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HKUST Public Policy Bulletin Issue No.18
Directing environmental innovation toward radical clean technologies for sustainable transitions: Market-based vs. command-and-control policies
Sebastian Gebhardt, Yun Hou, Masaru Yarime
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Global net-zero transition hinges on radical clean technology breakthrough rather than incremental end of-pipe pollution abatement; existing environmental policy research mostly focuses on innovation quantity while ignoring innovation direction. Based on 17 EU manufacturing firms’ long-run patent evidence, this paper empirically verifies the directional innovation effects of two core policy types to optimize decarbonization policy portfolios. Governments should prioritize market based tools (carbon tax, cap-and-trade, ETS) as core decarbonization instruments to foster radical clean innovation, while positioning C&C rules as supplementary measures for mature clean-tech large-scale deployment; coordinated policy mixes are required to complete full socio technical sustainability transition.
The research constructs a 1991–2000 firm-level panel dataset combining five data sources: OECD environmental policy stringency index, PATSTAT European patent database, ORB firm financial data, SDC M&A dataset and World Bank macro statistics, covering 6,550 listed manufacturing firms across 17 EU economies (68,029 firm-year observations, 158,839 granted EPO patents).
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Sebastian Gebhardt is a PhD Candidate in Innovation, Policy & Entrepreneurship (IPE). His main interest is how technologies can improve human well-being around the globe. He has a background in Mechanical Engineering, with studies at TH Ingolstadt and Seoul National University of Science and Technology, and holds a master’s degree in Technology Management from National Taiwan University of Science and Technology. His research is situated in innovation studies, with a particular focus on environmental innovation and the diffusion of innovation across borders. He primarily uses large-scale patent, firm-level and text data, drawing on quantitative methods as well as natural language processing and machine learning techniques to examine how institutions, firms, and inventors shape the direction and global spread of new technologies.

Yun HOU is an assistant professor at the IPE Thrust, HKUST(GZ). She is interested in researching and teaching innovation and entrepreneurship. She got her Ph.D. degree at the Department of Strategy and Policy, NUS Business School, and her Bachelors’ and master’s in economics from Peking University. Her main research area is innovation and entrepreneurship. On one hand, she studies the effects of the institutional environment on innovation and technology strategies. On the other hand, her research focuses on resource mobilization and strategic decision-making of entrepreneurs. She primarily utilizes field experiments to collect and analyze first-hand data on the entrepreneurial process.

Masaru Yarime is an Associate Professor at the Division of Public Policy and the Division of Environment and Sustainability and Co-Director of the AI Ethics and Governance Lab at HKUST. He also holds appointments as an Honorary Associate Professor in the Department of Science, Technology, Engineering, and Public Policy at University College London and as a Visiting Associate Professor in the Graduate School of Environmental Studies at Tohoku University. He is interested in exploring data driven innovation to address sustainability challenges and implications for public policy and governance. He serves on the editorial board of Sustainability Science, Environmental Science and Policy, Data & Policy, and Frontiers in Sustainable Cities (Innovation and Governance). He received a B.Eng. in Chemical Engineering from the University of Tokyo, an M.S. in Chemical Engineering from the California Institute of Technology, and a Ph.D. in Economics and Policy Studies of Innovation and Technological Change from Maastricht University.
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Main Reference
Gebhardt, S., Hou, Y., & Yarime, M. (2026). Directing environmental innovation toward radical clean technologies for sustainable transitions: Market-based vs. command and-control policies. Research Policy, 55, 105446. https://doi.org/10.1016/j.respol.2026.105446
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