STRICt · Sustainable development Transition through Regulation-Induced technological Change

The transition toward a sustainable economy has become an urgency rather than just a challenge. Rising to it demands a deep reconsideration of the economic, social and environmental dimensions of development. The rapid degradation of the environment requires a swift and deep transformation. Our diverse team of researchers experienced in different, yet complementary disciplines, aims to provide rigorous scientific evidence on how regulation induces sustainable technological change? We build on expertise in economics, statistical modelling, computer programming and environmental law, and apply cutting-edge methods that have yet to be used to answer this important question. The Porter hypothesis claims, with mixed evidence, that environmental regulation may result in a win-win for the regulated firms through innovation offsets. By contrast, the regulation-induced technological change model we develop posits that stringent regulation will stimulate entry of new players. These are more likely to rise to the challenge with disruptive innovations, instead of incremental improvements by incumbent firms (Schumpeter’s creative destruction). We use the case of the Zero Emission Vehicle (ZEV) program as an instance of regulatory shocks that are stringent enough to be qualified of technology forcing. We begin by calibrating a micro-founded model of regulation-induced technological change. We then investigate empirically the impact of the regulatory shocks on the economy by analyzing innovation and competitiveness; on workers by analyzing the effect of environmental policy stringency on labor skills; and on the environment by analyzing the effect of regulation on air quality. STRICt will thus deliver a comprehensive analysis of the impact of regulation-induced technological change on all three pillars of sustainable development. The evidence will improve the acceptability of ambitious policies and the achievement of international goals connecting economic and environmental gains.