Policy Inducement Effects in Energy Efficiency Technologies. An Empirical Analysis of the Residential Sector - Green Energy and Efficiency: An Economic Perspective - page 213

level of population, but we are well aware that although this indicator is widely
use, it is not exempt from bias. 5

In the empirical model, we combine the effects of the presence of nuclear power
generation with the level of energy intensity by interacting these two variables.
The Environmental System Public intervention to reduce pollution and improve
the environment has been thoroughly justi

ed in standard environmental economic
theory, which starts by assuming the environment to be a public good and assumes
that pollution (e.g. greenhouse gas emissions) represents a negative externality, i.e.
a cost not internalised by polluters. Indeed, in the absence of public interventions

rms do not pay for polluting and thus produce a cost for society by reducing
environmental quality. In such cases government intervention is required to set the
optimal level of output by balancing the private cost of production (paid by rms)

against the social cost of pollution (paid by the community). A typical intervention
for internalising the cost of pollution takes the form of taxation, but the role of
innovation is also important in inducing

ciency, cleaner
inputs into their production processes. This second case is also known as envi-
ronmental-induced innovation.
There is increasing interest in studying the role of environmental regulation in
fostering innovation, and con

rms to introduce higher ef

icting results are often reported which leave the
debate still open at present. One major strand of literature assigns a pivotal role to
environmental regulation as a driver of innovation processes and business com-
petitiveness, in the well-known framework of the Porter Hypothesis [ 70 , 71 ]. This
provides further justi

cation for green public interventions. According to Jaffe and
Palmer [ 40 ], the Porter hypothesis can be seen as having three different versions:
the rst ' weak ' version states that regulation stimulates eco-innovation; the ' nar-

row ' version states that the exibility of different policy instruments can provide

rms with even greater incentives to innovate in green technologies; and nally the

' t from cost-savings and

technological leadership deriving from eco-innovation. All three versions have been
subject to empirical investigation in the past few decades, and non-univocal results
have emerged. For instance, Ambec and Barla [ 1 ] demonstrate that the Porter
hypothesis only operates in the co-existence of different market imperfections.
Lanoie et al. [ 51 ]

strong ' version states that compliant rms can even bene

nds inverse proportionality between the degree of compliance by

rms and the relative effect of the Porter hypothesis, while Costantini and Mazzanti
[ 15 ], analysing trade competitiveness in the EU, test both the strong and narrow
versions of the Porter hypothesis and nd that environmental policies generate

greater ef ciency in the production process through various complementarity

mechanisms.
Considering the presence of environmental policies in the full set of countries
analysed, we include a country-speci

—

c variable the level of residential CO 2

5 For instance, Wilson et al. [ 77 ] underline the non-technical nature of this indicator for measuring
energy ef ciency, while Jenne and Cattel [ 43 ] point out the bias due to divergent country-speci c
sectoral economy mixes.