Environmental Services and European Regulation
(Theme 1: European Regulation and the Science Base)

Mr Nikos Kastrinos
Professor Ian Miles


Background and objectives

Undoubtedly environmental regulations are increasingly important components of innovation systems, providing restrictions to, and opportunities for, technological and organisational innovation. Study after study in the development of environmental technologies points out that regulation is the principal innovation-inducing factor.

At the same time, research has increasingly been stressing the interorganizational nature of innovation processes. Recent studies have demonstrated how this involves chains of supplier-customer relations not only in the development and commercialisation of innovative products and processes, but also in the articulation of perceptions of innovative opportunities, innovation strategies, and requisite skills and assets. Thus, a research agenda has taken shape, regarding the roles and importance of different types of organisations, strategies and behaviours within innovation processes.

Service organisations hold a special place in this agenda for three reasons:

  • their magnitude as components of the economy in both GDP and employment terms (services are by far the largest sector in all Western economies)
  • the conceptual challenges associated with defining services in an analytically meaningful way (services are things you can buy or sell but cannot drop on your foot)
  • the consequent lack of theoretical and empirical analyses of the role of services in innovation processes

Services have been, by and large, ignored in analyses of environmental innovation. Environmental innovation processes have been seen to take shape within the framework of a relationship between regulating organisations, polluting industrial firms whose products and processes need to be refined in order to reduce environmental damage. Discussions of appropriate design, implementation and enforcement of environmental regulations take place within this framework. Here the issue of appropriateness becomes one of regulatory "stringency", that is the costs that polluting industrial firms have to incur in order to comply with regulatory demands.

Those costs are seen as creating demand for environmental technologies, goods and services, and thus an opportunity - space for prospective "environmental" innovators / entrepreneurs. However, the extent to, and the ways in, which these prospective innovators - entrepreneurs are integrated in the regulatory discussions and the environmental innovation process have not been addressed to any extent. This was the aim of the project on "Environmental Services and European Regulations". In particular the objectives of the project were to:

  • understand the role of environmental services in the environmental innovation
  • map-out the UK environmental services sector
  • investigate the regulatory concerns of environmental services
  • investigate the perceptions of policy - makers regarding the significance of environmental services as sources of innovative potential and the effects of environmental regulation on them

The study

The study involved the development of an analytical framework allowing distinctions between the roles of different actors in innovation. This framework was applied onto the environmental industry distinguishing between five different types of functions:

  1. diagnostic functions aiming at identifying and specifying problems relating to environmental performance (e.g. environmental audits, EIA, emissions monitoring, toxicity analysis etc.)
  2. technical problem-solving functions aiming at specifying solutions to problems of environmental performance (including design and contributions to designing waste-management systems, cleaner products and processes, monitoring systems etc.)
  3. functions associated with the production and supply of equipment relating to environmental performance (manufacturing)
  4. performance of physical tasks associated with environmental performance
  5. functions associated with general information provision (e.g. publishing) or extension of traditional services to environment (e.g. insurance, training, finance etc.).

These five different categories of functions contribute different elements to environmental innovation processes, while at the same time constitute categories of environmental services (apart from category iii which is manufacturing). Thus, they were used in our main survey of the UK environmental industry, which also addressed:

  • organisational details, such as age, ownership status and growth in turnover
  • employment details including numbers of qualified professionals and environmental specialists
  • markets served
  • environmental issues addressed (e.g. air pollution, water pollution etc.)
  • scale and organisation of R & D and innovative activities
  • objectives in innovation
  • use of external sources of knowledge and information on technology, environment and regulation
  • important UK and European regulations

Analysis of survey data was supplemented by interviews and case study work with environmental services firms, one large UK manufacturing company, the European Federation of Waste Management and Environmental Services, the Association of European Automotive Manufacturers, and DGXI of the European Commission. DoE and DTI representatives were contacted extensively although formal interviews were not carried out.


Main Results

The environmental services sector is very heterogeneous, involving firms of a variety of sizes, backgrounds, technical capabilities and levels of specialisation. Characterised by relatively high numbers of qualified professional employees (more than 50% of employees) and by a very widespread performance of diagnostic functions (offered as services by 75% of organisations in our sample), the environmental services sector constitutes an important pool of knowledge, skills and resources of high innovative potential. Environmental services firms are involved in all aspects of innovation processes, from diagnosing and specifying problems to be solved, to designing solutions and often implementing such solutions.

Yet overall the sector is characterised by a lack of innovation strategy. Whilst there are exceptions, overall the sector's inputs to innovative activities of its clients tend to relate to reducing the uncertainty associated with choices between existing technologies, rather than to developing new technological solutions.

Regulatory uncertainties, in a field where innovation is intimately linked to regulation, certainly contribute to this phenomenon. Whilst environmental service firms may be aware, or even knowledgeable, as regards the regulations that apply to their clients, they are reluctant to commit to developing particular technologies. Rather they tend to treat each client as an individual case, involving individual regulatory and technological requirements.

Environmental services firms are much more aware of, and much more involved with, regulations that govern their processes. Here technological competition can be observed, and technological leaders attempt to shape regulatory demands regarding, for example, the accuracy of particular chemical tests or the performance of particular physical tasks. Thus, the general picture of the environmental services sector is one wherein diagnosis and the performance of physical tasks traditionally performed by the sector (e.g. clean-up, waste management) constitute the foci of innovation.

This reflects (and it is probably reinforced by) the ways in which the sector is perceived by policy-makers and integrated in regulatory discussions, which take place, by and large, between regulators and regulated industries. In these discussions, environmental services are the unknown beneficiaries of environmental regulations, parts of the undifferentiated economic costs that we have to incur to prevent environmental regulations, parts of the undifferentiated economic costs that we have to incur to prevent environmental degradation.


Policy implications

Should the articulation of technology strategy by environmental services be promoted by policy? Are environmental services a useful feature of economics seeking more sustainable development patterns? Our study made clear that environmental services represent a pool of skills and knowledge the potential of which deserves consideration as part of the appropriate regulatory frameworks and appropriate ways in which European and UK policy-making for the environment and the environmental industry complement one another.


Publications to date:

N. Kastrinos and I. Miles (1995) "Knowledge base, technology strategy and innovation in environmental services firms", paper presented in an R & D Management Conference Knowledge, Technology and Innovative Organisations, S. Miniato (Pisa) 20-22 September.

N. Kastrinos and I. Miles (1996) "Patterns of Entrepreneurship in the UK environmental industry", Paper presented in COST A3 final Conference on Management and Technology, Madrid, 12-14 June.

N. Kastrinos (1996) "Creative destruction in the pursuit of sustainability" forthcoming at the EU-COMPECS Conference on the Economics of Institutional and Structural Change, Warsaw. 6,7 September.

I. Miles (1996) Innovation in Services: Services in Innovation, Manchester Statistical Society.

I. Miles and K Green (1996) "A clean break? From R&D; to sustainable technological regimes", in R. Welford and R. Starkey (eds) The Earthscan Reader in Business and the Environment, London, Earthscan.


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