses, undergoing several amendments over time Currently, European Regulation 595/2009 sets the limits for these emissions Despite light vehicles emitting pollutants similar to those of heavy vehicles, they are regulated under separate directives due to differences in testing procedures and vehicle size.

In 1992, vehicle regulations were standardized through the Euro norms, encompassing emission limits for both light and heavy-duty vehicles Passenger cars are classified under Euro 1 to Euro 6, while heavy-duty vehicles fall under Euro I to VI These regulations impose restrictions on emissions of carbon monoxide (CO), hydrocarbons (HC), and nitrous oxide (NOx) The initial Directive 70/220/EEC established limits for CO and HC, with NOx limits introduced in a 1977 amendment via Commission Directive 77/102/EEC, leading to a simultaneous reduction of all three pollutants.

Gasoline-powered vehicles undergo emissions testing through six distinct cycles that simulate various driving conditions The tightening of emission limits for these vehicles is illustrated in Table 4.2, highlighting the evolving standards for gasoline passenger cars.

Initially, regulations governing gasoline vehicles also applied to diesel passenger cars However, following the implementation of particulate matter regulations in 1988 under Council Directive 88/436/EEC, a distinction was made between the regulations for gasoline and diesel vehicles Additionally, the testing procedures for diesel cars differ, with Table 4.3 illustrating the progressively stricter emission limits for diesel passenger vehicles.

Directive 70/220/EEC, established in the early 1970s, laid the groundwork for all pre-Euro regulations and served as a pivotal amendment in legislation, ultimately leading to the development of subsequent Euro norms This was further complemented by Directive 91/441/EEC, which played a significant role in shaping vehicle emissions standards.

EC93) was the launch pad for Euro 1 norm, which was implemented in July

The Euro 2 norm, established in January 1996, was a result of Directive 94/12/EC, Directive 96/69/EC, and Directive 96/44/EC, which amended Directive 70/220/EC This legislation marked the introduction of a particulate matter (PM) limit and required the installation of compliant engines immediately upon production.

Directive 98/69/EC and its subsequent amendments established the Euro 3 emission standards, implemented in January 2000 This legislation, also referred to as EC2000, introduced stringent limits on nitrogen oxides (NO x ) and hydrocarbons (HC + NO x ) Notably, for the first time, vehicles were subjected to a new transient test cycle that closely mirrors real-world driving conditions, moving away from traditional simulations in controlled environments.

Regulations 715/2007 and 692/2008 established the Euro 5 emissions standards, which were implemented in two phases for diesel engines, while gasoline engines adhered solely to Euro 5 The introduction of Euro 5 and Euro 5a occurred in September 2009, followed by Euro 5b in September 2011, marking a significant milestone in emissions regulation.

Table 4.2 EU emission norms for gasoline-run passenger cars

Standard Approval date CO HC HC + NO x NO x PM

CO carbon monoxide, HC hydrocarbons, NO x nitrous oxide, PM particulate matter Prescribed limits for all pollutants in grams per kilometer a Applicable to direct injection engines only

Table 4.3 EU emission norms for diesel-run passenger cars

Standard Approval date CO HC + NO x NO x PM

Carbon monoxide (CO), hydrocarbons (HC), nitrous oxide (NOx), and particulate matter (PM) are key pollutants regulated by prescribed limits measured in grams per kilometer Additionally, there is a new requirement for counting particulate matter per kilometer to enhance environmental standards.

In September 2014, the EU introduced the Euro 6 emission standard, which established a particle number emission limit for compression ignition engines This regulation prompted manufacturers to adopt advanced technologies such as selective catalytic reduction (SCR), exhaust gas recirculation (EGR), and diesel particulate filter (DPF) systems Additionally, Euro 6 compliance necessitates meeting the Enhanced Environmentally Friendly Vehicle (EEV) emission levels for various complex internal combustion engines, including electric hybrid diesel and natural gas engines that require enhanced particulate filtration.

In 2020, the implementation of carbon dioxide emissions regulations for passenger vehicles, as outlined in European Regulation 443/2009/EC, is progressing The new target aims to reduce emissions to 95 g CO2/km, compared to the 2015 baseline of 130 g CO2/km.

The 2020 target of 95 grams of CO2 per kilometer for new passenger vehicles is anticipated to enhance air quality, decrease import expenses, and diminish reliance on oil In addition to these broader economic advantages, this goal is also expected to lower fuel costs and boost savings for consumers.

India

In January 1985, an expert committee was formed by the Department of Environment (now the Ministry of Environment and Forests), the Automotive Research Association of India, and the Central Pollution Control Board to establish India's first emission standards for road transport and manufacturing The committee focused on developing vehicle testing methods and creating specialized laboratories for these tests Their recommendations led to the implementation of mass and in-use vehicular emission norms, which were subsequently notified under the Environment Protection Act of 1986.

Automotive regulations in India are overseen by the Ministry of Shipping, Road Transport and Highways, with the Motor Vehicles Act of 1988 and the Central Motor Vehicles Rules of 1989 establishing the framework for emission norms and safety standards for motor vehicles.

The regulation of vehicle emissions in India began in 1984 with the introduction of idling carbon monoxide and free acceleration smoke regulations in Maharashtra By 1989, these idle emission norms were implemented nationwide In February 1990, the first mass and in-use emission standards were established through the Second Amendment Rule 1990 under the Environment (Protection) Act of 1986 To evaluate global and domestic emission control technologies and assess the feasibility of compliant vehicles on Indian roads, the Supreme Court of India formed the Sakia Committee.

3 The following historical time line was adapted from CPCB (2010) and MoEF (2010).

In 1991, mass emission norms replaced idle emission standards for petrol vehicles, followed by diesel in 1992 These regulations for petrol vehicles under 3.5 tons GVW focused on carbon monoxide and hydrocarbon emissions, while diesel standards addressed smoke emissions The Sakia Committee Report recommended phasing out leaded petrol and introducing unleaded petrol in New Delhi by April 1992 It also called for setting standards for various vehicular pollutants, enhancing enforcement and monitoring, funding local research in advanced emission control technologies, requiring retrofitting of catalytic converters in petrol vehicles, and implementing devices for diesel vehicles to reduce particulate matter and smoke Additionally, it proposed establishing a pipeline network for compressed natural gas as an alternative vehicle fuel.

In 1992, the exhaust mass emission norms for diesel engines were expanded to include vehicles over 3.5 tons GVW That same year, the Ministry of Environment and Forests (MoEF) drafted two significant documents: the National Conservation Strategy and Policy Statement on Environment and Development, and the Policy Statement for Abatement of Pollution, which established National Ambient Air Quality Standards (NAAQS) for various pollutants Additionally, discussions on mass emission norms for vehicles commenced in May 1991 with the Mathur Committee.

In 1992, the Central Pollution Control Board (CPCB) advocated for cleaner diesel and petrol for vehicles by 1995 Following this, the Supreme Court of India issued a directive in October 1994, mandating that agencies supply petrol with a TEL content of less than 0.15 g per liter nationwide by December 1996, and ensure the availability of completely unleaded petrol in all major cities by April 1995.

A result of these deliberations was implementation of the following regulations:

Starting in April 1995, all metropolitan cities began supplying petrol with a lead content of less than 0.013 grams per liter Additionally, all new vehicles sold in these cities from that date onwards are equipped with catalytic converters.

(3) Sulfur content in diesel supplied in these cities was brought down to 0.5%.

In April 1996, strict regulations were established for gasoline and diesel engines, setting limits on carbon monoxide and combined emissions of hydrocarbons and nitrogen oxides Additionally, evaporative emissions for petrol engines were required to be below 2 grams per test Subsequently, in August 1997, the Motor Vehicle Act notified emission standards equivalent to Euro I norms, which were set to be implemented starting in April.

In 2000, New Delhi transitioned its entire public transport fleet to CNG, marking a significant shift towards cleaner energy The subsequent year saw the Pollution Control Authority mandate the phase-out of all diesel public transport vehicles, enforcing strict compliance with Euro II equivalent emission standards for private vehicles.

• In 1999, India Stage I emission norms were notiﬁed in the entire country in year

In 2000, India implemented the Bharat Stage I emissions norms for all vehicle categories, which were subsequently updated to Bharat Stage II standards in 2001 for four metro cities, aligning with Euro II regulations These norms introduced particulate limit values specifically for diesel vehicles, applying to passenger vehicles with a gross vehicle weight (GVW) of up to 3.5 tons starting in April 2000, and extending to heavy vehicles from October 2001.

In April 2005, Bharat Stage III (comparable to Euro III) emission norms were implemented for petrol and diesel vehicles in 11 major metro cities, while the previous Bharat Stage II standards were expanded to apply nationwide Emission limits for petrol vehicles are detailed in Table 4.4.

• From 1995, all manufacturers were mandated to install catalytic converters in all passenger vehicles Moreover, all petrol-run vehicles manufactured from April

In 1996, vehicles were equipped with positive crankcase ventilation systems to minimize total hydrocarbon emissions, while pre-1996 models were retrofitted with these systems Additionally, evaporative emission control systems were implemented to capture fuel vapors from fuel tanks and carburetor fuel bowls, further enhancing environmental protection.

In April 1998, the testing method for all passenger vehicles transitioned from hot start to cold start The introduction of Euro I equivalent norms in 2000 necessitated significant modifications in engine design, particularly in fuel injection systems, to enhance fuel economy.

In November 2009, the Central Pollution Control Board released the National Ambient Air Quality Standards in the official Gazette of India, as mandated by Section 16 (Subsection 2 h) of the Air (Prevention and Control of Pollution) Act.

Table 4.4 India emission norms for petrol-run vehicles

Standard Year CO HC NO x HC + NO x

Carbon monoxide (CO), hydrocarbons (HC), and nitrous oxide (NOx) are regulated pollutants, with prescribed limits measured in grams per kilometer These limits incorporate a deterioration factor of 1.2 and are enforced through a modified Indian Driving Cycle (IDC) method This regulation applies to passenger vehicles with a gross weight of up to 2,500 kg, including those with six or fewer seats, as well as larger vehicles exceeding six seats within the same weight category.

China

Environmental regulations on vehicular emissions in China are guided by three legislations, namely:

1 Environmental Protection Law of the People’s Republic of China, 1979

2 Law of the People’s Republic of China on the Prevention and Control of Air Pollution, 1987

Nikel (Ni) is measured annually using the arithmetic mean of at least 104 measurements taken twice a week, with samples collected at uniform 24-hour intervals All pollutants are reported in micrograms per cubic meter (µg/m³), except for arsenic and nickel, which are measured in nanograms per cubic meter (ng/m³) These concentrations are assessed in various environments, including industrial, residential, rural, and ecologically sensitive areas as designated by the Central Government.

Emission measured in CO 2 g/km a Original proposal

3 Detailed Rules and Regulations for the Law of the People’s Republic of China on the Prevention and Control of Air Pollution, 1991.

Environmental regulations governing emissions in the transport sector are established at the federal level by the State Environmental Protection Administration (SEPA), in accordance with relevant laws Recently, the Ministry of Environmental Protection (MEP) and the Standardization Administration of China (SAC) have collaborated to issue emission standards, with SEPA responsible for drafting and final approval A concise overview of the recent legislative history concerning automobiles in China is provided below.

In 1987, China implemented the China Clean Air Law, establishing a legal framework for controlling mobile emissions Following this, the State Environmental Protection Administration (SEPA) developed regulation GB-11641-89 in 1989, targeting light-duty vehicles, including passenger cars, passenger vans, and light freight vehicles with a gross vehicle weight of up to 3,500 kg, operating at speeds of at least 50 km/h.

Regulation GB 14761, implemented in the 1990s, marked the first effort in the People's Republic of China to address automobile emissions The standards set for light-duty vehicles and crankcase emissions from gasoline vehicles in July 1990 were comparable to the European ECE Regulation 1503.

1993, a new fuel evaporation standard using trap method was eventually adopted.

In 1995, the Clean Air Law was revised, granting the State Council primary authority over vehicular emissions regulation Beijing and Shanghai adopted Euro 1 equivalent emission standards and initiated the supply of unleaded gasoline in 1999 The following year, the law was amended to empower the Ministry of Environmental Protection (MEP) with the exclusive authority to establish national emission standards, marking the first instance in China where emission limits were determined by ambient air quality, economic factors, and technological advancements.

China implemented its first emission norms for light-duty vehicles, known as China 1, in January 2000, aligning with Euro 1 standards The following year, China 2 norms, based on Euro 2, were introduced in Beijing and Shanghai, with nationwide implementation occurring in two phases Phase 1 commenced in July 2004 for gasoline and natural gas vehicles, while Phase 2 began in September 2003 for diesel vehicles Subsequent emission standards for gasoline and diesel vehicles in China have been detailed in Tables 4.8 and 4.9, reflecting the country's ongoing commitment to improving air quality since 2005.

Chinese authorities adhere to specific naming conventions for environmental regulations, where "GB" denotes mandatory national standards, "GB/T" indicates recommended standards, "HJ" represents specific environmental standards, and "BJ" and "SH" refer to regulations specific to Beijing and Shanghai, respectively.

5 The information for this analysis is derived from multiple sources including MEP Environmental Reports as available on the Web site, diesel net group, and Faiz et al (1996).

Table 4.8 Chinese emission norms for gasoline (positive ignition) vehicles

Standard Year Category (Class) a CO HC NMHC NOx PM

CO carbon monoxide, HC hydrocarbons, NMHC non-methane hydrocarbons, NO x nitrous oxide,

Particulate matter (PM) emissions from light-duty vehicles are regulated with prescribed limits measured in grams per kilometer Vehicles are categorized based on a modified EU classification system, which includes Type 1 vehicles, defined as M1 vehicles designed for up to six passengers with a gross vehicle weight (GVW) of 2.5 tons Type 2 vehicles encompass other light-duty vehicles (LDVs), including N1 light commercial vehicles, which are further divided into three classes based on their reference mass (RM).

The weight classifications for vehicles are as follows: Class II for those weighing between 1305 kg and 1760 kg, and Class III for vehicles exceeding 1760 kg Additionally, the implementation of European on-board diagnostic (OBD) regulations, effective from 2006, is applicable solely to direct injection positive-ignition gasoline engines.

Table 4.9 Emission norms for diesel (compression ignition) vehicles

Standard Year Category (Class) a CO HC + NO x NO x PM

CO carbon monoxide, HC hydrocarbons, NMHC non-methane hydrocarbons, NO x nitrous oxide,

Particulate matter (PM) emissions from light-duty vehicles are regulated with specific limits measured in grams per kilometer These vehicles are categorized according to a modified EU classification system Type 1 vehicles are defined as M1 vehicles designed for up to six passengers with a gross vehicle weight (GVW) of 2.5 tons Type 2 vehicles encompass other light-duty vehicles, including N1 light commercial vehicles, which are further divided into three classes based on their reference mass (RM).

1305 kg, Class II: 1305 kg < RM < 1760 kg, Class III: RM > 1760 kg b Similar to Euro 5, China 5 legislation also introduced a particle number (PN) emission limit of

• Emission norms for heavy-duty commercial vehicles were adopted in 1983 underRegulation GB-3842-83,Regulation GB-3843-83, and Regulation 3844-

83 These regulations collectively prescribed limits for carbon monoxide and hydrocarbons (determined at idle speed) applicable to both new and in-use vehicles.

• For passenger cars, tail pipe mass emissions became effective from January

In 2000, the European Euro 1 norm, established by Regulation 91/441/EEC, set limits on tailpipe emissions for light trucks, with restrictions implemented in October of the same year based on the Euro 1 standards outlined in 93/59/EEC.

In 1985, China established regulations to limit emissions from heavy-duty diesel vehicles, mainly utilized for freight and commercial transport This initiative significantly contributed to enhancing the quality of diesel engines across the country.

2002) The actual engine modiﬁcations occurred with the implementation of the Euro 1 equivalent standard in the year 2000.

In 1995, the amended Law of the People's Republic of China on the Prevention and Control of Air Pollution initiated the phaseout of leaded gasoline, which was further supported by the Air Law of 2000 This phaseout occurred in two steps: it began in July 1999 in major cities and mandated that all refineries produce only unleaded gasoline starting January 2000, culminating in a nationwide ban on leaded gasoline in July 2000 These regulations paved the way for stricter standards and the adoption of advanced technologies, including electronic fuel injection and three-way catalytic converters.

• In the year 2005, Beijing’s Environment Pollution Bureau (EPB) pushed for Euro 3 for gasoline-run vehicles and Euro 4 for diesel-run vehicles in light of the

2008 Olympics held in Beijing Similarly, Shanghai’s EPB pushed for leapfrogging to Euro 4 to make standards stricter and to catch up with regulations in other countries.

• For heavy-duty commercial vehicles, China has been following in the footsteps of Europe Chinese emission standards for heavy trucks and buses (China III–V) are based on Euro III–V.

In 2010, China implemented new air quality regulations aimed at enhancing air quality across all provinces, autonomous regions, and municipalities These regulations were established under the guidance of the State Council to enforce stricter policies for improved air standards.

UNESCAP (2011) outlines four key strategies to reduce vehicular emissions: enforcing stringent national emission standards, enhancing vehicular environmental management systems, promoting the adoption of clean vehicle fuels, and advancing the development of public transportation.

Brazil

There are two nodal agencies under the Brazilian Ministry of Environment (Ministériodo Meio Ambiente) that are responsible for the development and implementation of standards for vehicular emissions, namely:

1 Brazilian Institute of Environment and Renewable Natural Resources, IBAMA (Instituto Brasileirodo Meio Ambiente e dos Recursos Naturais Renovaveis)

2 National Council for the Environment, CONAMA (Conselho Nacional do Meio Ambiente).

This study examines the first regulatory program established by agencies that oversee vehicular emissions in Brazil, specifically focusing on light- and heavy-duty vehicles The Brazilian regulations under this program are influenced by both US and EU standards.

1 PROCONVE—Air Pollution Control Program for Motor Vehicles (Programa de Controlled Poluiỗóodo Arpor Veớculos Automotores)

2 PROMOT—Air Pollution Control Program for Motorcycles and Similar Vehicles (Programa de Controleda Poluiỗóodo Arpor Motociclose Veớculos Similares).

• Most relevant regulatory and legislative steps taken in the recent past are highlighted below 7 Emission standards for light motor vehicles are

Table 4.10 Overview of trends by emissions standards in 2009

Standard Adhering vehicles in million

2009 emissions in MMT (% of total)

Pre-China I 10.6 (17.1%) 15.55 (50.0%) 1.92 (53.5%) 2.61 (49.6%) 0.31 (55.9%) China I 15.9 (25.7%) 10.26 (33.0%) 1.05 (29.5%) 1.52 (29.5%) 0.15 (28.4%) China II 19.7 (31.8%) 4.15 (13.4%) 0.43 (12.2%) 0.79 (14.9%) 0.07 (12.8%) China III 15.7 (25.4%) 1.12 (3.6%) 0.17 (4.8%) 0.31 (6.0%) 0.01 (2.9%)

CO carbon monoxide, HC hydrocarbons, NO x nitrous oxide, PM particulate matter Emissions in year 2009 measured in million metric tons

Adapted from the China Vehicle Emission Control Annual Report 2010, MEP

Similar to India, Brazilian regulators customize their adopted regulations to meet local requirements, which may involve varying prescribed limits or employing different testing methods and techniques.

7 Information for this historical background is adapted from the Environmental Collection, Guidelines – Environmental Management No 3, Ministry of Environment, Brasilia (IBAMA,

In 2011, a collaborative initiative between the International Council for Clean Transportation (ICCT) and Diesel Net led to the development of transport policy standards These standards are divided into two categories: light passenger vehicles (automobiles) and light commercial vehicles The PROCONVE L standards specifically apply to vehicles with a gross vehicle weight (GVW) of up to 3,856 kg and a curb weight not exceeding 2,720 kg.

• Emission limits prescribed under PROCONVE L–1 were implemented in

In 1988, the introduction of PROCONVEL-2 marked a significant step in environmental standards, gradually implemented between 1992 and 1996, focusing solely on passenger vehicles Phase 1 initiated the regulation of evaporative emissions, while Phase 2 required the adoption of advanced technologies, including electronic fuel injection and catalytic converters, to effectively reduce overall emissions.

• An important step in the development of PROCONVE occurred in 1993 when all the standards were transformed intoLaw No 8.723/93in October

In 1993, a federal law was enacted to reduce vehicle emissions and implement additional measures, establishing limits on exhaust pollutants across various vehicle segments starting in January 1997 Table 4.11 outlines the emission standards enforced following the law's implementation.

• PROCONVE L–3 emission regulations were adopted in 1993 and implemented from 1997 to 2004 This standard was based on the Euro 2 standard with some elements drawn from the earlier Euro 1 standard.

The PROCONVE L-4 and L-5 standards, established by CONAMA 315/2002, were adopted in 2002 with implementation periods from 2006 to 2009, aligning with Euro 3 and Euro 4 emissions regulations PROCONVE L-4 was rolled out in three phases, achieving 40% compliance by 2005, 70% by 2006, and reaching full compliance at 100% by 2007.

L-5 was introduced in 2009, while on-board diagnostics (OBD) requirements were established in 2004 under CONAMA 354/2004 for both domestically manufactured vehicles in Brazil and commercial vehicles imported from abroad that operate on the Otto cycle.

CONAMA 415/2009 set the foundation for the PROCONVE-6 regulations, which were implemented in stages: diesel vehicles in 2013, new gasoline models in 2014, and full compliance for gasoline vehicles by 2015.

IBAMA has established regulations for conventional pollutant emissions from heavy-duty vehicles through the PROCONVE P program, which aligns with European standards Initially introduced as a voluntary standard in 1987 under Resolution CONAMA 18/1986, PROCONVE P–1 aimed to control smoke emissions from urban buses and was implemented in 1990 By 1989, opacity limits (kg 2.5) were adopted across the maximum torque curve of diesel engines and subsequently expanded to encompass all heavy-duty vehicles.

Curb weight is the total weight of a vehicle, including all standard equipment and a full fuel tank, but excluding any cargo or passengers In contrast, gross vehicle weight (GVW) encompasses the curb weight along with the added weight of accessories, cargo, and passengers.

Resolution CONAMA 315/2002 established PROCONVE P–5, aligning with Euro III standards, which was gradually implemented between 2004 and 2006, introducing transient testing methods By 2004, this resolution applied to all urban buses, and by 2005, it encompassed 40% of heavy vehicles in Brazil, with nearly all heavy-duty vehicles compliant by 2006 Additionally, PROCONVE P–5 set the stage for Euro IV standards; however, the P–6 standard, similar to L–5, could not be implemented due to the unavailability of ultralow sulfur diesel Consequently, the P–6 standard remained in effect until 2011 to ensure adequate fuel demand To mitigate legal repercussions, the Brazilian Vehicle Manufacturers Association (ANFAVEA) mandated that vehicle manufacturers and fuel producers enter a judicial agreement for environmental reparatory measures.

CO THC NMHC NOx HCO PM

Light commercial vehicles (GVW < 1700 kg)

Light commercial vehicles (GVW > 1700 kg)

Carbon monoxide (CO), total hydrocarbons (THC), non-methane hydrocarbons (NMHC), nitrous oxide (NOx), aldehydes (HCO), and particulate matter (PM) are key emissions measured in vehicles While idle CO emissions are expressed as a percentage by volume, other pollutants are quantified in grams per kilometer All vehicles in these categories are designed for a durability of 80,000 kilometers.

The federal test procedure (FTP-75), established by the USEPA, measures tailpipe emissions from passenger cars during city driving cycles Idle CO limits are specifically applicable to Otto cycle engines, while total hydrocarbon (THC) limits are designated for natural gas vehicles Although standards were developed for diesel cycle engines, they were never implemented in Brazil due to the unavailability of low sulfur fuel, affecting all diesel vehicles.

• Finally, Resolution CONAMA 403/2008 set forth PROCONVEP–7 was based on Euro V emission standard By 2012, all heavy vehicles were made

P–7 compliant Table 4.11 lists emission norms in Brazil for passenger vehicles and light commercial vehicles from 2007.

Brazil is a leading producer and exporter of biofuels, particularly ethanol, which has been a significant part of its energy landscape for many years The quality of biofuels in Brazil is regulated by the National Agency of Petroleum, Natural Gas and Biofuels (ANP), ensuring high standards for this essential fuel additive.

An, F., & Sauer, A (2004) Comparison of passenger vehicle fuel economy and GHG emission standards around the world World Resources Institute, December.

Baumol, W J., & Oates, W E (1971) The use of standards and prices for protection of the environment Swedish Journal of Economics, 73(1), 42 – 54.

CPCB (2010) Status of the Vehicular Pollution Control Programme in India Ministry of Environment & Forests, Government of India, New Delhi.

Cropper, M., & Oates, W (1992) Environmental economics: A survey Journal of Economic Literature, 30(2), 675 – 740.

EPB (2002) Strengthening vehicle inspection and maintenance Multi-sectoral Action Plan Group, Environmental Protection Bureau of Chongqing, July 2002, PR of China.

Faiz, A., Weaver, C., & Walsh, M (1996) Air Pollution from Motor Vehicles, Standards and Technologies for Controlling Emissions, Washington DC: The World Bank.

IBAMA (2011) Air Pollution Control Program by Motor Vehicles, Proconve and Promot. Environmental Collection 3rd edition, Guideline Series — Environmental Management No 3, Ministry of Environment, Brasilia.

Jaffe, A., Newell, R., & Stavins, R (2005) A tale of two market failures: Technology and environmental policy Ecological Economics, 54, 164 – 174.

Kathuria, V (2002) Vehicular Pollution Control in Delhi, India Transportation Research, Part D, 7(5): 373 – 87.

Kolstad, C D., Ulen, T S., & Johnson, G V (1990) Ex post liability for Harm vs ex ante safety regulation: Substitutes or complements? American Economic Review, 80, 888 – 901.

MEP (2010) China Vehicle Emission Control Annual Report 2010, Ministry of Environmental Protection of the Peoples Republic of China, Beijing.

MoEF (2010) India: Greenhouse Gas Emissions 2007 INCCA Indian Network for Climate Change Assessment, MoEF, Government of India.

Nelissen, D., & Requate T (2004) Pollution-reducing and resource-saving technological progress Christian-Albrechts-Universitat Kiel, Working Paper No 2004-07.

The OECD (1997) report evaluates economic instruments for environmental policy, highlighting their effectiveness in promoting sustainable practices Additionally, Pandey et al (2006) provide new estimates of ambient particulate matter concentrations in residential and pollution hotspot areas of global cities, utilizing the Global Model of Ambient Particulates (GMAPS) developed by the World Bank's Development Research Group and Environment Department These studies underscore the importance of integrating economic strategies with environmental assessments to address air quality challenges in urban areas.

Schmitz, P W (2000) On the joint use of liability and safety regulation International Review of Law and Economics, 20(3), 371 – 382.

Shavell, S (1984) A model of the optimal use of liability and safety regulation Rand Journal of Economics, 15, 271 – 280.

UNESCAP (2011) Review of developments in transport in Asia and the Paci ﬁ c transport division of ESCAP Thailand: United Nations.

Where Do Brazil, India, and China Stand?

Introduction

The concept of "technology-forcing standard" originated in the 1970 US Clean Air Act, which spurred the development of catalytic converter technology for vehicles Miller and Solomon (2009) highlight that California's technology-forcing regulations emerged from technology-following policies that had hit evolutionary dead ends Additionally, Nentjes et al (2007) emphasize that technology-forcing regulations play a crucial role in environmental policymaking, as they impose stricter performance standards that significantly drive innovation by requiring greater emission reductions than what current technologies can achieve.

The International Energy Agency recently suggested that technology-forcing standards represent efficiency performance levels that are currently unavailable in the market and are prohibitively expensive for widespread use These standards necessitate innovation and the widespread adoption of new technologies, which are encouraged through government signals regarding future regulations As a result, engine technologies are experiencing significant transformations to adapt to evolving regulations, fuel types, and market demands.

51 requirements With increased competition from the emerging hybrid and electric counterparts, the traditional gasoline and diesel technologies are rapidly advancing ahead.

Technical Background

This section offers a comprehensive overview of the pertinent technological categories related to the relevant patent class It begins with a description of various technological fields linked to the patent class and includes examples of patent documents that demonstrate the methodology for developing the regulatory stringency index in the following section.

The study focuses on technologies aimed at enhancing internal combustion engines by reducing pollutant emissions and improving fuel efficiency, acknowledging that these conventional engines will continue to dominate the automotive market in the medium term alongside emerging electric and hybrid technologies The research begins with the identification of International Patent Classifications (IPCs) that specifically categorize emission-reducing and fuel-saving innovations, collectively termed green automotive technologies This classification is based on frameworks established by the OECD and the US DOE, with the search limited to patents referencing the IPC codes outlined in the OECD study.

The International Patent Classification (IPC) system is essential for categorizing technical subjects in patent literature, utilizing a comprehensive set of alphanumeric codes to classify inventions in patent applications based on specific criteria This study focuses on codes up to the fourth level of the IPC hierarchy, similar to a 2011 US DOE study that connected advanced combustion vehicular technologies to the development of cleaner-burning engines The article highlights various patent classes related to green automotive technologies Notable advancements in diesel engine technologies for light-duty vehicles include enhanced fuel injection, exhaust gas recirculation (EGR) control, two-stage turbocharging, variable valve actuation, closed-loop combustion control, and onboard diagnostics (OBD) For heavy-duty diesel commercial vehicles, innovations are primarily focused on enhancing fuel economy, reliability, and engine durability, in response to stringent European regulations.

The European Council began developing the International Patent Classification (IPC) system in 1956, leading to its first edition being implemented in 1968 Today, the World Intellectual Property Organization (WIPO) oversees and manages the IPC system in accordance with the 1971 Strasbourg Agreement.

Over 100 countries, including over 120 members of the Patent Cooperation Treaty (PCT), utilize the International Patent Classification (IPC) system, specifically the eighth edition (IPC-8), which was introduced in 2006 This study focuses on the adoption of SCR technology, along with advancements in EGR, DPF, and turbocharging concepts.

Automotive technologies play a crucial role in controlling evaporative emissions, particularly hydrocarbons like THC and NMHC, which are released into the atmosphere through fuel evaporation These emissions significantly impact vehicle fuel economy, leading to serious implications for overall fuel demand Key factors contributing to these emissions include diurnal evaporation caused by rising outside temperatures, running losses from excessively hot engines vaporizing fuel, and hot soak conditions.

Effective emission reduction relies on optimal management of cold starts and catalytic systems Over the years, advancements like turbocharging in gasoline engines and enhanced combustion efficiency in diesel engines have led to a decline in exhaust gas temperatures To achieve emission targets while minimizing fuel consumption, it is necessary to efficiently raise the exhaust gas temperature The electrically heated catalyst (EHC) was specifically designed to effectively warm the catalytic converter, addressing both emission reduction and fuel efficiency goals (Presti and Pace, 2011).

Cost-effective emission reductions are achievable through the use of advanced substrate technology Newly developed metallic substrates offer significant advantages over standard options, providing comparable or superior emission efficiency This innovation addresses both current and future stringent emission limits, particularly for nitrogen oxides (NOx).

Fuel injection systems use injectors to deliver atomized fuel into engine cylinders, optimizing combustion However, high sulfur content in gasoline can negate the benefits of advanced injectors in direct injection systems Common rail technology enhances diesel engine efficiency by injecting fuel at electronically controlled ultra-high pressures, resulting in cleaner combustion and reduced CO2 emissions.

Electronically controlled fuel injection systems enhance engine performance by reducing emissions of pollutants such as PM and NOx, while also improving fuel efficiency and power output Key components of these systems include the engine control unit (ECU), various sensors, and fuel injectors Fuel injectors are primarily categorized into two advanced technologies: multipoint fuel injection (MPFI) and gasoline direct injection (GDI).

To assess the stringency of regulations, the identified IPCs are compared with the environmental regulations outlined earlier This analysis involves aligning all regulated substances from emission standards implemented by various countries over the past twenty years with six categories of green technology Further details will be provided in the following section.

International Patent Classi ﬁ cation for Green Automotive

Table 5.1 International Patent Classi ﬁ cation (IPC): Technology Area B01D

Class B01 Physical or chemical processes or apparatus in general

Subclass B01D focuses on separation techniques such as evaporation, distillation, crystallization, absorption, and adsorption Within this subclass, Group B01D53 specifically addresses the separation of gases or vapors, including the recovery of volatile solvent vapors from gases This group also encompasses methods for the chemical or biological purification of waste gases, such as engine exhaust, smoke fumes, flue gases, and aerosols.

Engine exhaust gases can be effectively treated through various postcombustion technologies, including catalytic converters and lean NOx catalysts These systems utilize catalytic processes for purifying exhaust emissions and may involve regeneration, reactivation, or recycling of reactants Additionally, NOx absorbers and catalytic regeneration devices play a crucial role in enhancing the efficiency of exhaust gas treatment.

Table 5.2 International Patent Classi ﬁ cation (IPC): Technology Area B01J

Class B01 Physical or chemical processes or apparatus in general Subclass B01J Chemical or physical processes, e.g., catalysis, colloid chemistry; and their relevant apparatus

Group B01J23 ( … ) containing catalysts comprising metals, metal oxides, hydroxides

Subgroup B01J23/40-46 ( … ) Platinum group metals such as platinum, palladium, ruthenium, rhodium, osmium, or iridium Postcombustion technologies, which include catalytic converters, lean No x catalysts, No x absorbers, catalytic regeneration devices, etc.

Table 5.3 International Patent Classi ﬁ cation (IPC): Technology Area F01M

Section F Mechanical engineering: lighting; heating; weapons; blasting: transporting Subsection F0 Engines or pumps

Class F01 encompasses machines and engines, including general engine plants and steam engines Within this classification, Subclass F01M focuses on the lubrication of machines and engines, specifically addressing the lubrication of internal combustion engines and crankcase ventilation Group F01M13 highlights the importance of crankcase ventilating or breathing systems in maintaining engine performance and longevity.

( … ) Having means for purifying air before leaving crankcase, e.g., removing oil

Integrated technologies of improved engine design or engine redesign, which includes crankcase emissions and control

Table 5.4 International Patent Classi ﬁ cation (IPC): Technology Area F02M

Class F02 Machines or engines in general; engine plants in general; steam engines Subclass F02M Supplying combustion engines in general with combustible mixtures Group F02M3 Idling devices: carburetors

Group F02M23 Apparatus for adding secondary air to fuel-air mixture

The Group F02M25 focuses on devices designed to introduce non-fuel substances into combustion-air, main fuel, or the fuel-air mixture, enhancing engine performance Meanwhile, Group F02M39-71 encompasses various configurations of fuel injection systems, featuring a diverse array of injectors to optimize fuel delivery Together, these subgroups highlight advancements in fuel management technology for improved efficiency and emissions control in engines.

( … ) preventing fl ow of idling fuel Air-to-fuel ratio devices, fuel injection systems, electronic control systems

Table 5.5 International Patent Classi ﬁ cation (IPC): Technology Area F01N

Section F Mechanical engineering: lighting; heating; weapons; blasting: transporting

Class F01 Machines or engines in general; engine plants in general; steam engines

Subclass F01N Gas- fl ow silencers or exhaust apparatus for machines or engines in general; gas- fl ow silencers or exhaust apparatus for internal combustion engines

The F01N3 group focuses on exhaust apparatus designed with mechanisms for purifying and rendering exhaust gases harmless Meanwhile, the F01N5 group encompasses exhaust systems that are integrated with devices that utilize exhaust energy for enhanced efficiency Lastly, the F01N9 group pertains to the electric control systems that manage the treatment of exhaust gases in these apparatuses.

Group F01N11 Monitoring or diagnostic devices for exhaust gas treatment apparatus Subgroup F01N

( … ) by means of inertial or centrifugal separators for rendering innocuous; by thermal or catalytic conversion of noxious components of exhaust.

Subgroup F01N5/00+ ( … ) the devices using heat or kinetic energy

Subgroup F01N 11/00+ focuses on the constructional features of exhaust apparatus arrangements It encompasses integrated technologies that enhance engine design or facilitate redesign, addressing key elements such as crankcase emissions control, air-to-fuel ratio management, catalytic converters, EGR valves, and electronic control systems Additionally, it involves advanced plasma-based technologies and the incorporation of sensors for oxygen, NOx, and temperature monitoring.

5.3 International Patent Classi ﬁ cation for Green Automotive Technologies 55

Matching Regulations with IPCs

In Europe, the regulation under study, Directive 70/220/EEC, is the primal environmental regulation for the transport sector It was amended 120 times between 1988 and

In 2011, 37 amendments were introduced focusing on vehicle emissions and fuel consumption, establishing a foundational framework for subsequent regulations in India, China, and Brazil Most notably, in 2013, Europe adopted three key legislations addressing emissions and fuel efficiency in motor vehicles.

Table 5.7 outlines a timeline of the 37 relevant regulations addressed by the amendments Each amendment was analyzed individually to construct the stringency index, aligning them with the corresponding technology classes.

On June 16, 1988, the first amendment to Council Directive 88/436/EEC was enacted to address air pollution from motor vehicle engines, focusing on limiting particulate emissions from diesel engines According to Section 3.1, vehicle manufacturers or their authorized representatives must submit applications for vehicle type approval concerning gaseous and particulate pollutant emissions The updated directive emphasizes that components affecting emissions must be designed, constructed, and assembled to ensure compliance during normal vehicle use.

Table 5.6 International Patent Classi ﬁ cation (IPC): Technology Area F02D

Class F02 Physical or chemical processes or apparatus In general

Group F02D41 focuses on the electric control mechanisms for supplying combustible mixtures or their components Group F02D43 emphasizes the integrated electrical control systems that manage various functions such as ignition, fuel-air mixture optimization, recirculation, supercharging, and exhaust gas treatment Additionally, Group F02D45 pertains to the electric control of the supply of combustible mixtures or their constituents, highlighting advancements in fuel management technologies.

Subgroup F02D 41/00+ ( … ) circuit arrangements for generating control signals; for engine starting or for idling Subgroup F02D41/14 Electrical control not provided in other groups

Subgroup F02D 43/00+ ( … ) analog or digital means

Electronic control systems and plasma-based technologies, and oxygen, NO x , and temperature sensors

This section highlights the specifics of regulations regarding pollutants and the technological adjustments made to address them Emission limits for these substances have become increasingly stringent over time Notably, the introduction of catalytic converters, associated with B01D and F01N technology areas, aims to reduce NOx emissions, while fuel economy regulations, linked to F02M, focus on fuel injection systems The regulations set defined limits on key pollutants, which are further elaborated upon in the following sections.

• Nitrogen oxides (NO x ) are formed during the combustion process in which nitrogen in the air and in the fuel is burned in the process The temperatures

Table 5.7 List of relevant amendments to European Directive 70/220/EEC

1988 Council Directive 88/436/EEC; Council Directive 88/77/EEC; Council Directive 88/76/EEC

1991 Council Directive 91/542/EEC; Council Directive 91/441/EEC

1993 Commission Directive 93/116/EC; Council Directive 93/59/EEC

1994 Directive 94/12/EC of the European Parliament and the Council

1996 Directive 96/69/EC; Commission Directive 96/44/EC

1998 Commission Directive 98/77/EC; Directive 98/69/EC

1999 Commission Directive 1999/102/EC; Commission Directive 1999/100/EC; Directive 1999/96/EC

2001 Directive 2001/100/EC; Commission Directive 2001/27/EC; Directive 2001/1/EC

2004 Directive 2004/3/EC of the European Parliament and of the Council

2005 Commission Directive 2005/78/EC; Directive 2005/55/EC; Commission Directive 2005/21/EC

2006 Commission Directive 2006/51/EC; Directive 2006/40/EC

2007 Regulation (EC) No 7 15/2007 of The European Parliament and of the Council; Commission Directive 2007/34/EC

2008 Commission Regulation (EC) No 692/2008; Commission Directive 2008/74/EC

2009 Regulation (EC) No 595/2009; Regulation (EC) No 79/2009

Many regulations, including sound limits, wheel specifications, and braking systems, are often overlooked as they do not directly impact emission control technologies To gain insights into the relationship between specific technologies and the pollutants targeted by emission regulations, experts were consulted.

Diesel engines produce significantly higher levels of harmful NOx emissions compared to gasoline engines To effectively reduce these emissions, selective catalytic reduction (SCR) technology, which utilizes ammonia generated from urea injection and its subsequent decomposition in the exhaust, has been shown to be highly effective.

(2) NO x absorbing materials that store NO x and release them under appropriate (for the reduction of NO x to nitrogen) conditions in the exhaust, and (3) selective

Hydrocarbon (HC) reduction plays a crucial role in minimizing nitrogen oxide (NOx) emissions Diesel oxidation catalysts (DOCs) effectively oxidize carbon monoxide and hydrocarbons into carbon dioxide Meanwhile, diesel particulate filters (DPFs) are employed to significantly reduce soot emissions from diesel engines.

Hydrocarbon (HC) emissions occur when fuel in engines fails to combust fully, leading to the formation of ground-level ozone, a key smog component Joergl et al (2008) explored the impact of different diesel oxidation catalyst designs on HC and CO emissions, fuel efficiency, and overall diesel engine performance Their research highlighted the ongoing debate between reducing NOx through internal engine strategies, like EGR and variable valve timing, versus utilizing exhaust after-treatment technologies such as absorbers and SCR systems They evaluated Euro 4 compliant technologies, including older diesel oxidation catalysts (DOC) and common rail fuel injection (CRDI), against newer Euro 5 compliant technologies, which feature improved catalyst coatings that reduce precious metal costs and enhance emission control through coated wall-flow diesel particulate filters.

Carbon monoxide (CO) is a colorless, odorless, and toxic gas produced by the incomplete combustion of hydrocarbon-based fuels like gasoline and diesel in vehicle engines Emitted directly from vehicle tailpipes, inhaling CO can lead to serious health issues when it enters the bloodstream To mitigate this risk, advanced oxidization catalysts, which are enhanced retrofits of traditional two-way catalysts used in gasoline engines, are now employed to effectively oxidize hydrocarbons.

Catalytic converter technology, implemented in most vehicles since the 1980s in Germany and the 1990s in India, China, and Brazil, effectively reduces carbon monoxide (CO) and particulate matter (PM) emissions from diesel engines To enhance the efficiency of these converters, manufacturers have integrated advanced technologies like onboard computers and oxygen sensors However, CO emissions can significantly rise in cold weather due to increased fuel requirements for ignition and decreased converter efficiency An additional method to lower CO emissions involves adding oxygen-containing compounds, such as alcohols, to gasoline, which promotes complete combustion by optimizing the air-to-fuel ratio.

• Particulate Matter (PM) isﬁne particle that is formed during the combustion and from mixing of different pollutants in the air Diesel-run vehicles also emit more

In recent years, emissions from gasoline engines have significantly decreased, largely due to the widespread adoption of three-way catalytic converter technology As efforts to reduce diesel emissions intensify, various emission control technologies have been developed To mitigate particulate matter (PM), solutions such as diesel oxidation catalysts (DOCs), diesel particulate filters (DPFs), and closed crankcase ventilation (CCV) are employed Additionally, to lower nitrogen oxides (NOx) emissions, technologies like exhaust gas recirculation (EGR), selective catalytic reduction (SCR), lean NOx catalysts (LNCs), and lean burn systems are utilized.

NOx traps (LNTs), along with oxidation catalysts and diesel particulate filters, are widely used retrofitting devices in Europe and increasingly in heavy-duty trucks in the USA These filters effectively reduce particulate matter (PM) by capturing ultra-fine and submicron particles that pose serious respiratory health risks Additionally, exhaust gas recirculation (EGR) technology is recognized as the leading solution for reducing harmful nitrogen emissions.

Sulfur dioxide (SO2) is produced when vehicles use fuels that contain sulfur additives, with diesel fuel emitting higher levels of this pollutant due to its significantly greater sulfur content compared to gasoline.

Volatile organic compounds (VOCs) are carbon-based substances released during fuel evaporation and incomplete combustion, particularly in gasoline engines Due to their lower combustion temperatures and higher volatility, gasoline engines produce more carbon monoxide (CO) and VOCs compared to diesel engines.

Findings: Regulatory Stringency Index

Germany

The European directive 70/220/EEC, along with its amendments from 1987 to 2011, is closely associated with six essential green technology categories Each pollutant addressed in these amendments was carefully evaluated, and the corresponding technologies designed to mitigate these pollutants were identified for alignment.

Between 1987 and 2011, Germany experienced no abrupt changes in the stringency of environmental regulations; however, there were several modest increases at regular intervals This trend indicates a gradual tightening of regulations aimed at reducing vehicular emissions and fuel consumption.

India

The Indian Motor Vehicles Act of 1988 and the Central Motor Vehicles Rules of 1989 are key regulations that establish emission norms and safety standards for motor vehicles in India Since the introduction of idle emission standards in 1991, India has progressively implemented seven stricter environmental regulations aimed at reducing emissions and improving fuel efficiency.

Between 1991 and 2010, India's regulatory framework saw a gradual increase in stringency, as evidenced by notable changes in emissions standards Unlike the common perception that India follows European norms, the country has developed its own Bharat Stage (BS) emission standards, specifically designed to meet the unique environmental and geographical challenges it faces For instance, while Euro II/III norms are tested at subzero temperatures in Europe, the BS-II/III standards are more applicable to India's average temperatures of 24 to 28 °C Additionally, the testing procedures and maximum vehicle speeds differ significantly between these standards, highlighting the tailored approach India takes in regulating emissions.

90 kmph compared to 120 kmph for Euro III (Table5.9) 3

Fig 5.1 Regulatory Stringency Index of Germany

3 In addition, the test measurement on chassis dynamometer in Europe requires a weight load of

100 kg in another wise unloaded car In India, the equivalent norms mandate a weight load of

150 kg to achieve the desired inertia weight because of differing road conditions.

China

The Air Pollution Law of the People’s Republic of China serves as the primary legal framework for managing motor vehicle environmental compliance in the country Initially adopted by the Standing Committee of the National People’s Congress in 1987, this law has undergone revisions in 1995 and 2000 to enhance its effectiveness.

In 1999, China adopted Euro 1 equivalent emission norms, marking a significant increase in regulatory stringency This was followed by three progressively stricter regulations in 2002, 2005, and 2007, which brought China's emission standards closer to those of Germany.

Table 5.8 Cumulative Regulatory Stringency Index (RSI): Germany

Brazil

CONAMA Resolution No 18/1986 states that:

The emission of pollutants from motor vehicles significantly harms air quality, particularly in urban areas Implementing proven technologies can effectively address pollution control needs while also conserving fuel To meet modern pollution control requirements, the national Air Pollution Control Program by Motor Vehicles (PROCONVE) has been established, aiming to reduce vehicle emissions to comply with Air Quality Standards and to foster national technological advancements in automotive engineering and emissions testing methods.

Following CONAMA Resolution No 18/1986, a total of six additional resolutions were enacted by October 1993 to establish emission limits, including two that specifically addressed noise emissions These standards were subsequently incorporated into Law No 8.723/1993 in October 1993 Between 1993 and July 2011, CONAMA introduced thirty more resolutions, with eight of these targeting noise limits and procedural modifications.

Resolution 18/1986, oil speciﬁcations, licensing requirements of new fuels, and harmonization of PROCONVE with MERCOSUR.

Between 1996 and 2010, the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) implemented twenty new environmental regulations for motor vehicles, including four normative instructions focused on vehicle inspection, maintenance, and compliance seal usage, alongside regulations setting emission limits and fuel usage standards.

Article 1 of the Federal Law No 8.723/1993 states that“As an integral part of the National Environmental Policy, the engines and vehicles manufacturers and the fuels manufacturers are obligated to take the necessary measures to reduce the emission levels of carbon monoxide, nitrogen oxides, hydrocarbons, alcohols and aldehydes, soot, particulate material and other pollutant compounds in the vehicles commercialized in the country, matching them to the limits set forth in this Law and observing, also, the timeframes set forth therein.”

Therefore, out of the total 56 amendments and revisions of the CONAMA Resolution No 18/1986 and the Brazilian Law No 8.723/1993, 42 were selected

Table 5.9 Cumulative Regulatory Stringency Index (RSI): India

5.5 Findings: Regulatory Stringency Index 63 because of their direct association with emission norms Each pollutant covered in the amendments was taken into consideration, and the underlying technologies to limit that pollutant were considered for the matching with the six key green technology classes The resulting regulatory stringency index is shown in Table5.11. Itsﬁgure below showsﬁve jumps in stringency of environment regulations in Brazil during 1987–2011 The years that witnessed these jumps were 1994, 1997, 1998,

The existing economic literature lacks a consensus on quantifying the strictness of environmental regulations, which is essential for analyzing their regulatory impact This chapter aims to create a stringency index for environmental regulations to track the evolution of regulations aimed at reducing vehicular emissions and fuel consumption over time in Germany, India, China, and Brazil The index is based on various emission norms, fuel specifications, and technology standards implemented in these countries from 1987 to 2010 It was developed by meticulously aligning pollutants, toxins, fuel contents, and adopted technologies with those classified under the International Patent Classification system.

Fig 5.3 Regulatory Stringency Index of China

Conclusion

This chapter presents an index comparing regulatory stringency across countries from 1987 to 2010, highlighting the evolution of regulations across different technology classes Germany, as an automotive pioneer, unsurprisingly has the most stringent environmental regulations Notably, Brazil exhibited higher regulatory stringency than India and China in the 1990s, a trend that continued into the following decade Meanwhile, India successfully tightened its environmental regulations over time, surpassing China’s index values.

Table 5.10 Cumulative Regulatory Stringency Index (RSI): China

Between 1987 and 2011, Germany experienced no sudden increases in environmental regulation stringency; however, multiple modest increments occurred regularly, indicating a gradual tightening of regulations aimed at reducing vehicular emissions and fuel consumption The most heavily regulated technologies during this period were postcombustion technologies, such as catalytic converters and NOx absorbers, classified under IPC B01D While the stringency of IPC classes F02M, F01M, and B01J remained relatively similar until the mid-1990s, a noticeable divergence emerged by the mid-2000s In comparison, India implemented emission and fuel regulations before China and Brazil but has been slower in tightening these regulations subsequently.

After the initial jumps in India’s regulatory stringency index during the 1990s, India implemented stricter norms only after the turn of the century in three leaps—

Between 2000 and 2010, India made significant strides toward aligning its industrial standards with those of the developed world Specifically, IPC classes F01D and B01J emerged as crucial categories, focusing on stringent regulations aimed at reducing emissions and enhancing fuel efficiency.

Table 5.11 Cumulative Regulatory Stringency Index (RSI): Brazil

In 1999, China implemented Euro 1 equivalent emission standards, marking a significant increase in regulatory stringency for automotive technologies This shift coincided with advancements in integrated technologies, including enhanced engine designs and improved air-to-fuel ratio devices, as well as EGR valves Subsequent regulatory updates occurred in 2002, further tightening emission controls and pushing the automotive industry toward more sustainable practices.

Between 2005 and 2007, China moved closer to the stringent German emission standards through a gradual introduction of regulations, primarily aligning with IPC classes B01D and F01N In Brazil, the regulatory stringency index experienced five significant increases in environmental regulations from 1987 to 2011, specifically in the years 1994, 1997, 1998, 2005, and 2009.

This chapter examines the technical dimensions of green technologies aimed at addressing vehicular pollution and fuel consumption challenges It discusses the implementation of the standardized International Patent Classification (IPC) system to create a stringency index for patentable technologies Additionally, the chapter highlights essential technological categories as outlined by the IPC system.

The development of a composite regulatory stringency index for each country involved matching targeted pollutants with selected technological areas This process was informed by fieldwork interactions with technicians, industry representatives, and government officials, which helped establish connections between regulatory elements and relevant technologies The resulting index provides a comprehensive assessment of regulatory stringency, exemplified by the case of Brazil.

In conclusion, the regulatory changes aimed at reducing emissions and saving fuel in the transport sector have significant implications The next chapter will delve into patent data analysis, employing multivariate techniques to explore the relationship between these regulations and their impact on innovation.

DOE (2011) Linkages from DOEs vehicle technologies R&D in advanced combustion to more ef ﬁ cient, cleaner burning engines by R Ruegg and P Thomas, US Department of Energy, June 2009.

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Miller, P., & Solomon, M (2009) A brief history of technology forcing motor vehicle regulations air and waste management association June 2009 Issue.

Nentjes, A., de Vries, F P., & Wiersma, D (2007) Technology forcing through environmental regulation European Journal of Political Economy, 23, 903916.

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Insights from the World of Patents

This chapter presents an analysis of patent data for Germany, India, China, and Brazil, building on the regulatory stringency index discussed previously It examines patenting trends across different technologies and markets, while also reviewing innovation metrics found in existing literature The chapter places particular emphasis on the role of patenting as an innovation metric, assessing its relevance and applicability to the study Additionally, it provides an overview of the patent data utilized in this research, detailing its characteristics and significance.

ﬁlings, priorities, and composition of assignees across the four countries.

Patenting Trends Across Technologies and Markets

The emerging economies of Brazil, India, and China (BIC) exhibit significant differences from Germany in GDP growth, patenting rates in green technologies, and regulatory approaches Traditionally known for their labor-intensive, low-technology industries, these countries are now becoming innovation leaders, particularly China, which has experienced substantial transformation over the past decade Additionally, companies in Brazil and India are enhancing their competitiveness and innovation on both domestic and global stages.

This chapter analyzes patenting trends in "green" automotive technologies across Germany, China, Brazil, and India Germany stands out as a leading creator and manufacturer of automotive technologies due to its advanced engineering capabilities Meanwhile, China, Brazil, and India are rapidly enhancing their technological proficiency, evidenced by significant growth in PCT filings—33.4% in China, 13% in Brazil, and nearly double-digit growth in India between 2006 and 2011 In Europe, patent grants are managed by the EPO, serving as a centralized hub for patent administration.

69 several Member States The descriptive patent analysis shown in this chapter investigates the nature and compositions of patenting of green automotive innovations in these four countries individually.

Measures of Innovation

Various measures of innovation have been discussed in the literature, with R&D expenditure commonly cited as an input metric However, the lack of disaggregated data on R&D spending and the number of researchers limits its effectiveness for this study Instead, the output of R&D, which can be categorized into scientific publications and patent data, serves as a more reliable measure Patent data, in particular, is a standardized indicator of innovation output, reflecting the inventive process across different countries (Griliches, 1990).

Lanjouw and Mody (1996) were pioneers in examining environmental technology through patent data in both technology-leading and developing countries Building on this foundation, Johnstone et al (2010) analyzed patent counts to assess the influence of policies on environmental technologies in OECD nations, where patent data is more accessible and comprehensive Additionally, Dechezleprêtre et al (2010) utilized patent data as an innovation proxy to explore global trends in environmental technology, though their study overlooked key technology categories, including electric vehicles, energy-efficient industrial technologies, and clean coal technologies.

The debate on whether patent applications accurately reflect innovation activity is centered on three key points First, the essential criteria for patentability—such as inventive step, industrial applicability, and non-obviousness—are not consistently satisfied Second, the tendency to patent technologies varies significantly by country For instance, in the automotive industry, patenting rates in four examined countries are notably higher compared to other sectors Lastly, in certain industries, patents may not be the preferred method of protection.

1 See Adams et al (2006), Hinze and Schmoch (2004) for patents as proxy of innovation activity.

Schmookler's groundbreaking research in 1966 and 1972 laid the foundation for utilizing patent statistics, while Scherer's influential 1965 study focused on innovation through patent data Additionally, Griliches' 1990 work highlighted the significance of patent statistics as vital economic indicators.

In the automotive industry, patents are the preferred method for protecting inventions, surpassing alternatives like secrecy Additionally, strategies such as lead-time advantages and technological complexity enhance the effectiveness of patent protection Consequently, patenting emerges as the optimal choice for legally safeguarding complex automotive technologies against imitation and the introduction of reverse-engineered products.

This study utilizes the count of patent applications as a key indicator, highlighting that technologically advanced countries like Germany exhibit a higher propensity to patent, while developing nations generally show lower rates However, the selected developing countries in this research demonstrate greater technological proficiency compared to others in their group Additionally, the study measures patent applications by weighing them against relevant IPC codes, considering the total number of IPCs assigned, including the six core IPCs, for each application.

Data and Sources

A comprehensive data collection strategy was employed, utilizing publicly and privately accessible online patent databases, direct insights from patent offices, and interviews with automotive industry representatives and government officials This approach highlights the growing significance of patent data in researching technological innovation within environmentally friendly technologies.

This study explores the relationship between environmental policy and innovation, building on previous research in the field Utilizing patent data offers significant advantages, as it provides comprehensive insights into inventions Additionally, the detailed classifications of patents enable the identification of relevant innovations related to environmental policies.

In the realm of technology, specific inventions are closely tied to regulatory measures Patents were analyzed based on their technology class and priority year, with the priority year being the preferred metric as it serves as the most accurate estimate of the invention's date.

From 1985 to 2011, all patent filings in Germany and BIC, identified by the relevant IPC codes, were extracted using data from PATSAT (version 2013) The EPO’s World Patent Statistical Database (PATSTAT) is notable for encompassing over 80 patent offices and more than 70 million patent documents However, it falls short in providing comprehensive coverage of Indian and Brazilian patent data This limitation arises because PATSTAT is based on DOCDB, the European Patent Office's internal master documentation database, which lacks the necessary data.

6.2 Measures of Innovation 71 electronic delivery of Indian, Brazilian, and Chinese data for few years now. Therefore, alternate reliable data sources had to be tapped toﬁll this gap.

To gather authentic patent data, Innovaccer was engaged to extract information from official patent offices in India, Brazil, and China, utilizing platforms such as iPairs 2.0, e-Patentes, the Patent Information Service Platform, and EPO’s Espacenet, guided by relevant IPC codes Additionally, comprehensive interviews were conducted with automotive industry representatives and policymakers to gather insights on the trajectory of green technology, emission regulations, and the significance of technological innovation through patenting activities.

Patent offices worldwide share a similar timeline from filing or priority date to publication, but notable exceptions exist across different countries For instance, Brazil has one formal Patent and Trademark Office (PTO) alongside two additional substantive offices, while India operates with four PTOs and China has three offices managing patent procedures In Europe, Munich houses both Germany's patent and trademark office and the European Patent Office, which includes a mechanical engineering branch Patent pendency, or the duration from filing to patent grant, varies significantly: it takes approximately 2–4 years in China, 2–5 years in India, and 6–8 years in Brazil The German Patent Office experiences longer pendency due to a seven-year examination deferral system.

In 2012, the average pendency for European patents was around five years, according to data from the European Patents Bulletin Notably, many applications processed by the European Patent Office (EPO) are Patent Cooperation Treaty (PCT) applications, which also contribute to this timeline.

The average pendency period for patent applications at the European Patent Office (EPO) is approximately 3.5 to 4 years, as noted by James Knowles from patentia.co.uk While all three emerging economies (Brazil, India, and China) accept divisional applications, only India permits patents of addition, known as continuations-in-part in the USA, where any new material is assigned a new filing date Additionally, the explicit duty of candor, which requires the disclosure of all relevant prior art information, is not mandated in these emerging economies.

In India, applicants are required to disclose all similar foreign patents to the patent office Conversely, in China, the disclosure of prior art occurs during the substantive examination request, although failing to do so does not carry legal consequences.

Understanding the Dataset

Variables and De ﬁ nitions

The analysis of patent documents and applications involved meticulous extraction, normalization, and coding of information Notably, individual applicants and government organizations were excluded from the study, as the majority of assignees were private automotive companies operating internationally The research also included a detailed examination of the number and types of assignees for each patent application In the automotive sector, collaboration among inventors from various companies and institutions is prevalent, with many automotive firms funding research projects at public universities Consequently, the study explored the nature of these research collaborations by analyzing the differences in assignees in joint invention applications.

Legal Status

Before analyzing filing trends, it's essential to understand the legal status of patent applications, which varies significantly both within and between countries The number of applications filed fluctuates greatly each year, prompting the need to calculate intra-country percentages to better assess the ongoing patent process.

A significant portion of patent applications lacks current legal status information, with 42% of Brazilian applications, 13% of Indian applications, 30% of German applications, and only 2% of Chinese applications remaining unreported.

4 A list of keywords used to identify applicants as private companies, publicly listed companies, academic institutions, and multinational corporations is in the appendix.

By 2011, Brazil and India granted approximately 20% of their total patent applications in green automotive technologies, with Brazil at 901 patents and India at 242 In contrast, China demonstrated a much higher grant rate, approving 48% of its 21,700 applications, amounting to 10,438 patents Germany granted 4,342 patents during the same timeframe, representing 9.5% of its total applications Notably, many Indian applications remain under review, highlighting the significant disparity in the grant rates of green patents, particularly in China.

Application Fillings and Grants

The low number of granted Indian patents can be attributed to over 60% still being under review, which is reflected in the strikingly low rejection rate of zero applications In contrast, approximately 25% of Chinese and 20% of German patent applications were under review during the same period By 2011, only 20% of Indian applications (189) received grants, while Brazil saw over 90% (2808) of its applications approved in the same timeframe.

From 1980 to 2010, the filing trend of "green" patents exhibited a notable increase, particularly in India and China, although the timing of this surge differed between the two countries In India, patent filings experienced a significant spike shortly after 2005, while China saw its own rise in green patent activity at a different point in time.

Between 1987 and 2010, patent applications in Brazil experienced a gradual increase during the 1990s, but this trend began to decline around 2000 Contrary to the notion that green technologies have dominated environmental technology in recent years, Germany has seen a consistent decrease in patent filings since 2003 In India, patenting activity remained stagnant until 2005, when there was a significant surge in applications from various types of applicants.

Patenting trends in China began to rise significantly in the mid-1990s, while Brazil experienced inconsistent fluctuations in patent applications during the same period In contrast, Germany enjoyed a steady increase in patent filings throughout the 1990s, followed by a decline in green patent applications after 2003, largely due to the growing dominance of the USA and Japan in green automotive technologies Collaborative research between private companies and academic institutions in Germany remained limited, which was evident in the low number of joint patent filings The primary players in the green technology patenting landscape in Germany are major automotive brands, including Robert Bosch GmbH.

This study focuses on environmentally friendly conventional technologies, such as fuel-efficient gasoline engines and improved diesel exhaust filters, while excluding non-conventional options like advanced fuel cells and electric vehicles The decline in Germany's automotive sector, aside from the 2007 financial crisis, is largely due to a shift toward non-conventional technologies Interviews indicate that internal combustion engines will remain relevant until at least 2030, with significant advancements in fuel efficiency and emissions reduction expected The patent filing trend suggests that companies are preparing for future technological shifts Over the past two decades, Germany experienced an "inverted-U" trend in patent filings, peaking around 2001 as the transition to non-conventional technologies began In China, patent filings surged from around 2000 to 2005, while Brazil, despite a strong performance in green innovations during the 1990s, faced a sharp decline after 2002, mirroring Germany's experience.

An assignee list representing auto brands, identiﬁed in the data, is presented in the appendix The top 5 applicants in 1990, 2000, 2005, and 2010 are also shown Figs.6.2,6.3,6.4, and6.5.

The variation in the total number of patent applications across different patent offices can be attributed to differing benchmarks for patent grants and varying interpretations of claim scopes Analyzing filing data reveals insights into technological preferences for patent applications and enables the examination of assignee composition and behavior over time In contrast to industrial applicants, academic applicants exhibit distinct patterns in their patent filing activities.

6.4 Understanding the Dataset 75 prefer to apply for“green”patents individually, with or without joint funding or joint research, with the slight exception of China.

This chapter analyzed patent data from Germany, India, China, and Brazil, highlighting notable differences in applicant composition and priority sources among these countries The upcoming chapter will outline the empirical methodology used to assess how stringent environmental regulations influence innovation, particularly focusing on green transport technologies It will also evaluate both unweighted and weighted patent filing counts as metrics for innovation, testing the hypothesis that environmental regulations drive innovation in this sector.

Fig 6.2 Change in top 5 applicants in Germany over time

Fig 6.3 Change in top 5 applicants in India (1990 – 2010)

Fig 6.4 Change in top 5 applicants in Brazil (1990 – 2010)

Adams, R., J Bessant, R Phelps (2006) Innovation Management Measurement: A Review, InternationalJournal of Management Reviews, 8(1), 21 – 47

Baker & McKenzie (2012) Intellectual property: Patent trends around the world Tower Club, Dallas, Texas: Intellectual Property Group.

Dechezlepr ê tre, A., Glachant, M., & M é ni è re, Y (2010) What drives the international transfer of climate change mitigation technologies? Empirical evidence from patent data FEEM Working Paper, Sustainable Development Series.

Griliches, Z (1990) Patent statistics as economic indicators: A survey Journal of Economic Literature, 28(4), 1661 – 1707.

Fig 6.5 Change in top 5 applicants in China (1990 – 2010)

Henkel, J., & Jell, F (2009) Alternative motives to ﬁ le for patents: Pro ﬁ ting from pendency and publication TU Working Paper, Munich.

Hinze, S., & Schmoch, U (2004) Opening the black box, In: Moed, H.F., Gl ọ nzel, W., Schmoch U (eds.), Handbook of quantitative science and technology studies, 215 – 236 Dordrecht, The Netherlands: Kluwer Academic Publishers

Johnstone, N., Hascic, I., & Popp, D (2010) Renewable energy policies and technological innovation: Evidence based on patent counts Environmental and Resource Economics, 45(1),

Lanjouw, J O., & Mody, A (1996) Innovation and the international diffusion of environmentally responsive technology Research Policy, 25(4), 549 – 571.

Peters, C., & Pottelsberghe de la Potterie, B (2006) Innovation strategy and the patenting behavior of ﬁ rms Journal of Evolutionary Economics, 16(1), 109 – 135.

Schmookler, J (1966) Invention and economic growth Cambridge, Mass.: Harvard University Press.

Schmookler, J (1972) Patents, invention and economic change: Data and selected essays, ed.

Z Griliches and L Hurwicz Part II Cambridge, Mass: Harvard University Press.

Abstract This chapter investigates the impact of the regulatory stringency index constructed in Chap.5 on patenting in Germany, Brazil, India, and China from

From 1985 to 2010, an index was developed to evaluate the strictness of environmental policies in various countries, incorporating all relevant regulations adopted during this period This index serves as a core explanatory variable, effectively measuring the rigor of environmental policies by accounting for incremental interventions, such as vehicular emissions, fuel consumption levels, and technological advancements aimed at compliance with these regulations.

Introduction

This study employs patent applications as a measure of innovation activity, consistent with existing empirical research It identifies filings at the European Patent Office (EPO) and individual patent offices in Germany, India, Brazil, and China, focusing on “green” patent classes The analysis narrows down to applications registered in at least two offices, prioritizing those with claimed priorities, building on the foundational work of Harhoff et al (2003) and Guellec and de la Potterie (2000).

ﬁcation for the use of this method wherein patent applications with a family size of more than one are considered.

While the priority date serves as a useful estimate for the date of invention, this study organizes panel data by application date The inability to utilize granted patents or existing patent portfolios stems from the fact that India, China, and Brazil, as emerging economies, have only recently seen a rise in patenting activity over the last decade Notably, the proportion of "green" automotive patents remained significantly low until 2002.

The patent pendency of at least three years in these countries resulted in limited data on granted patents for longitudinal analysis Descriptive statistics indicated that the rejection rate for patents filed between 1985 and 2010 was under 7%, suggesting that a majority of applications were successfully granted Additionally, patent data showed that 25% of the applications were approved.

Brazilian applications, 60% of Indian applications, and more than 20% of German applications till mid-2011 were not granted and were still under review at the time of data collection.

While Germany boasts a high number of granted patents, the limited patent filings in Brazil and India make such data less meaningful for analysis Relying solely on granted patents could mislead us into underestimating innovation activity in these countries or interpreting it as being hindered by regulatory changes Therefore, this study uses filing year as a more accurate indicator of innovation activity Interviews revealed that most patents filed in various technology sectors originate outside India, China, and Brazil Nevertheless, many applicants in these regions are actively pursuing patent protection before entering developing markets Foreign companies aim to secure a first-mover advantage and mitigate the risk of reverse engineering by employing a patenting strategy that creates competitive pressure on local businesses, a phenomenon referred to as "technological intimidation."

Regulatory Stringency: Unweighted Patent Count

Principal Hypotheses and Model Speci ﬁ cation

The research question being asked is whether the aggregate effect of regulatory stringency on overall patenting is positive or negative? This is being tested with the

The first hypothesis investigates the impact of both domestic and foreign regulatory stringency on domestic innovation at a disaggregated level Specifically, it seeks to determine the differences in effects between domestic and foreign regulations on innovation The focus on foreign regulation primarily concerns developing countries, which are further examined through the second and third hypotheses.

Hypothesis 1: On an aggregate level,“green”patenting increases as environmental regulations become more stringent.

Hypothesis 2: Patenting in “green” technologies in technologically proﬁcient developing countries (TRDCs) increases as domestic environmental regulations become more stringent.

Hypothesis 3: Patenting in “green” technologies in technologically proﬁcient developing countries (TRDCs) increases as foreign environmental regulations become more stringent.

Between 1985 and 2010, the un-weighted count of patent filings in "green" technology classes, along with their share of total filings, serves to test initial hypotheses regarding innovation The annual un-weighted count of patents (log(count uw i; t)) is utilized as a proxy for innovation To evaluate these hypotheses, a series of reduced-form equations are established, incorporating variables such as the research intensity (rsi i; t), GDP (gdp i; t), and total patents (totpat i; t).

3 ð7:1ị count uw i ; t ẳaỵb1rsii ; tỵb2gdp i ; t ỵb3totpat i ; t ỵdci

The study analyzes patent data from 1986 to 2010 across various countries, utilizing a model that incorporates annual un-weighted patent counts, regulatory stringency indices for green patents, and country-specific fixed effects It examines the relationship between gross domestic product (GDP) and patent applications, measured in logs to account for inflation and economic variability The total number of patent applications includes both direct filings and those entering the national phase under the Patent Cooperation Treaty (PCT).

Results

Preliminary results presented in Tables 7.1 and 7.2 indicate a statistically significant effect of regulatory stringency on patenting This analysis highlights the disaggregate impact of regulations on green patenting, utilizing a panel data approach.

The study analyzes patent filings across four countries over a 25-year period from 1986 to 2010, focusing on the relationship between patent counts and specific country variables The dependent variable is an annual count of patents, while independent variables include a country-specific regulatory stringency index and GDP Findings indicate that GDP positively and significantly influences patenting activity in all countries examined, underscoring the importance of economic factors in driving innovation.

Regulatory stringency demonstrates a statistically significant effect primarily in Germany, where the domestic impact is positive In contrast, while India and China also experience positive effects, Brazil sees a negative outcome To analyze the influence of stringent European regulations on patenting in non-European developing countries, cross-regulatory effects were examined The findings reveal that the regulatory stringency index for Germany (rsi DE) significantly impacts patenting across all four countries, yet the positive effect is exclusive to Germany, indicating a robust domestic influence of regulation.

Innovation in developing countries benefits from supportive domestic regulations; however, stricter regulations in Germany negatively impact innovation across all three economies This effect can be attributed to the close ties between fast-emerging economies and Europe.

7.2 Regulatory Stringency: Unweighted Patent Count 83 and German economy Any regulatory change here would certainly affect the economic and innovation climate (and subsequently the industrial sectors) in other countries Second, the levels at which European regulations are presently too far-reaching (“excessively stringent”) for some developing countries 1 Any further push is likely to be perceived as a hindrance to innovation and growth.

The previous regressions are limited by a small number of observations, as they rely on annual unweighted counts of patent applications in each country, failing to consider variations across different technology classes To overcome the issue of small sample size, the next section will redefine the patent count variable by incorporating IPC weights.

Table 7.1 Disaggregated impact of regulatory stringency: OLS estimates 1

(1) DE count uw (2) IN count uw (3) CN count uw (4) BR count uw log(rsi DE ) 0.099*** 0.003 0.001 − 0.001

The analysis includes standard errors in parentheses, with significance levels marked as ***p < 0.01, **p < 0.05, and *p < 0.1 The variable "count uw" represents the annual un-weighted count of patents (in logarithmic form) for each country Additionally, "log(rsi i)" denotes the regulatory stringency index (also in logs) specifically created for all "green" patent categories within country i Lastly, "log(gdp i)" refers to the gross domestic product (in logs) measured in billion USD at 2005 constant prices for country i.

DE (Germany), IN (India), CN (China), and BR (Brazil)

1 The latter was pointed by an interviewee.

Regulatory Stringency: Weighted Patent Count

Principal Hypotheses

The Porter hypothesis suggests that environmental regulations can stimulate innovation; however, it primarily focuses on the theoretical relationship rather than demonstrating actual innovation outcomes In contrast, the concept of induced innovation encompasses a wider scope, highlighting that such regulations lead to a quantifiable increase in innovative activities.

This section discusses the impact of regulatory stringency on patenting, analyzing both aggregate and country-level data The findings are based on a comprehensive sample of all technology classes included in patent applications, with additional replication for a subsample of selected "green" technology classes To address potential bias from omitted variables, the analysis incorporates country-specific and technology class-specific fixed effects.

Time-fixed effects at the aggregate country level mitigate potential biases stemming from country-specific factors that may correlate with both patenting activities and regulatory stringency Descriptive statistics for the variables utilized in this analysis can be found in Table 7.1 From this data, the following hypotheses are established, mirroring those from the previous section.

Table 7.2 Disaggregated impact of regulatory stringency: OLS estimates 2

(4) BR log count uw log(rsi DE ) 1.307*** − 0.149*** − 0.287*** − 0.104***

The analysis presents standard errors in parentheses with significance levels indicated as ***p < 0.01, **p < 0.05, and *p < 0.1 The variable log(count uw) represents the annual un-weighted count of patents in logarithmic form for country i, while log(rsi i) denotes the regulatory stringency index, also in logarithmic form, specifically constructed for all “green” patent classes in country i, which includes Germany (DE), India (IN), China (CN), and Brazil (BR).

7.3 Regulatory Stringency: Weighted Patent Count 85 being tested is whether the aggregate effect of regulatory stringency on overall patenting is positive or negative The second and third hypotheses test the positive effect of domestic and foreign regulatory stringency on domestic innovation at a disaggregated level.

Hypothesis 1: On an aggregate level, “green” patenting, relative to patenting in other areas, increases as environmental regulations become stringent.

Hypothesis 2: Patenting in “green” technologies, relative to “non-green” technologies, in technologically proﬁcient developing countries (TRDCs) increases as domestic environmental regulations become more stringent.

Hypothesis 3: Patenting in “green” technologies, relative to “non-green” technologies, in technologically proﬁcient developing countries (TRDCs) increases as foreign environmental regulations become more stringent.

This study adopts an innovation measure inspired by Trajtenberg's (1990) approach, which utilizes a weighted count of patents based on citation frequency Trajtenberg's findings indicate that this method provides a more accurate representation of innovation in specific technological fields compared to un-weighted counts The current research focuses exclusively on "green" International Patent Classifications (IPCs), as many automotive patents do not contribute to emission reduction or fuel savings By implementing this selective weighting design, the study ensures that only relevant patents are included, enhancing the reliability of the innovation measure.

This study utilizes Shane and Klocks’ (1997) weighted patent citation measure, adhering to a linear weighting scheme It defines ipc n as the total number of patent classes assigned to patent n during its filing year t, with N representing the total number of patent filings in year t, leading to the calculation count t = Σ N n ipc n.

To evaluate the proposed hypotheses, a reduced-form equation is defined as follows: count w i ; k ; t = a - b1 * rsii ; k ; t - b2 * gdp i;k;t + d i * Σ (from i=1 to 3) di+k * Σ (from k=1 to 22) di+s * Σ (from t=1 to 23) dt - i ; k ; t In this equation, 'i' represents the country, 'k' denotes the technology class, and 't' refers to the time period from 1986 to 2010 The variable count w i ; k ; t indicates the annual weighted count of patents (in logarithmic form), while rsii ; k ; t signifies the regulatory stringency index (also in logs) tailored for all green patent categories Additionally, 'di' represents country-specific dummies, 'kk' are class-specific dummies, and 'st' are time-specific dummies, with 'i ; k ; t' capturing the residual variation Further explanatory variables will be examined in the subsequent count data model specification.

There were very few counts of patents registered in the 1980s, particularly in India, China, and Brazil Therefore, the sample had to be restricted, starting from

The data analysis for India and Brazil in 2011 was incomplete, leading to its exclusion from the study Additionally, information for Brazil was missing for the years 1985 and 1986 Consequently, the research sample was limited to a 24-year period from 1987 onwards.

2010 In the full sample, there were 23 recorded technology classes comprising of

The analysis distinguishes between "green" and "non-green" IPCs, focusing on patent applications that include at least one "green" technology class This resulted in a comprehensive dataset of 2,208 observations across four countries, encompassing 23 patent classes over a span of 24 years Additionally, a subsample was created, consisting of 576 observations from the same four countries, but limited to six patent classes within the same 24-year timeframe.

To address the challenges of transforming zero values into logarithmic form, the method of taking log(1 + count) is employed Additionally, regulatory stringency is often introduced with a delay, which serves two key purposes: it accounts for the “announcement effect” of regulatory changes within the industry and mitigates the issue of reverse causality that may arise between regulation and innovation activities The analysis incorporates explanatory variables, including the regulatory stringency index, with time lags of 1, 3, and 5 years Furthermore, fixed effects specific to each country are utilized to control for unobserved heterogeneity, as summarized in Table 7.3, which presents the descriptive statistics.

Preliminary Results

This section presents preliminary findings from OLS fixed effects estimations, utilizing weighted patent filings as the dependent variable Given the lack of independence among observations, heteroskedasticity-robust standard errors are clustered at the class-country level, with results provided in parentheses.

The research indicates that, on an aggregate level, the Regulatory Stringency Index (RSI) has a positive and statistically significant impact on the overall count of patents However, individual country effects are negative and show slight variations across different nations It's important to note that the RSI used is a composite regulatory stringency index encompassing all green technology classes, rather than country-specific indices Additionally, the weighted patent counts represent overall totals rather than specific figures for individual countries.

Table 7.3 Descriptive statistics: full sample

Variable Obs Mean Std dev Min Max count 2208 57.05 159.42 0 1488 share 2185 0.001 0.002 0 0.030 rsi 2208 5.45 13.15 0 91 gdp 2208 1377.49 943.12 283.63 3880.00 totpat 2185 44676.25 65843.16 3424 391,177

The selection of lag lengths was informed by interviews that revealed the industry's expectations regarding the timeframe for government notifications before the announcement of new regulations.

In this regression analysis, the panel variable consists of unique country identifiers combined with ipc codes, resulting in a total of 92 panel groups The study spans 24 years, excluding the year 2011 due to incomplete data, leading to a total of 2,208 observations.

7.3 Regulatory Stringency: Weighted Patent Count 87 regressions merely show the aggregate effects of stringency on overall patenting.Country dummies are used to tease out country-level effects, and technology effects are considered but these results may not be showing the most accurate picture This leads us to an alternative model speciﬁcation, which takes into account the pecu- liarities of this patent data.

Alternate Model Speci ﬁ cation

Given that patent applications are non-negative integers, utilizing distributions like the negative binomial or Poisson is more appropriate, despite their strict constraints on count probabilities based solely on expected counts The negative binomial model offers the advantage of allowing different variance and conditional mean for the count dependent variable, unlike the Poisson model Additionally, the negative binomial model supports a (pseudo)-maximum likelihood approach for estimating robust coefficients, even when the underlying distribution is mis-specified Consequently, a count data technique is employed as the empirical strategy, with the equation estimated using a negative binomial model (Table 7.4).

Here, the event counts are the weighted count of patentfilings received at the EPO, Indian Patent Office, Brazilian Patent Office, and the Chinese Patent Office.

In the fixed effects Poisson model for regression in panel data, the count of an event is represented as a non-negative random integer that varies across entities and time The dependent variable, counti;t, follows a Poisson distribution characterized by the parameter li;t, which is influenced by a vector of exogenous variables, xi;t, through a log-linear function Specifically, the relationship is expressed as ln(li;t) = di + bxi;t, where di accounts for country-specific fixed effects Traditional maximum likelihood (ML) Poisson regression incorporates individual dummy variables to estimate these fixed effects, while an alternative ML method can condition on the total sum of counts across entities.

Cameron and Trivedi (1998) state that both Poisson estimation methods provide identical estimates for the parameters and covariance matrix, with the selection of the method ultimately based on computational convenience (Allison and Waterman).

2002) Although the Poisson models with ﬁxed effects will allow forth severe heterogeneity across the countries being considered, they do not allow forum restricted intra-country heterogeneity.

The assumption that the mean count and variance are equal for each country or technology class is often unrealistic, as it does not hold true for most datasets.

For a comprehensive understanding of count models, refer to Cameron and Trivedi (1998), Hausman et al (1984), and Maddala (1983), with a comparative assessment provided by Allison and Waterman (2002) In the context of patent data, the negative binomial model is more appropriate than the Poisson model, as it accommodates individual Poisson parameters for each panel entity The weighted patent count variables, denoted as count w i; t, adhere to a negative binomial distribution, which generalizes the Poisson distribution by introducing an additional parameter to account for variance exceeding the mean Hausman, Hall, and Griliches (1984) explored one of the various parameterizations of the negative binomial distribution, where the conditional parameter (k) is influenced by covariates, shaping the mass of the negative binomial function.

1þhi k i;t ð7:4ị wherehidoes not vary over time for individual entityi;ln ki ; tẳbxi ; twith the mean

E counti ; t ẳhiki ; t and the variance Var counti ; t ẳð1ỵhiịhiki ; t since

Var countð i;tị ẳ1ỵhi ; variation is allowed across individuals but not over time.

Table 7.4 Aggregate impact of regulatory stringency

(1) log count w (2) log count w (3) log count w (4) log count w log(rsi) 0.255*** 0.260*** 0.286*** 0.264***

Year effects No Yes No Yes

Class effects No Yes No Yes

The analysis employs robust standard errors, with significance levels indicated as ***p < 0.01, **p < 0.05, and *p < 0.1 The variable log(count w) represents the annual weighted count of patents in logarithmic form, while log(rsi) denotes the regulatory stringency index, also in logs Additionally, log(gdp) reflects the gross domestic product in billions of USD, adjusted to 2005 constant prices The model includes country dummies for India (IN), China (CN), and Brazil (BR), with the dummy for Germany serving as the intercept.

7.3 Regulatory Stringency: Weighted Patent Count 89

Further, it is assumed that for eachi, over time, the counti ; tare independent which implies thatP tcounti ; t also follow an NB distributionðhi;P ik i ; tị:

Results

The reduced-form model estimates for the weighted count of "green" patents across Germany, India, China, and Brazil from 1987 to 2010 indicate that regulatory stringency consistently shows a positive and significant impact, regardless of the inclusion of time fixed effects and technology-specific fixed effects Notably, Germany serves as the reference country, exhibiting a significant negative effect compared to the smaller positive effects observed in the other three countries.

The impact of regulatory stringency on patenting varies significantly between countries To analyze this, the regulation variable (rsi) was interacted with country-specific dummies (Di), and the findings are detailed in the estimations.

Regulatory stringency positively influences aggregate patenting in all countries except India, as shown in Table 7.5 This section focuses on the impact of regulatory stringency on patenting within selected green technology classes, as detailed in Chapter 5 The analysis replicates previous estimation results for six key technology classes over a 24-year period across four countries, controlling for year and technology-specific effects Additionally, lagged regulatory stringency is incorporated to capture any potential announcement effects related to regulatory changes, allowing the industry to prepare both technologically and financially The regulatory stringency index for green technology classes is calculated under the IPC system for the period from 1987 to 2010.

Table 7.6 presents the descriptive statistics for the variables analyzed in the subsample of core "green" technologies The average number of "green" patent applications filed is 186, accompanied by a significant standard deviation of 264, reflecting the disparities among the four countries studied Initially, patenting efforts in the three emerging countries (BIC) were limited, which accounts for the high incidence of zero patent counts recorded in the 1980s.

5 The estimates are derived using Huber – White standard errors to control for heteroskedasticity for a shorter time period Years 1985, 1986, and 2011 had to be dropped due to inconsistency.

Table 7.5 Estimates Based on a Negative Binomial Model

(1) count w (2) count w (3) count w (4) count w log(rsi) 0.255*** 0.251***

Year effects Yes No Yes No

Class effects Yes No Yes No

The analysis employs robust standard errors, indicating significance levels with ***p < 0.01, **p < 0.05, and *p < 0.1 The variable "count w" represents the annual weighted count of patents, while "log(rsi)" denotes the logarithmic value of the regulatory stringency index for all green patent classes in country i Additionally, "log(gdp)" reflects the gross domestic product in billions of USD, adjusted to 2005 constant prices The model includes country dummies for India (IN), China (CN), and Brazil (BR), with Germany serving as the intercept.

Table 7.6 Descriptive statistics: sub-sample

Variable Obs Mean Std dev Min Max count 594 186.5 264.2 0 1488 rsi 600 24.4 27.0 0 195 patindex 600 3.7 1.0 2.0 5.0 gdp 600 1419.7 981.6 283.6 4236.9 totcar 558 2,158,782 2,445,342 57,678 14,488,100 totpat 594 49501.9 80591.5 3424 526,412 gas 528 571886.4 347,691 83000 1,754,000

7.3 Regulatory Stringency: Weighted Patent Count 91 and 1990s The statistical range ofrsiis also high depicting the end points and the potential of tightening environmental regulations over time Further, the direction of change in strictness of environmental regulations is always positive [d(rsi)/d (t) > 0] Table7.7shows the correlation matrix of variables used in the analysis, which determined the choice of independent variables As before, log(count w ) is the annual weighted count of patents (in logs) for countryi; log(rsi i ) is the regulatory stringency index (in logs) constructed for all“green”patent classes for countryi; log(gdp i ) is the gross domestic product in billion USD (in logs) at 2005 constant prices for countryi;D i are country dummies for India (IN), China (CN), and Brazil (BR) with dummy for Germany as the intercept;patindexis index of strictness of IPR regime which was calculated based on Park’s (2008) methodology; totcaris number of all new registrations of passenger cars, both petrol and diesel and all engine sizes;totgasis the consumption of gasoline for road transport (in logs) in barrels per day As expected, there is high positive correlation of gdp with patentindex and totcar Tables7.8 and 7.9 report OLS and negative binomial estimates with a panel of four countries, six technology classes, and 24 years. While stringency of environmental regulations in India and China positively affects patenting, it is the opposite in the case of Brazil With the exception of Brazil, effects ofRSIin Germany, India, and China are positive if there is a lag of

3–5 years These are important results, which were corroborated by the German interviewees Controlling for technology-speciﬁc effects did not have an impact on theﬁndings.

The strength of the patent system, as indicated by the patent index variable, shows a consistently significant and positive correlation, suggesting that stricter intellectual property rights (IPR) regimes lead to increased patenting activity in the four countries studied Additionally, the significant and positive relationship of total car sales indicates that higher vehicle sales encourage firms to introduce new technologies in these markets.

Table 7.7 Correlation matrix count rsi patnidex gdp totcar totpat gas count 1.00 rsi 0.21 1.00 patindex 0.56 0.30 1.00 gdp 0.57 0.26 0.88 1.00 totcar 0.36 0.14 0.62 0.83 1.00 totpat 0.30 0.05 0.51 0.71 0.91 1.00 gas 0.29 − 0.11 0.62 0.69 0.77 0.83 1.00

Table 7.8 Panel Data Estimates: sub-sample

(1) log(count w ) (2) log(count w ) (3) log(count w ) (4) log(count w ) log(rsi DE ) − 0.001 − 0.000

Class effects No Yes No Yes

The analysis reveals significant relationships among various economic and regulatory factors impacting patent activity across countries The annual weighted count of patents, represented in logarithmic form, is influenced by the regulatory stringency index, which measures the strictness of regulations for "green" patents Additionally, the gross domestic product, also in logarithmic terms, plays a crucial role in this dynamic Country-specific effects are captured through dummy variables for India, China, and Brazil, with Germany serving as the reference point Furthermore, the index of intellectual property rights (IPR) strictness, based on Park's methodology, and the metrics for new passenger car registrations and gasoline consumption for road transport are integral to understanding the broader implications of these factors.

7.3 Regulatory Stringency: Weighted Patent Count 93

Table 7.9 Negative Binomial Model: sub-sample panel data

Year effects Yes Yes Yes Yes Yes

Class effects No Yes Yes Yes Yes

Standard Difference-In-Difference Analysis

Model Speci ﬁ cation

This section analyzes two specific regulations in four countries using a standard difference-in-difference (DID) method The DID estimator is estimated within a regression framework, allowing for straightforward calculation of standard errors while controlling for variables that may decrease residual variance From the full sample, two distinct groups were identified for analysis.

• Weighted patentﬁlings in the “non-green”category as the control group

• Weighted patentﬁlings in the “green”category as the treatment group.

In the analysis, total patenting in each country for the relevant technology is included as an additional covariate The study begins with the year 2000, when Germany implemented Euro III emission standards, India adopted Bharat Stage II (Euro II equivalent), China introduced China 1 (Euro I equivalent), and Brazil enacted PROCONVEL3 and P4 (Euro II equivalent) norms Due to variations in the strictness of these regulations, Difference-in-Differences (DID) estimates are calculated for each country individually.

In 2005, Germany implemented Euro IV emission standards, while India, China, and Brazil adopted equivalent norms: Bharat Stage III, China 3, and PROCONVEL4/P5, respectively.

0 ift\year 2000 and post t05 ẳ 1; iftyear 2005

Given the difference in strictness of the adopted regulations, DID estimates are provided for each country separately We have a repeated cross section of patent

ﬁlings in 23 technology areas for 24 years for a country.

Robust standard errors in parentheses ***p < 0.01, **p < 0.05, *p < 0.1

L1, L3, L5 are lagged index values (in logs) of 1, 3, 5 years to capture announcement effect of regulatory change

7.4 Standard Difference-In-Difference Analysis 95 count w i ; k ; t ẳaỵb1post t ỵb2treatmentỵb3interactionỵb4totpak i : k : t ỵui ; k ; t ð7:5ị where count w i ; k ; t is the annual weighted count of patents (in logs) for country i in technology classkin timet; log(totpat) is the total number of patent applications (in logs) in that technology received in a year by the respectiveﬁling ofﬁce, including direct and PCT national phase entries; post t* is a dummy which is 1 for time period from the implementation of the regulation in year t and zero otherwise;treatmentis a dummy which is 1 for all“green”technology classes and zero otherwise;interaction is the interaction dummy of post 00 and treatment All residual errors are captured byu i,k,t

Results

The major differences in the impact of the regulatory intervention in the year 2005 (Table7.11) are seen only in the emerging economies of China, India, and Brazil.

In China, there has been a decline in patenting within the control category, while regulation has a negative impact on "green" patenting, albeit statistically insignificant Conversely, India experienced a significant rise in "green" patenting following the introduction of stricter regulations in 2005.

The variable treatment identifies potential differences between the two groups before regulatory intervention, while the time dummy post accounts for overall factors that may influence patent filings regardless of the regulation The key variable in this analysis is the interaction term, which measures the difference in differences; specifically, b3 represents the contrast between the pre- and post-changes in "green" filings and the pre- and post-changes in "non-green" filings.

These results are presented in Tables7.10and 7.11.

In 2000, treatment results indicated a significant positive impact in Germany, China, and Brazil, highlighting an initial disparity between groups in all countries except India Notably, patenting in "green" technologies surpassed that in "non-green" technologies, with Germany exhibiting the largest difference The coefficient for post-2000 was significant across all countries, showing a negative value only in China.

China is the only country that experienced an increase in "non-green" patent filings, largely influenced by the overall rise in patenting activity The interaction coefficient of the core variable is significant and positive in all countries except Brazil, indicating that regulations have positively impacted the growth of "green" patent filings This effect is particularly evident due to the implementation of Euro III standards in Germany, Euro II equivalent norms in India, and Euro I equivalent regulations in China.

Table 7.10 Difference-in-difference estimation: year 2000 log count w DE log count w IN log count w CN log count w BR post 00 − 0.921*** − 4.886*** 0.519*** − 0.415***

Table 7.11 Difference-in-difference estimation: year 2005 log count w DE log count w IN log count w CN log count w BR post 05 − 1.291*** − 0.394 − 1.450*** − 1.190***

The analysis indicates that the annual weighted count of patents (log(count w)) for country i is significantly influenced by the total number of patent applications (log(totpat)) submitted in a year, which encompasses both direct applications and PCT national phase entries The variable post 0t serves as a dummy indicating the time period following the regulation's implementation, while the treatment dummy identifies "green" technology classes Additionally, the interaction between post 0t and treatment highlights the combined effect of the regulation and the focus on green technologies Statistical significance is denoted with standard errors in parentheses, where ***p < 0.01, **p < 0.05, and *p < 0.1.

7.4 Standard Difference-In-Difference Analysis 97

Findings

This study presents preliminary evidence suggesting that increased regulatory stringency positively influences innovation activity, as indicated by weighted patent counts The findings support the hypothesis that domestic regulatory measures can enhance innovation in developing countries, aligning with the Porter hypothesis that effective government regulations foster innovation A robust and strict intellectual property regime is crucial in stimulating such innovation, as it provides both foreign and domestic companies with the assurance that their rights are enforceable and the legal environment for innovation is secure Additionally, a positive correlation was observed between regulatory stringency and car sales.

In emerging economies, where vehicle ownership is not yet a necessity and markets remain unsaturated, car manufacturers are heavily investing in attractive offers and marketing campaigns to attract first-time buyers This strategy not only boosts car sales but also serves as a significant motivation for companies to enhance their innovation efforts.

Except for Brazil, the effects of announcements were significant In the technologically advanced countries examined in this study, this impact may be attributed to three key factors.

Advanced technologies are primarily developed by innovative companies in industrialized nations like Germany, which are drawn to the significant economic opportunities in emerging markets To successfully market their advanced technologies, whether integrated into vehicles or offered directly to manufacturers, companies in these host countries must produce compatible products This necessity encourages host countries to align their environmental standards with those of the industrialized nations.

Foreign technological partnerships in developing countries provide access to advanced technology, valuable resources, and new market opportunities Establishing equitable environmental standards and policies is essential for fostering these beneficial collaborations.

China and India are facing heightened scrutiny in climate change negotiations, as their share of global emissions continues to rise while other nations focus on reducing their emissions.

Managerial and public policy implications in the overall context of the study are discussed in Chap.8.

Allison, P D., & Waterman, R P (2002) Fixed effects negative binomial regression models. Sociological Methodology, 32, 247 – 265.

Cameron, A C., & Trivedi, P K (1998) Regression analysis of count data Cambridge, NY: Cambridge University Press.

Guellec, D., & de la Potterie, B V P (2000) Applications, grants and the value of a patent. Economics Letters, 69, 109 – 114.

Harhoff, D., Scherer, F M., & Vopel, K (2003) Citations, family size, opposition, and the value of patent rights Research Policy, 32, 1343 – 1364.

Hausman, J., Hall, B H., & Griliches, Z (1984) Econometric models for count data with an application to patents R&D relationship Econometrica, 52, 909 – 938.

Maddala, G S (1983) Limited-dependent and qualitative variables in econometrics Cambridge: Cambridge University Press.

Shane and Klock (1997) explore the correlation between patent citations and Tobin's Q within the semiconductor industry, highlighting the impact of intellectual property on market valuation Trajtenberg (1990) examines the significance of patent citations as a measure of innovation value, emphasizing their role in assessing economic contributions Together, these studies underscore the importance of patent citations in understanding the financial implications of technological advancements in competitive industries.

The study addresses the lack of consensus in economic literature regarding the quantification of environmental regulation stringency It aims to create a stringency index to analyze the evolution of stricter regulations aimed at reducing vehicular emissions and fuel consumption Preliminary empirical results indicate a positive inducement effect of regulatory stringency on innovation, as evidenced by increased patent counts The hypothesis that domestic regulatory stringency fosters innovation was upheld, particularly in India and China, where key emission norms from 2000 and 2005 spurred domestic innovation These findings support the Porter hypothesis, suggesting that regulations can drive innovation, aligning with previous research by Newell et al (1999) and Popp (2006), which highlighted the positive impact of environmental regulations on innovation Furthermore, the study reinforces the idea that environmental policy significantly influences technological change and innovation direction, leading to managerial and public policy implications.

Managerial Implications

A German government expert commission has identified electro-mobility as a crucial element for ensuring stability and economic viability in the context of technological innovation, competition, and the patent system.

By 2020, Germany is recognized as a global leader in internal combustion engine technologies, making it unlikely to fully adopt electric vehicles due to significant investments in conventional engines Unlike Japan, Germany is also less poised to transition to alternative automotive technologies on a commercially viable scale As emission regulations tighten, German car manufacturers will face increasing challenges in addressing environmental concerns and transitioning to cleaner transportation solutions, including battery-powered vehicles, electric cars, and long-range hybrids.

Opinions on investing in alternative propulsion systems vary significantly Some experts argue that substantial technological advancements are unlikely in the near future, while others advocate for a gradual transition towards sustainable transportation This latter perspective supports a phased approach, moving from traditional engines to hybrids and electric vehicles, and eventually to LNG- and hydrogen-powered options, as the most effective strategy for achieving cleaner transport solutions.

Emerging economies present significant opportunities for companies, as a substantial portion of automotive components, including advanced technologies, are produced by component manufacturers rather than car manufacturers These component manufacturers play a crucial role in research and development (R&D) and patenting, often having a more substantial presence in countries outside their home markets In 2013, the German government faced criticism for allegedly supporting its major automobile manufacturers in efforts to prevent the revision of Europe’s carbon dioxide emission limits.

In the ongoing second phase of the Kyoto Protocol, the German automotive industry must prioritize the transition from gas-guzzling vehicles to more environmentally friendly alternatives, leveraging their existing production capabilities to meet these sustainable goals.

Technologically advanced automotive companies must enhance their efforts in transferring green technologies, especially in rapidly growing markets like China, Brazil, and India, where operational scale and market potential surpass their home countries While these companies possess compliant technologies, the relatively lax domestic regulations in host countries may not guarantee success Instead of relying on the notion that "build it and they will come," foreign automakers should learn from domestic firms like Tata in India to better understand local markets and foster beneficial partnerships Additionally, it is crucial for these companies to distinguish between price-conscious and value-conscious consumers in developing nations before introducing high-value vehicles equipped with advanced and eco-friendly technologies.

The recent emphasis on intellectual property, especially patents, highlights the expectation for developing countries like India to grant these rights to both domestic and foreign companies This perspective is rooted in the belief that robust intellectual property rights are essential for fostering innovation and facilitating technology transfer Additionally, it is crucial to recognize that the transfer of both technical and non-technical know-how is equally vital for development.

To capitalize on emerging markets, foreign technology vendors must navigate the TRIPS agreement's minimum patent protection and entrepreneurship standards in host countries like China and India, which also seek access to innovative technologies, especially energy-efficient and low-carbon solutions The weaknesses in the local intellectual property regimes hinder domestic innovation, but foreign companies should refrain from practices like output restriction and overpricing Developing countries with a robust technological base should focus on creating effective R&D collaboration and licensing contracts, while fostering partnerships with universities and research institutions to enhance technology development in light of strict regulations Implementing a fast-track system for green patent applications, similar to Brazil's, could further expedite this process Notably, foreign companies, particularly from Germany and Japan, have established strong intellectual property strategies in Brazil and India.

Innovation collaboration in green automotive technologies is crucial for addressing skill shortages in developing countries like Brazil This study highlights that regulations in Germany influence innovation in these nations To enhance their capabilities, companies in developing countries should seek research partnerships for mutual benefit, analyzing technological specializations of potential foreign partners Notably, Indian and German companies exhibit strong innovation collaboration, largely due to India's robust IT industry and skilled engineering workforce This human capital is vital for adapting foreign technologies to local needs through effective employee training and skill enhancement initiatives.

Public Policy Implications

Environmental issues can be effectively addressed by making current technologies accessible and ensuring that regulatory systems offer appropriate incentives for the development of innovative solutions Command and control regulatory standards provide clear guidance for innovators, facilitating compliance with requirements Therefore, the design of regulatory instruments is crucial for successful interventions Additionally, the timing and commitment demonstrated by regulators play a significant role in the effectiveness of these regulations.

European policymakers face significant challenges regarding free trade agreements, as bilateral trade policies can impact industries in both participating nations An imbalance in these agreements can negatively affect economies, illustrated by how emission standards influence American and Japanese car manufacturers The emergence of competitive Chinese and Indian car companies further complicates the landscape for German automakers Without robust bilateral or multilateral discussions, trade deals risk stifling growth for various market players, a concern highlighted in the recent EU-India free trade agreement and the tariff disputes within the EU-China trade agreement.

This study explores the "announcement effect" of emission regulations, highlighting manufacturers' claims that the adaptation period to new standards is insufficient Despite the lengthy life cycle of automotive technologies, these complaints often serve as a strategy for manufacturers to gain additional time This delay allows them to not only develop new technologies and marketing strategies but also to maximize the market presence of existing, less environmentally friendly technologies.

A persistent reluctance to adopt green policies in developing countries, often driven by significant sunk costs in R&D investments, can hinder economic progress Learning from Europe’s CO2 emission laws, which were enacted in 2008 despite industry pushback, is crucial for nations like India and China Adopting a “grow first, clean later” approach is detrimental to both local and global economies As China rapidly industrializes, it must create a more favorable environment for foreign automobile companies, currently requiring them to form joint ventures with local firms Similarly, India imposes participation fees on foreign companies, mandating local manufacturing to protect domestic interests, a strategy also seen in Brazil While some argue this aligns with the infant industry argument, it is essential to balance growth with sustainable practices.

To safeguard jobs, some argue against foreign companies; however, these companies often introduce new technologies and invest significantly in local infrastructure, ultimately creating jobs Unplanned and restrictive regulations can exacerbate these challenges Developing countries must implement effective policies to lead in future technologies Like Germany and India, Brazil and China need to enhance investments in higher technical education to build a robust human capital base It is crucial for Brazil, India, and China to avoid complacency, as emerging economies such as Mexico, Indonesia, South Korea, and Turkey (MIST) pose competitive threats with their similar technological and economic strengths.

A representative from a German company highlighted that specific policies in three emerging markets—China, Brazil, and India—have positively impacted the industry He emphasized that China's infrastructural support, Brazil's favorable government policies, and India's pool of skilled engineers are critical supply-side factors Additionally, it was noted that both the Indian and Brazilian automotive sectors view China's industry as a more significant threat than those from Germany, the United States, or Japan.

In several developing countries, consumers prioritize vehicle affordability and fuel efficiency over low carbon emissions However, there are notable variations among these markets, particularly in car ownership rates, with China leading in growth over the past decade As China faces a potential tipping point in emissions, it is now making significant investments to address environmental concerns at an accelerated pace.

In the past decade, China has experienced a significant increase in patenting, unlike India or Brazil, which highlights the need for India to address the artificially created gap between petrol and diesel prices by decontrolling diesel and reducing excise duties on diesel vehicles Imposing higher excise duties on medium and heavy commercial vehicles contradicts the goal of stimulating economic growth Additionally, raising diesel prices and allowing greater freedom for foreign investors could benefit the entire industrial sector, including automotive India must also improve fuel quality, while Brazil has successfully implemented effective policies and emission norms, though it should strengthen support for ancillary companies to aid larger manufacturers' growth Addressing anthropogenic climate change requires the development and deployment of green technologies, with all stakeholders, including regulators and innovators, playing their crucial roles in this process.

Caveats and Future Research

This study addresses the underexplored topic of green innovation and regulation in developing countries However, it faces two significant limitations Firstly, the potential influence of innovation activities on regulatory strictness, particularly in the competitive automotive sector where international standards are crucial, was not considered, leading to ambiguity in the results Secondly, the research focused solely on Germany as a technology pioneer, omitting the USA and Japan, which are also key players in the automotive industry.

Tiêu đề	Environmental Regulations and Innovation in Advanced Automobile Technologies
Tác giả	Ashish Bharadwaj
Trường học	O.P. Jindal Global University
Chuyên ngành	Law
Thể loại	thesis
Năm xuất bản	2018
Thành phố	Sonipat

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Số trang	119
Dung lượng	1,94 MB