Green regulation fosters innovation, but fragmentation hinders it
A Banco de España working paper finds that national green regulations positively impact firm innovation in Spain, while regulatory fragmentation at the regional level can diminish these benefits. The study uses a novel regulatory database covering 2008-2022.
National rules boost innovation, regional ones less so
The study employs a novel regulatory database for Spain, covering 2008-2022, to analyze the impact of green regulations on firm-level innovation.
Using textual analysis, it identifies national and regional regulations, particularly those related to renewable energy.
Findings indicate that national-level green regulations positively affect innovation.
In contrast, regional-level regulations show mixed or negligible impacts.
The interaction between national and regional regulations, measuring simultaneous legal text production, can foster innovation but at a reduced pace compared to national-only regulation.
This suggests that regulatory fragmentation due to unequal, overlapping, or conflicting procedures across jurisdictions may diminish the benefits of green policies.
The Porter Hypothesis meets fragmentation
The paper builds on the Porter Hypothesis, which posits that well-designed environmental regulations can spur innovation and enhance competitiveness, rather than merely imposing costs.
However, the study highlights that regulatory fragmentation—where rules are unequally developed, overlapping, inconsistent, or conflicting across different jurisdictions—can significantly increase compliance costs for firms.
This fragmentation risks diluting the positive impact of innovation efforts, underscoring the need for harmonized and strategically aligned policies to foster sustainable innovation.
The research aims to explore this complex interaction within Spain's multi-level governance structure.
Coherence over fragmentation
This study provides crucial empirical backing for the Porter Hypothesis in Spain, yet critically exposes the counterproductive effects of regulatory fragmentation.
It offers a vital lesson for policymakers: while green regulation can drive innovation, its design and coordination across governance levels are paramount.
The findings underscore that a coherent, unified approach is essential to maximize environmental and economic benefits, rather than relying on disparate regional initiatives.