The direct and indirect effects of environmental investment subsidies

In this webinar we perform an empirical analysis by assessing the impact of an environmental subsidy program on environmental investment (direct effect) and environmental R&D investment (indirect effect). We use a representative sample of Dutch manufacturing firms between 1999 and 2011. Our analysis makes several contributions. Firstly, we analyze the effect of the environmental subsidy using the treatment variable both in continuous and categorical form, thus studying not only its proportional effect but also the "dose" effect. Secondly, following the recent developments in the eco-innovation literature we go beyond the general assessment of total investment amounts. Although we find results supporting the use of environmental subsidy program, disaggregating it into specific types of investments shows that the general assessment masks substantial heterogeneity. Indeed, firms use environmental subsidies to finance both production process integrated and end-of-pipe technologies, as the amount of the subsidy increases they are more inclined to spend it on the latter. Thus, this empirical study seem to suggest a better targeting of the public environmental subsidy, especially if bigger amounts of money would be offered through such schemes in the future. Finally, we also find that internal R&D is more easily encouraged through the use of environmental subsidies than external R&D. Should the policy makers wish to encourage firms to outsource their environmental R&D outside, firms may be more heavily subsidized as to finance such efforts.