What Truly Drives Green Innovation? The Interplay of Regulation, Incentives, and Market Expectations

December 2, 2025

This thesis explores the determinants of sustainable innovation, examining how different factors influence firms’ engagement in environmentally oriented innovation. Using microdata from the 13th edition of the Community Innovation Survey (CIS2022), the analysis focuses on 13,802 firms operating in Portugal and investigates both product- and process-oriented environmental innovations. Probit regression models are employed to estimate the effects of three main groups of drivers: regulatory pressures, economic incentives, and market demand and reputational factors. The results reveal that all three sets of drivers have a positive and significant association with the likelihood of introducing environmental innovations, although their relative importance varies across benefit types. Economic incentives and market-related factors emerge as the most consistent determinants, while regulatory pressures exhibit a more moderate influence. Disaggregated analyses reveal that environmental demand, voluntary initiatives, and the high cost of materials are key motivators, whereas environmental taxes and public procurement requirements may hinder innovation. These findings highlight the multidimensional nature of environmental innovation and the need for policy frameworks that balance regulatory enforcement with market-based incentives. By identifying the drivers that most effectively foster sustainable innovation, this study contributes to the understanding of how firms contribute to a more sustainable and competitive economy.

Authors in the community:

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  A

  Ana Teresa Silveira da Costa

  ist199177

Supervisors of this institution:

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  M

  Miguel Torres Preto

  ist45281

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  C

  Celso Augusto de Matos

  ist429782

other-engineering-and-technologies - Other engineering and technologies

eng - English

Instituto Superior Técnico