Promoting green innovation or prolonging the existing technology: Regulation and technological change in the chlor-alkali industry in Japan and Europe

A case study of the chlor-alkali industry in Western Europe and Japan is presented examining the effects of environmental regulation on technological change. In Western Europe, standards were set for mercury emissions from chlor-alkali plants, which were gradually tightened subsequently. Research and development (R&D) efforts were directed to end-of-pipe technologies as well as process improvements for reducing mercury emissions, rather than to clean technologies, which eliminate mercury from within the production process. With a significant reduction in mercury emissions with end-of-pipe technologies, new plants continued to be built that relied on the mercury process. As long as these relatively new plants could be utilized, technological transition to the clean ion-exchange membrane process remained slow. The success in reducing mercury emissions with end-of-pipe technologies, in effect, helped to prolong the lifetime of the existing mercury process. In Japan, the government introduced policies to phase out the existing mercury process. The strict approach encouraged innovative companies to make R&D efforts on clean technologies, instead of end-of-pipe technologies for pollution abatement. Applied in a hasty and inflexible way, however, the stringent regulation initially induced most of the chloralkali producers to choose the diaphragm process, which later turned out to be inappropriate. After the regulatory schedule was modified to allow more time for process conversion, the remaining mercury-based plants were converted directly to the most efficient ion-exchange membrane process. The technological transition, however, was costly, as most of the diaphragm-based plants introduced following the regulatory mandate were operated only for a short period of time, with the large investment wasted. © 2007 by the Massachusetts Institute of Technology and Yale University.