innovation and fail to keep pace with technological progress. Experience in China has shown how eco- industrial development or industrial symbiosis can be held back by regulations that enforce too low fines on discharges and forbid or limit the exchange of by- products between companies (Geng et al. 2006).
Licensing of operations provides an opportunity to provide incentives, for example related to land-use planning, to encourage existing industrial estates and parks to move toward a more closed-loop manufacturing paradigm through materials recycling and exchange schemes. Policy and planning provisions can be used to ensure that the development and management of new industrial parks and estates are in accordance with the principles of industrial symbiosis and turn them into eco-industrial parks. This also requires governments to invest in supportive infrastructure for waste treatment and the conversion of wastes into resources. In addition, quota systems for resource (e.g. water) use can be set up in industrial parks, with a penalty mechanism that requires tenants to pay several times the normal rate for those resources they use whenever they exceed their allotted quota.
Regulatory and control mechanisms can promote principles such as Prevention (3P, 3R), Polluter Pays and Extended Producer Responsibility (EPR) to encourage large manufacturers with complicated supply chains to favour closed-cycle manufacturing and more efficient take back systems for remanufacturing and recycling. In recent years regulations such as the Waste Electrical and Electronic Equipment (WEEE), Restriction of Hazardous Substances (RoHS), and Registration, Evaluation and Authorisation of Chemicals (REACH) directives of the EU have had impact world-wide on standards applied in the manufacturing and use of products.
Traditional command and control regulations introduced in many countries since the 1970s have tended to be technology-based or performance-based. They focused on end-of-pipe solutions, not considering more preventative approaches and ways to improve resource efficiency through more systemic changes to the production process or even product design. This left limited incentive for manufacturers to continually and fundamentally improve standards (dynamic efficiency), as opposed to economic instruments that put a price on emissions and effluents to create a permanent incentive for improvement. Whilst appearing simple to introduce, command and control regulations can be costly and inefficient in use.
The historical example of vehicle manufacturing shows how regulatory and control approaches can be combined with fiscal and voluntary instruments to bring about shifts in technological innovation. Mandatory
or voluntary standards and taxes can drive shifts in innovation along a technology frontier or shifts of the frontier (OECD 2010b). The type of changes described for the manufacturing industry in this chapter also require a shift of frontier, including redesign of products and the introduction of new production systems for closed-loop manufacturing. However, changes along the frontier for continual improvement remain important. In the case of vehicle manufacturing, these can involve innovation in end-of-pipe emission abatement, input substitution (e.g. of fuels), factor substitution (more efficient, redesigned engines) and output substitution (greater fuel efficiency of a redesigned vehicle). Analysis of invention and patents in car manufacturing over the period 1965-2005 by the OECD (2010b) has shown a strong positive effect of petrol taxes–combined with regulatory pressure–on engine redesign technologies, with factor-substitution showing the highest growth in patent applications over the period considered.
Economic or market-based instruments Economic instruments for pollution control and reducing other environmental pressures include charges and fees for non-compliance, liability payments as well as tradable permit systems targeting, for example, air pollution, water quality and land management. Instruments regulating price have the advantage of ensuring that the marginal cost of abatement is equalised among all polluters. Charges can target emissions and products (at the level of manufacturing, use or disposal), as well as byproducts such as packaging and batteries. The latter has also been addressed through deposit-refund systems, which can become of increasing significance world-wide for industries such as electronics and car manufacturing. New legislation can encourage recycling by mandating returnable deposits on recyclable products. Direct regulation on emissions can be complemented usefully by returnable deposit rules and end-of-life disposal rules.
To promote integrated water resources management amongst industrial water users, Government can either establish prices through taxes, fees and royalties or limit quantities through tradable permit schemes. In the case of the latter, a market for water use in a shared river basin can allow users with relatively high-valued water uses to purchase or lease water from users with relatively low-valued water uses. Similar to air- pollution credit schemes, the aim is to transfer reduction responsibilities to agents with the lowest costs of use reduction. In the USA, markets have been created in arid states to allocate water with relative success. Canada is an example of an industrialised country where power production and manufacturing are the principle water-using sectors. Most of the water used by manufacturing plants has traditionally been discharged directly into a receiving water body. Examination by Renzetti (2005) of the use