Innovation and the costs of EuP policy

Funded by: Defra


December 2009 to June 2010

PSI researchers:

Roger Salmons

Robin Vanner

Simon Dresner

Background, summary and aims

Background, Scope and Aims

PSI is collaborating with BIO Intelligence Service on this study under Defra’s Sustainable Products and Materials Programme. The overall aim of the study is to assess the impacts of innovation on the regulatory costs of Energy-using Products (EuP) policy and to provide guidance on how such impacts should be incorporated into policy-impact assessments. To this end, the specific objectives of this study are to:

  • examine the role of innovation in influencing the costs faced by EuP manufacturers in response to product policies;
  • examine the level of pass-through of regulatory costs to final consumers;
  • develop and test guidance for accounting for innovation in future impact assessments.

Project Design

The project is broken down into two phases. In the first phase, an assessment will be made of the impact of existing EuP policies on innovation, and in turn the impact of that innovation on the regulatory costs of those policies. This will be based on the synthesis of the findings from:

  • a literature review that will provide a qualitative assessment of the ways in which EuP policies may be expected to induce innovation and the likely magnitude of the innovation impacts on regulatory costs;
  • a theoretical analysis of the potential impacts of EuP policies on manufacturers and consumers and the strategic responses of manufacturers – particularly in terms of product innovation;
  • an empirical assessment of the diffusion of energy-efficient technologies in different EuP categories and the evidence for learning effects in these categories.

In the second phase, a methodological approach for incorporating the innovation effects of EuP policies into regulatory-impact assessments will be developed and tested. This will entail:

  • the development of metrics representing the main influencing factors for respective product groups and product policy measures;
  • the testing of metrics in four case studies reflecting the range of product characteristics and policies; and,
  • the production of guidance for incorporating innovation effects in the impact assessment accounting methodology.

Importance of Research

Energy-using products contribute significantly to the United Kingdom’s CO2 emissions. Consequently, policies to encourage the use of higher-efficiency products can make a significant contribution to the country’s emission reduction targets. While these policies provide environmental benefits, they may impose costs on the producers and consumers of these products. However, if the policies encourage innovation, then these costs may be ameliorated over time. If this is the case then it is important that this is taken into account when assessing potential policy interventions. This project will provide an assessment of the nature and magnitude of such innovation impacts and will provide guidance on how they can be incorporated into policy-impact assessments.