Loading...

Eco-Innovation: The Toyota Prius Case

Seminar Paper 2013 22 Pages

Business economics - Operations Research

Excerpt

Table of contents

List of figures

List of tables

List of abbreviations

1. Introduction: Topic, research questions, methodology, and structure of the paper

2. Eco-innovation: Theoretical background
2.1 Definitions of the term eco-innovation
2.2 Determinants of eco-innovation

3. The Toyota Prius as product eco-innovation

4. Determinants for the success of the eco-innovation Prius
4.1 Technology push
4.2 Market pull
4.3 Regulatory push and/or pull

5. Conclusion

References

List of figures

Figure 1: Illustration of the eco-innovation definition as proposed by the ECODRIVE project (Source: Ekins 2010, p. 269)

Figure 2: Determinants of eco-innovation (Source: Rennings 2000, p. 326)

List of tables

Table 1: Variation in federal tax incentives for the Toyota Prius (Source: Sallee 2011, p. 192)

Table 2: Determinants for the success of the eco-innovation Toyota Prius (Source: own compilation; data sources: see sections 4.1-4.3)

List of abbreviations

illustration not visible in this excerpt

1. Introduction: Topic, research questions, methodology, and structure of the paper

The environmental problems in general, the climate change problem in particular as well as the scarcity of fossil resources require a sustainable transformation of our economies and lifestyles. Environmentally friendly innovations, so called eco-innovations, can help to achieve the needed transition towards a sustainable future (BLEISCHWITZ ET AL. 2009, P. 1).

In 1997 Toyota has launched the Toyota Prius - the world’s first commercialized hybrid car combining an internal combustion engine and an electric motor (NONAKA & PELTOKORPI 2006, P. 98). As a hybrid electric car the Toyota Prius is highly fuel efficient and has reduced CO2 and other emissions compared to conventional cars (DIJK ET AL. 2013, P. 137).

The aim of this paper is to argue why the Toyota Prius can be classified as product eco- innovation and to study why the eco-innovation Toyota Prius has been successful. For this purpose the general literature on eco-innovation is reviewed and applied on the specific case of the Prius. The information used for the Prius case study come from various scientific studies about hybrid electric vehicles, Toyota, and the Prius which have been created in diverse contexts.

This paper is organized as follows: section 2.1 provides a brief overview of the different definitions of the term eco-innovation that are proposed in the literature. Next, section 2.2 depicts the theoretical factors determining the success of an eco-innovation which are named in the eco-innovation literature. After this, section 3 introduces the case of the Toyota Prius and argues why the Prius can be classified as product eco-innovation. Then, section 4 studies which determinants of eco-innovation have contributed to the success of the Prius. Finally, section 5 summarizes the findings of this paper, evaluates them critically, and phrases a further research idea.

2. Eco-innovation: Theoretical background

2.1 Definitions of the term eco-innovation

There is no generally accepted definition for the term eco-innovation. Since the mid-1990s various definitions have been proposed in the literature. CARRILLO-HERMOSILLA ET AL. (2010, P. 1074) provide a comprehensive overview of the different attempts which have been made to define the term. Eventually all definitions that appear in the literature bear a strong resemblance to one of the three definitions described in the following.

An often quoted (e.g. by HELLSTRÖM 2007, P. 148 and WAGNER & LLERENA 2011, P. 747) definition of the term eco-innovation comes from RENNINGS (2000, P. 322). According to Rennings eco-innovations are “all measures of relevant actors (firms, politicians, unions, associations, churches, private households) which (i) develop new ideas, behavior, products and processes, apply or introduce them and (ii) which contribute to a reduction of environmental burdens or to ecologically specified sustainability targets” (ibid.). Other definitions of the term eco-innovation are more restrictive than those formulated by Rennings. The authors of the ECODRIVE Project (Sixth Framework Programme of the European Commission) for instance define an eco-innovation as “a change in economic activities that improves both the economic performance and the environmental performance of society” (HUPPES ET AL. 2008, P. 28). Hence, eco-innovations in this sense always provide a win-win situation. This means “innovations not being eco-innovations are characterized by environmental improvements with economic deterioration or economic improvements with environmental deterioration” (ibid.). As well as Rennings’ definition the ECODRIVE definition is also quoted by various authors as e.g. by EKINS (2010, P. 269) and PEREIRA & VENCE (2012, P. 76).

The difference between the definition proposed by Rennings and the definition proposed by the ECODRIVE Project can be illustrated by a diagram (Figure 1). The dot “R” represents a reference technology. The curved line through “R” shows the initial economy-environment trade-off of the reference technology. An eco-innovation as defined by Rennings would be to the right of the vertical line through “R” (improved environmental performance); whereas an eco-innovation as defined by the ECODRIVE Project would only be in the upper right-hand quadrant labeled ‘Eco-Innovation’ (improved environmental and economic performance).

illustration not visible in this excerpt

Figure 1: Illustration of the eco-innovation definition as proposed by the ECODRIVE project (Source: E KINS 2010, P . 269)

The European Commission proposes yet another definition for the term eco-innovation (e.g. EUROPEAN COMMISSION 2012, P. 2). The European Commission is of the opinion that innovations should only be classified as eco-innovation if they are “aiming at significantly and demonstrable progress towards the goal of sustainable development, through reducing impacts on the environment or achieving a more efficient and responsible use of resources” (ibid.). Different from the other definitions is especially that according to the conception of the European Commission an eco-innovation has to be sustainably motivated. However, this restriction is criticized in the literature - e.g. by KEMP & FOXON (2007, P. 4) and CARRILLOHERMOSILLA ET AL. (2010, P. 1074). They argue that such a limitation of the term ecoinnovation should be refused because “from the social point of view, it does not matter very much if the initial motivation for the uptake of eco-innovation is purely an environmental one” (CARRILLO-HERMOSILLA ET AL. 2010, P. 1074). This view is shared by the author of this paper. Therefore the definition proposed by the European Commission is not applied for the discussion of the case study in this paper (see section 3).

2.2 Determinants of eco-innovation

Apart from the discussion which innovations should be defined as eco-innovation (see above) the literature on eco-innovation describes several determinants of eco-innovations (e.g. RENNINGS 2000, P. 326). These determinants can be seen as sources of potential barriers and drivers for eco-innovation activities. On the one hand the eco-innovation activity is determined by the two factors which are typical for any innovation (RENNINGS 2000, P. 325; HORBACH 2008, P. 165 and BLEISCHWITZ ET AL. 2009, P. 27): the theory of innovation economics stresses the relevance of technology push from the supply side and market pull from the demand side (PAVITT 1984, P. 365). On the other hand there is also a third specific determinant of eco-innovation: the literature highlights the importance of institutional structures, environmental policy and the resulting regulatory push and/or pull for eco- innovations (e.g. RENNINGS 2000, P. 326; HORBACH 2008, P. 165; REID & MIEDZINSKI 2008, P. 50 and BLEISCHWITZ ET AL. 2009, P. 29). Figure 2 gives an overview of the three determinants that are named in the literature. Next, they are explained briefly.

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: Determinants of eco-innovation

(Source: R ENNINGS 2000, P . 326)

The technology push from the supply side firstly depends on the firms’ knowledge and

physical capital stocks which are available to develop new products and processes (HORBACH 2008, P. 164). LEONARD-BARTON (1992, P. 113) calls these two dimensions “employee knowledge and skills” and “technical systems”. Moreover Leonard-Barton stresses the importance of two more factors determining the capability of firms to induce an innovative technology push: “the managerial systems” that guide knowledge creation and control processes and “the values and norms” associated with these processes (ibid). In addition HORBACH (2008, P. 164) emphasizes that also the extent of the so called appropriation problem decides on the amount of the technology push from the supply side: if firms cannot register and enforce patents, the chances will be reduced that they invest in innovative technology and produce a technology push from the supply (ibid.).

Market pull from the demand side is especially crucial in the diffusion phase of an (eco-) innovation (MOWERY & ROSENBERG 1979, P. 150). Market demand can trigger innovations (ibid.). Therefore, in the context of eco-innovations, the environmental consciousness of the consumers is an important variable for the success of an eco-innovation (HORBACH 2008, P. 165). Moreover also the image of the firm offering a new environmentally friendly product or service is a relevant factor for the customer’s demand and thus for the market pull and the successful diffusion of an eco-innovation (RENNINGS 2000, P. 326).

As mentioned above, the design of the environmental policy and the resulting regulatory push and/or pull has to been seen as third and specific determinant influencing the chances of success of an eco-innovation. Regulation is important in both the innovation (R&D) and the diffusion phase (RENNINGS 2000, P. 325). The reason for the importance of this third determinant lies in a peculiarity of eco-innovations: they produce positive spillovers (ibid.). These positive external effects exist because of two characteristics of eco-innovations: firstly, an eco-innovator usually increases the social welfare with an eco-innovation (e.g. through a reduction of harmful emissions), without getting an appropriate market-based remuneration for this improvement (ibid.). And secondly the positive welfare effects of an eco-innovation are normally not reflected by lower consumer prices compared to conventional products (ibid.). Because of this “double externality problem” (ibid.) there are typically, from a social- economic view, too little market-based R&D incentives for eco-innovations during the development phase and too little buying incentive for eco-innovations during the diffusion phase (RENNINGS 2000, P. 326). This leads to sub-optimal investment decisions (ibid.). Therefore the literature on eco-innovation highlights that a specific regulatory support is crucial for eco-innovation (e.g HORBACH 2008, P. 165). The amount of the regulatory push and/or pull for eco-innovation depends on the existing and expected environmental policy and regulation (RENNINGS 2000, P. 326).

3. The Toyota Prius as product eco-innovation

Based on the theoretical discussion of the eco-innovation topic (see above), in the following sections the case of the Toyota Prius is introduced and studied.

In Japan, 1997 the Toyota Motor Corporation launched the sale of the Toyota Prius I - the world’s first commercialized hybrid car which combined an internal combustion engine and an electric motor (NONAKA & PELTOKORPI 2006, P. 98).

The Toyota Motor Corporation (TMC) is a Japanese multinational car company. The firm was founded in 1937 as a spinoff from Toyota Industries which originally manufactured automatic looms (TOYOTA 2012A). Today Toyota operates factories in 27 countries in most parts of the world (TOYOTA 2012B) and employs about 325,000 people (TOYOTA 2012C). Having sold 9.7 million cars in 2012 Toyota is currently the largest automotive company worldwide (KÖLLING 2013, P. 1).

Hybrid electric cars like the Toyota Prius are highly fuel efficient and have reduced CO2 and other emissions compared to conventional cars that are only driven by an internal combustion engine (DIJK ET AL. 2013, P. 137). Making use of innovative technologies like regenerative braking and a start-stop system the Prius I even had the lowest fuel consumption in its category (3.6 l / 100 km) (ibid.). In the 2000s the Prius I has been further developed and the Prius II and later the Prius III were launched - this time also in other countries than Japan as e.g. in Europe and the US (ibid.). Until the end of 2012 Toyota has sold a total of more than 2.8 Million Prius models worldwide (TOYOTA 2012D). Overall the Prius has been “a huge success for Toyota” (DIJK ET AL. 2013, P. 137).

With regard to the eco-innovation definition proposed by Rennings (see section 2.1) the Toyota Prius can be classified as product eco-innovation since Toyota as firm has developed and introduced a new product, the Prius, which contributes to a reduction of environmental burdens, namely to a reduction of fossil fuel consumption, CO2 emissions and other emissions1. Since the Prius has not only improved the environmental performance of the automotive sector2 but since the Prius has also been a huge commercial success for Toyota the Prius can even be classified as product eco-innovation applying the more restrictive definition as it is proposed by the ECODRIVE project (see section 2.1).

[...]


1 DE HAAN ET AL. (2006) investigated for Switzerland if the Toyota Prius has led to two possible rebound effects. They found neither of the two rebound effects investigated meaning that the environmental advantages of the Prius are not reduced by such effects (ibid.).

2 It is important to note that - in accordance with the eco-innovation definitions proposed by Rennings and the ECODRIVE project - the eco-efficiency improvements of the Prius are (only) relative to the reference technology, i.e. relative to conventional cars that are merely driven by an internal combustion engine. The eco-innovation definitions do not consider whether an eco-innovation ensures that absolute targets for a sustainable development can be met.

Author

Share

Previous

Title: Eco-Innovation: The Toyota Prius Case