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Environmental Policy
Eco-Innovation in Industrial firms
Nir Ben-Aharon 2009
Over the past two decades a major change took place in Israel's industry – it significantly reduced its industrial pollution and decreased the gap between Israel and most Western countries in this field. This reduction required the firms to expend major funds on environmental technologies, most of which exacted a
heavy economic cost while making no contribution to the production process.
However, solutions exist which improve the environmental efficiency of firms and
enable them to consume less resources and reduce their environmental pollution, while cutting down on expenses. Innovative solutions such as these are defined as "eco-innovation" and are the subject of this research.
As part of the research study, a model which describes the primary factors
which influence industrial firms to undertake eco-innovation was constructed. In
this model the demand for eco-innovation solutions is based on the willingness
or necessity of the firms to reduce their pollution. The supply of innovative
environmental solutions is enabled by the development of technologies: some
of them implemented by the firms, within the factory, and some made possible
through the assistance of external companies which offer environmental solutions to the firms. This demand and supply allows for the creation of a market for eco-innovation solutions. Generally, a "market" is a mechanism which facilitates efficiency in resource allocation, but in the case of eco-innovation, the market encompasses only 50% of the innovation projects. The market for innovative solutions is immature due to the existence of transaction costs and other barriers,which make it difficult for industry to become more efficient and to implement "win-win" solutions.
In order to study eco-innovation in industry, 249 firms were investigated –
those with the highest probability for implementing environmental actions.

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