12286 the microeconomics of environmental innovation in the packaging industry 1994

8/14/2019 12286 the Microeconomics of Environmental Innovation in the Packaging Industry 1994

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June 1994

THE MICROECONOMICS OF ENVIRONMENTAL INNOVATION IN THE EUROPEAN PACKAGING INDUSTRYAlberto Cottica Nomisma - Eco&Eco

Paper prepared for the Fifth Annual Conference of the European Association ofEnvironmental and Resource Economists - Dublin, 22-24 June 1994

The research work that made this essay possible was carried under the scientificsupervision of Sebastiano Brusco. Data input was shared among myself, FedericaTagliazucchi, Giuseppe Di Lena and Donata Maccelli. The econometric estimationrested entirely on Raffaele Miniaci's broad shoulders; German interviews werecarried out by Sabine Geissler. I am deeply indebted to Jim Skea for discussion,to Paolo Bertossi for encouragement and helpful comments, and to David Ulph forasking the right questions. I also wish to thank all industry experts andcompanies' spokespersons who accepted to help me along the way. I wish to mentionJohn Beckett and Ruth Steinholtz at Cadbury Beverages Europe, Alberto Bruna atHenkel, Dieter Brkle and Jean-Jacques Couchoud at Elf Atochem, Giulio Cainelliand Fabrizia Forni at ERVET, Professor Vittorio Capecchi at University of Bologna,Milena Cucconi at Farcon, Robert Dangerfield and Brian Waygood at British SteelTinplate, Elie Eliasco at Pechiney, Carlo Guidetti at Tetra Pak, Adriano Landi at

Barilla, Jennifer Lovell at Shell Chemicals, Carlo Montalbetti at COMIECO,Marcello Pieroni and Dr Iascone at Istituto Italiano dell'Imballaggio, FrauRafalski at Tengelmann, Len Randall at Marks&Spencer, Dr Rudi at VIAG, FranoiseSchell at Prisunic, Francesco Sutti at Saffapack, Roberto Tagliaferri at IMA R&D,Peter White at Procter&Gamble, and above all the exceedingly patient PaoloSimonazzi at IMA. Correspondence to: Alberto Cottica, Nomisma-Eco&Eco, StradaMaggiore 29, 40125 >Bologna, Italy Tel. (+39) 051 64 83 309 - Fax (+39) 051 225352 - E-Mail eco&[email protected]


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2 1. 1. Introduction

INTRODUCING THE DATABASE OF PACKAGING INNOVATIONS IN EUROPE 2. 3. 4. Setting thestage: size and structure of the packaging filire A database of innovations inthe European packaging filire: data sources and their reliability A database ofinnovations in the European packaging filire: available information

2.

THE SOURCES AND PROCEEDINGS OF ENVIRONMENTAL INNOVATIONIN PACKAGING: SOME ANECDOTAL EVIDENCE

5. 6. 7. 8. 9. 10. 11. 12.

Interview format Strategies for reducing the environmental impact of packaging:source reduction by elimination of overpacking Strategies for reducing theenvironmental impact of packaging: source reduction by lightweighting Strategiesfor reducing the environmental impact of packaging: re-using Strategies forreducing the environmental impact of packaging: using recycled material Strategiesfor reducing the environmental impact of packaging: materials shift Strategies forreducing the environmental impact of packaging: developing recycling technologies

A set of hypothesis on the microeconomics of environmental innovation in packaging


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3

3.

THE

DETERMINANTS OF ENVIRONMENTAL PACKAGING: A DISCRETE-CHOICE MODEL

INNOVATION

IN

13. 14. 15. 16. 17. 18. 19. 20. 21.

The data The model Results Interpreting results: technology and demand effects onthe innovative process Interpreting results: the role of firm size and positionwithin the filire Interpreting results: packaging innovation as a superproductquest Interpreting results: private optimality of environmental innovationInterpreting results: the role of regulation Conclusions

REFERENCES


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4 1. Introduction

The majority of European large grocery goods companies have now environmentalpolicy statements on packaging. Reading through them, one has the impression thatpackaging is undergoing a process of change, aimed at the reduction of itsenvironmental impact. The word "sustainability" is used in almost all of thesestatements. But is this impression correct? Does the European packaging industryinnovate to reduce the environmental impact of packaging? How does it do it? Is

the process generating "green" innovations any different from that generatinginnovations otherwise oriented? Which sort of stimuli set "green" innovativeprocesses in motion? How do innovating activities respond to environmentalregulation? These questions share a microeconomic focus. This paper reports theresults of an empirical investigation into the microeconomics of environmentalinnovation in the European packaging industry. It does so by a rather unusualresearch methodology, consisting of a two-stage investigation of the innovationgenerating process in the packaging industry, and of the role played byenvironmental concerns in it. The first stage consists in round of talks withindustry experts and firms' spokespersons in Germany, the UK, France and Italy,that highlighted innovation strategies and generated hypothesis regarding themicroeconomics of environmental innovation, i.e. what explains the choice of aparticular firm of steering its technical progress on what Giovanni Dosi would

call an environmentally friendly technological trajectory. The second stageconsists in the setting up of a database of innovative packings on which thesehypothesis were tested. Chapter 1 provides background information on the Europeanpackaging filire and data sources; Chapter 2 reports on the innovation strategiesadopted by different groups of players within the filire and spells out a set ofmicroeconomic hypothesis; Chapter 3 presents an econometric model to test them.


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1.2.

INTRODUCING THE DATABASE OF PACKAGING INNOVATIONS IN EUROPE

Setting the stage: size and structure of the packaging filire

There is no such thing as a packaging industry. Packaging is rather a filire,

i.e. a number of firms, belonging to different industries, linked to each other bycustomer supplier relationships. The metal, chemical, glass, paper, mechanics andelectronics industries all draw a part of their turnover from packing goods. Forthis reason, it is no use turning to non-speciaize statistical sources to find outhow many firms are actually involved in the process. We distinguish eightdifferent filire partitions, henceforth called "sectors". The RAW AND FINISHEDMATERIALS FOR PACKAGING sector (sector 1) includes, together with raw materialsmanufacturers stricto sensu, firms which treat such materials into shapes that canenter a production line. This is especially important with plastics, where thingslike bars and tubes, coupled sheets and PET pre-forms are manufactured. Thesefirms are called "converters" in the industry's technical jargon. Firms in sector1 employ technology that range from "mass production" to fine chemistry. TheFINISHED PACKINGS AND COMPONENTS sector (sector 2) includes manufacturers of items

such as boxes, bags, bottles, aerosol containers, but also edge reinforcements,pouring spouts and labels (pallets manufacturers are counted in sector 7). Plasticfilms and plastic sheets are also included, which is somewhat odd because they aremanufactured by means of conversion techniques. So, converters are split betweenthis sector and the raw materials one. It is important to notice that theclassification is done accordingly to the markets firms cater for, not to thetechnology they employ. so, for example, Rocco Bormioli, the largest glassmanufacturers in Italy, is recorded as a finished packings producer because it hasvertically integrated forward to supply bottles, rather than glass, to packagingusers. The range of technologies used here is therefore quite wide, spanning fromchemistry to fine mechanics. The MACHINERY FOR THE MANUFACTURE OF PACKING ANDPACKAGING PRODUCTS sector (sector 3) includes manufacturers of machines thatperform operations such as expanded polystyrene pressing, diecutting, injection

moulding. This sector employs a highly flexible fine mechanics technology. ThePACKING AND PACKAGING MACHINERY sector (sector 4) includes manufacturers ofmachines that perform the operations of putting a product in its pack. Feeding andfilling machines, forming machines, closing machines, palletizers are examples ofthe range of products. The technology employed is fine mechanics again, with animportant contribution of electronics in the latest years: in the newest models,electronics may account for as much as 40% of the selling price [Capecchi, 1993].The AUXILIARY MACHINES AND EQUIPMENT sector (sector 5) includes manufacturers ofsuch miscellaneous equipment as shaping machines for polyurethane foam, washingmachines for containers, labelling machines, cutters. Fine mechanics seems to beagain the prevailing technology, but not the only one employed.


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6 The ACCESSORIES AND TESTING EQUIPMENT sector (sector 6) include producers ofbiologic, chemical, mechanical, physical and optical testing equipment as well asitems like meters, sterilizing systems, pumps and motors. Technologies employedvary accordingly, as can be said of sectors 7 and 8. The HANDLING AND STORAGEEQUIPMENT sector (sector 7) includes warehouse equipment manufacturers. Productsrange from pallets and box-pallets, to forklifts, to conveyors and even shelving.The SERVICES sector (sector 8) includes designers and engineering firms with aspecialization in packaging. It also includes firms that perform packing and

packaging operations on other people's products. The customer-supplierrelationships among sectors are highlighted in Figure 1. Figure 1. also presentssome key figures for each sector: number of firms, number of employees, and theHerfindahl-Hirschmann concentration index1. The figures refer to Italy, thecountry for which statistical information abut the packaging filire is mostcomplete of the four. Industry experts confirm that the following statementsregarding concentration can be generalized to Europe: 1. the raw materials sectoris highly concentrated, dominated by multinationals

2. the packaging technology sectors (3-7) are more concentrated elsewhere than inItaly, but still rather dispersed 3. the finished packings and components sectoris very dispersed.

1HH

is computed under the assumption that the market share per employee is a constantwithin sectors. This assumption is at least dubious, and is sure not to hold forsectors 1 (whose concentration is underestimated) and 2 (whose concentration isoverestimated) because of the vertical integration problems highlighted in theirdefinitions.


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7


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It is important to keep in mind that most firms in the filire are multiproduct.We have, however, assigned each of them to only one sector on the basis of thenumber of products belonging to each sector manufactured. The flow chart in Figure1., therefore, should not be taken too literally. Among the four countries,France, Italy and the UK publish yearly Packaging Directories, which keep track ofmost, if not all, firms involved in the filire. The Italian packaging filire

(users are not included in the definition of filire) consists of about 2,200firms; the British one of about 2,600 firms; the French one, of about 3,000 firms.These figures are liable to be underestimated, since very small firms, or firms towhom the production of packaging is marginal, may just not bother to make an entryinto the Directories. In fact, a different estimate [III, 1992] Quotes a figure ofabout 3,500 firms for Italy. It is much more difficult to estimate the filireturnover in the presence of vertical disintegration. An IFEC estimate based oncalculations done by the European Institutes of Packaging reports the productionof packs to be worth around 76 bln ECU in 1992 [Morino, 1992]. The four countriesaccount for over three fourths of this figure. The IFEC estimate does not takeinto account our sector 4, which normally sells directly to packaging users.According to a COPAMA estimate, it is worth about a further 6 bln ECU in 1990[Reis, 1992]. The entire filire production should therefore amount to around 82

bln ECU, as shown in Table 1. TABLE 1. PRODUCTION OF PACKS AND PACKAGING ANDPACKING MACHINES IN EUROPE.

Packs - 1992 Machines - 1990 Germany France Italy UK Rest of Europe Europe BillionECU. 11/3/1994 Sources: IFEC, 16,73 14,45 12,93 12,17 19,77 76,03 Copama. Exchange2,59 0,50 1,64 0,30 0,89 5,92 rate of

We have found the total number of employees in Europe to be somewhere around550,000, plus a further 20,000 in the "auxiliary " sectors 5, 6 and 7. Of the550,000, about 450,000 operate in the "vertically integrated finished packings andcomponents sector" (sectors 2, 3, 1 and 8). The remaining 50,000-plus operate insector 4. This is summarized and broken down by country in Table 2.


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9 TABLE 2. NUMBER OF EMPLOYEES IN SECTORS 2, 3, 1 AND 8 AND IN SECTOR 4 INGERMANY, FRANCE, THE UK AND ITALY

Employees Germany France Italy UK Total

Packs 143.701 124.106 111.042 104.510 483.359

Machines 38.149 7.310 24.212 4.371 74.041

Total 181.850 131.416 135.254 108.881 557.401

Source: own estimate on ETAS, IFEC and Copama data

There is a further complication to introduce, which will not be analysed furtherbut must be kept in the background. The discussion has so far been in terms ofpackaging filire, but in fact different techniques are wielded by different firmsto treat different raw materials into packings; therefore, it would be morerigorous to speak of glass, plastics, paper, metals filires. Firms tend tospecialize in materials: in general, a firm making glass bottles will not have anycardboard box in its range, and it won't even have plastic bottles. The exceptionsto this rule are the very large packaging firms (Carnaud Metalbox, VIAG,

Pechiney). Figure 2 and 3 show how the European packaging production, expressed inweight and in value, is distributed among the different raw materials. FIGURE 2.PRODUCTION OF PACKAGING MATERIALS IN EUROPE (BY WEIGHT)

8%

20% Metals

29%

Cardboard wood Plastics 4% Glass

39%

Source: IFEC, III


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10 FIGURE 3. PRODUCTION OF PACKAGING MATERIALS IN EUROPE (BY VALUE)

1% 36% 44% Metals Cardboard wood Plastics Glass 1% 18%

Source: IFEC, III

3.

A database of innovations in the European packaging filire: data sources andtheir reliability

One of the key issues here is the relationship between environmental regulationand technical progress. As a vast body of literature documents, it is by no meanseasy to measure the latter. However, industrial economists have tried to do it byasking a panel of experts to build lists of innovations, to each of which a stringof variables could be attached. The result is a database of innovations whichlends itself to statistical treatment. This has provided important insight in theeconomics of innovation [Townsend et. al. 1981, Scherer 1982]. This work draws onthat tradition. In order to monitor technical progress in the packaging industry,a database of packaging innovations in Europe in the last 15 years was set up.Innovative packings competition in the four countries are used as data sources.

Interviews with industry experts and firms' representatives have shown Europeancompetition to be fairly representative of the industry's innovative activity. Allof these countries hold competitions, organized by the national packaginginstitutes, for innovative packaging solutions. In addition to these fivecompetitions (there are two in the UK), there is a fourth one held, at a Europeanlevel, by the European Packaging Federation. It is worth it to recall the maincharacteristics of each of these data sources. ITALY: OSCAR DELL'IMBALLAGGIO -Oscar dell'Imballaggio is the oldest of the European packaging competitions: thefirst edition was held in 1956 (meaning that the entries were accepted in 1956 andthe prizes were awarded in 1957) and knew almost


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11 no discontinuities to the present day. It is organized yearly by IstitutoItaliano per l'Imballaggio. Entry is restricted to Italian firms (that is, toItalian innovators, whereas users do not have to be Italian). Data have beenobtained from 1981 on. FRANCE: IFEC PRIZE - The Institute Francais pourl'Emballage et le Conditionnement organizes a yearly competition similar to Oscardell'imballaggio, and nearly as old as its Italian counterpart. Its outstandingfeatures are the large number of prizes awarded each year (40-50) and the goodquality of IFEC's files, from which data can be obtained directly. Data have been

obtained since 1978, with a few discontinuities. UNITED KINGDOM: STARPACK.Organized yearly by the Institute of Packaging, Starpack is modelled on Oscardell'Imballaggio. One major difference is that there are three ranks of awards:Gold, Silver and Bronze Stars. We have adopted the policy of entering allinnovations, regardless of their rank. Data have been obtained since 1978, with afew discontinuities. UNITED KINGDOM: INNOVATORS OF THE YEAR. The Institute ofPackaging has been running this competition since 1989. It is structured in a wayroughly similar to Oscar dell'imballaggio, with three differences. The first oneis that there is only one winner for each of the "categories" (initially three,now five); the second one is that the entry is open to foreign firms as well; thethird one is that, since 1990, a "Packaging and the environment" category wascreated. Data regarding all four editions have been gathered. GERMANY:VERPACKUNGSWETTBEWERB. The RKW organizes a competition structured in a way similar

to the Oscar - IFEC model. It issues a large number of awards per edition (usuallyabout 40), but it is held only every three years. Data are available for alleditions since 1978. EUROPE: EUROSTAR - Eurostar was established by the EuropeanPackaging Federation only one year after the launch of Oscar dell'Imballaggio, andexplicitly linked to the national competitions: the winners of the former enterautomatically the latter. To avoid double counting, innovations from Germany,France, the UK and Italy countries have been excluded from the data set. Data areunusually hard to obtain, and have been gathered for a limited number of editions;this is due to the fact that the EPF only exists on paper: national associationstake turns in organizing Eurostar. There seems to be an ample consensus that suchcompetitions are representative of the innovative activities going on in thepackaging filire. They are important enough for firms to enter, but not importantenough for them to try to bias their outcome. Individual freelance designers, and

even industrial design students, have been known to make winning entries. Also,since rules typically require that packs be already traded on the mass marketbefore they can enter (except for the prototypes, which is were individualdesigners come in), clever-but-economically-unviable ideas are screened out. Thewitnesses the research group has talked to maintain it is reasonably safe to treataward-winning packs as a proxy of innovation on packaging (but not, for example,in recycling techniques). 4. A database of innovations in the European packagingfilire: available information

Each of the about 1,400 innovations awarded with one of these prizes was codedinto a string of data. Available information concerns:


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12 * * The year of entry The name of the innovator and of the user of theinnovation, and their countries of location (for innovators, the latter is usuallybounded by regulations internal to each competition: for example, a company has tobe Italian to enter Oscar dell'Imballaggio. Multinationals get round the problemby entering competitions with their local subsidiaries. When there is no user,innovations are treated as prototypes. The sector (in the sense given above) towhich the innovator belongs within the filire. The coding is as in section 1. Thesector in which the pack is to be used, coded with the relevant EUROSTAT three-

digits code The number of employees of both innovators and users. Firms weregrouped in eight classes: up to 10 employees, from 11 to 25, from 26 to 50, from51 to 100, from 101 to 250, from 251 to 500, from 501 to 1,000 and over 1,000. Thefunction served by the pack. This may be presentation, transport or both. Thereasons, given by the jury, for the awarding of the prize. They are quite easilygrouped into nine categories.Use of new materials Packing previously unpacked products Cost reductionDistributor friendliness User friendliness Product protection Aesthetics Lowenvironmental impact Others

* * *

* *

The jury can, and often does, give more than one reason for finding theprizewinning pack innovative. In these cases, all of them were reported, and aneffort was made to extrapolate the main one. VIII. The number and kind of thematerials used to manufacture the pack (labels and inks not included). Thepossibilities are wood, aluminium, steel and other metals, paper and cardboard,polyethylene (henceforth PE), PET, PVC, polystyrene, other plastics and composites(e.g. tetrapak). IX. The total number of recorded innovations presented by thesame industrial group entering this particular innovation. The choice of lookingat groups, rather than single firms, is due to the centralization of some R&Dfacilities and to the frequent innovative spillovers between firms within the samegroup.


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13

2.5.

THE

SOURCES AND PROCEEDINGS OF ENVIRONMENTAL INNOVATION IN PACKAGING: SOME ANECDOTAL

EVIDENCE

Interview format

The reduction of the environmental impact of packaging can happen by means of verydifferent technical innovation strategies. This section illustrates them,highlighting their similarities and differences; its purpose is to generate arange of hypotheses about the microeconomics of environmental innovation, to betested for through the use of econometric techniques. It consists of anecdotalevidence, gathered by a series of discussions held with industry experts andcompanies spokespersons in the four countries, which were carried out mostly inthe period January-March 1994. These talks were aimed at finding evidence on thestate-of-the-art of environmental innovation in packaging rather than sketching a

picture of the general trend; therefore, we concentrated on companies known forbeing particularly sensitive to environmental concerns. Most of them are memberson environment-oriented trade associations, such as ERRA or INCEPT. Respondentswere asked to confirm or challenge, supporting their response with examples, thefollowing two statements, generated by earlier statistical treatment of the dataon Italian innovations alone: 1. environmental innovation, like packaginginnovation in general, is largely done by manufacturers of finished packings andcomponents. These, however, work in very close connection with their customers,who identify problems and priorities; it is almost as if packings manufacturerswere acting as R&D facilities for packaging fillers. environmental concerns andregulatory recycling targets for packaging are not inducing any significant shiftfrom materials that are difficult to recycle (plastics, composites) to materialsthat are easily recyclable (glass, metals, paper).

2.

The interviews resulted in a clearer identification of the research strategiesavailable to reduce the environmental impact of packaging through innovation, andof the complex relationship between choice of innovation strategy, technicalconstraints and market structure variables. A common feature of all strategies isthat they identify a more or less environmentally-friendly waste management optionto be applied to the innovative pack. In what follows, we divide our anecdotalevidence on state-of-the-art environmental packaging innovation according to theoptions proposed in the EU Packaging Directive: source reduction, re-using andrecycling. Somewhat loosely, we have grouped incineration with energy recoverywith recycling, a position enthusiastically shared by respondents. It is important

to underline that respondents rejected strongly the idea that any waste managementoption is inherently environmentally superior to the others: plastics andcomposites producers and fillers, for example, point to the superior energyefficiency of plastics packaging, lighter to transport, and maintain thatrecycling is, generally speaking, an inefficient option. Metals producers, on theother hand, prefer to talk about high recycling rates and not about energyconsumption; paper producers highlight the fact that they are tapping renewableresources, and that the forestry industry contributes to fight global warming.Although some of the more research-oriented companies use life-cycle models toevaluate the overall environmental impact of


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14 packings, it is true that no clear benchmark has been established to tellregulators and consumers what is environmentally friendly and what isn't. 6.Strategies for reducing the environmental impact of packaging: source reduction byelimination of overpacking

Source reduction can take place in either of two ways. One is the elimination ofwhat industry experts are beginning to call overpacking, layers of packagingwhich, while adding to the service content of the pack, are not strictly necessary

to its delivering a satisfactory performance. Overpacking is, of course, a totallysubjective concept. One example of elimination of overpacking comes from theexperience of the Italian food producer Barilla. Its successful minicakes, arelatively expensive and high-margin range of products (Dolcetti), used to beconditioned one by one in small rigid paper baskets, which could be stacked insidea plastic sack. The paper baskets system ensures a better protection of theproduct, and it makes it easier to extract one minicake from the pack.Nevertheless, they were eliminated: now minicakes are simply conditioned into thesack. Barilla integrates the R&D on packaging into an 11-strong research unit, anddesigned the innovation itself. About 12% of the research unit's time is devotedto the reduction of the environmental impact of packaging. Of the four underinvestigation, Germany is probably the country where overpacking is mostcounterproductive in marketing terms. What's more, the implementation of the Dual

System has imposed an additional cost on all packs earlier than elsewhere. Theresult of this is a richer array of innovations in the sense of overpackingabatement. It is worth it to report four examples from different industries. *Bottles of wine from Asbach & Co. Weinbrennerei are no longer wrapped intransparent polypropylene foil, which gives the bottle a more glossy appearance.This saves about 40 tons of foil a year. The cosmetics producer Croldino Schneidermanufactures a hand-washing cream which comes in plastic tubes. The tube used tocome into a cardboard box for presentation and space-fractionating purposes, whichhas now been removed. About two tons of cardboard a year have been saved. SchllerLebensmittel & Co. produces ice cream on an industrial basis. Ice cream isconditioned in polystyrene thermal boxes, which used then to be packaged incardboard boxes for presentation purposes. The cardboard boxes have now gone, andthe presentation function is taken care of by paper labels stuck directly on the

polystyrene box. Hans Warholtz Konserven's sardines are conditioned into tinplatesteel cans; they too used to come in presentation cardboard boxes. Now theinformation about the product is printed on the tin, and the cardboard box hasbeen removed.

*

*

*

Blister packaging is also increasingly being regarded as overpacking. Blisters arePVC thermally shaped packs, often glued to a cardboard base for presentation

purposes. Consumers, and German consumers in particular in particular, tend todislike this sort of pack, and they are now being substituted for. Beiersdorf, forexample, manufactures an office glue stick called Tesa, which used to come in ablister (about five times the size of the stick itself), with an eyelet, used tohang the pack to displays in stationery stores. In 1992, the blister waseliminated altogether, and a PET hook fitted to the cap of the stick. This way,the stick can still be displayed while saving the PVC. The manufacturer calculatesthe material saving in about 4 tons per year. A slightly different version of thissame idea won a VPW in 1993.


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15 An extreme version of the same operation was done by the German bicyclecomponent manufacturer Prophete. Prophete sells, among other things, bicyclebells, which used to come in a blister as well . The brand is printed on the bellsthemselves, so the blister was eliminated altogether. A small cardboard tagcarrying the bar-code is now the only form of packaging attached to Prophetebells. 7. Strategies for reducing the environmental impact of packaging: sourcereduction by lightweighting

Another path to source reduction is what goes under the name of lightweighting. Itconsists in redesigning the pack so that it delivers the same performance withless material. From a merely technical point of view, lightweighting is moreinteresting than elimination of overpacking, because it involves "real" re-engineering of the pack, and therefore a comparison of R&D costs and expectedbenefits. The raw materials side of lightweighting is called downgauging; thismeans producing a grade of a polymer which will yield good properties even whenextruded to a very thin layer. This innovation strategy is, of course, a no-regretone; a lighter pack costs less money than a heavier one, regardless of what itdoes to the environment (in fact, if the environmental problems caused bypackaging were thought to be waste generation only, it could successfully becontended that lightweighting does not do much good to the environment, because itdoes not necessarily reduce the volume of packaging waste). This encouraged

lightweighting even before the environment became a core issue in the politicalagenda of European governments. Figure 4 depicts the decrease in body weight of arepresentative 0.44 l steel beverage can. It is immediate to see that the 30%reduction in weight did not come in a single wave, but by means of severalincremental innovations dating back to 1979. Environmental awareness of consumershas sped up the process; the introduction in various forms, of packaging leviesthroughout Europe are expected to speed it up further. FIGURE 4 - WEIGHT OF A 0.44L STEEL BEVERAGE CAN OVER TIME

45 40 35 30 25 79 80 81 82 83 84 85 86 87 88 89 90 91 92 Source: British SteelTinplate 93

It can certainly be contended that lightweighting is taking place in pretty much

all consumer good industries and with packs of all packaging materials. This showsin Table 4.


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16 TABLE 4 - MATERIAL SAVING THROUGH LIGHTWEIGHTING 19701990Pack Wine bottle 0.75 l Beer bottle 0.25 l Can 4/4 Heavy duty sack Shoppingcarrier Yoghurt glass Detergent bottle 2 l Shrinkwrap film for pallets MaterialGlass Glass Steel Paper PE PS HDPE PE 1970 (g) 450 210 69 247 23 6.5 120 1400 1990(g) Variation 350 130 56 215 6.5 3.5 67 350 -22% -38% -19% -13% -70% -45% -45%-75%

Source: various sources, reported from Elf Atochem

An example of lightweighting from the soft drinks industry comes from the Japanesefirm Hosokawa, that sells drinks and diet integrators for athletes. These drinkscome in flexible packs: a "specialized supplier" sort of relationship between theJapanese user and two Italian societies, Guala Pack (a packaging manufacturer) andSafta (a conditioning technology producer), has led to the development ofCheerPack, a flexible container for liquid whose main feature is that of beingconfortable to carry (it adapts its shape) and easily reclosable. These are usefulfeatures to athletes, who take a sip at a time while, for example, taking part ina bicycle race. CheerPack weighs about 65% less than earlier soft drinks flexiblepacks. It won an Oscar dell'imballaggio in 1990. Detergent producers have takenthis concept one step further, and lightweighted their product as well as theirpacks. Procter&Gamble is probably the single company that pursues lightweighting

most vigorously; it is worth recalling the Ariel Ultra story. Ariel is a laundrydetergent. In 1989, P&G introduced Ariel Ultra, the first compact detergent inEurope. The formulation had been changed; the detergent could now be a effectivewith a smaller amount of powder, which was placed directly inside the washing-machine drum. As a result of this, Ultra, like all compacts, uses less packagingper load washed than non-compacts. P&G calculates that, on Ariel Ultra alone, morethan 12,500 tons of packaging material have been saved throughout Europe. The movewas quickly imitated by competitors, and compact detergents enjoy now a shareranging from 20 to 60%, depending on the country. It is estimated that the overallsavings on packaging materials in Europe since the introduction of compacts amountto 800,000 tonnes approximately. Notice that this involved no packaging innovationat all. The second step in the lightweighting of Ariel was the introduction, in1992, of a refill, which comes in a minimal package similar to a sugar bag. Once

home, the consumer pours the detergent in the carton (which lasts 4-5 refills onaverage) and disposes of the refill bag. This saves a further 50% of packagingmaterial with respect to the compact carton. Again, only fine tuning of the packwas needed, so innovative activities were limited to a minimum; again, the movewas quickly imitated by all major European detergents producer. With a strongerinnovative effort, Henkel produced a lightweight pack for liquid detergents,essentially a flexible pack with a cardboard reinforcement to hold it standing.The refill philosophy is being enthusiastically adopted by detergentmanufacturers. Refills of liquid detergents, however, posed a technical problem,that of finding an ultra-light packaging solution that was also waterproof. P&G'sDash 3 Ultra is an example. In this case, the answer was found in laminate stand-up pouches (the stand-


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17 up feature is necessary to optimize exploitation of shelf space insupermarkets), a 20year-old French invention that had hitherto found very limitedapplication. The expertize for manufacturing pouches from laminate was held by aFrench converter called Soplaril, a subsidiary of the plastic giant Elf Atochem.P&G asked Soplaril to develop the pouch; Soplaril, then, worked together with ElfAtochem for the fine tuning of the laminate, almost a textbook example ofspecialized supplier relationship. Soplaril is now enjoying a rapid growth due tothe rediscovery of the stand-up pouch on environmental grounds. The savings of

packaging material are, in this case, even more significant: a pouch weighs 70%less than a plastic bottle. 8. Strategies for reducing the environmental impact ofpackaging: reusing

In principle, containers can be used several times, thus lowering the amount ofpackaging waste produced per unit of product packaged. In fact, quite a lot oftransport packaging (pallets) and some primary packaging (typically, beveragebottles) are recovered for re-use on a regular basis. Switching to re-usablecontainers, however, can be very difficult, because it involves setting up aproduct-specific recovery system. Prize-winning innovations of re-usablecontainers in the database are all transport packs but one. Despite suchdifficulties, re-use of primary packaging is being contemplated by the beverageindustry. Plastic manufacturers, and notably ICI, are undertaking highly

structured and very expensive R&D projects about what goes under the name of"flavouring" to make plastic bottles re-usable. The technical problem with this istwofold. Firstly, bottles are washed with very hot water before re-use, and mostplastics will melt or degrade. Secondly, since both plastics and flavours of softdrinks are oil-based, beverage and bottle interact chemically, and the latterretains the taste of the former. In fact, contact with some plastics can altersubstantially the taste of some beverages; to prevent these problems, the beverageindustry works with a flavourmaterial compatibility matrix. Glass bottles, on theother hand, are perfectly reusable because of a relatively high melting point andchemical inertness. A first success was obtained by Continental PET, who produceda re-usable PET bottle for Coca-Cola: however, it won't work with less strong-tasting drinks, like water. 9. Strategies for reducing the environmental impact ofpackaging: using recycled material

Another possible strategy to reduce the environmental impact of packaging is toincorporate recycled material in it. This creates a market for secondary rawmaterials, thus diverting some waste from the waste stream. In some cases, use ofrecycled material in packaging does not stem from environmental considerations atall; it is simply a cost-saving feature of the production process. This is, forexample, the case of steel cans, which embody 25% of scrap steel, or of mostcardboard packaging (typically, detergent cartons). Substitution of recycledmaterial for virgin material, on the other hand, poses several technical problems,due to poorer performance and relatively bad looks of the former. For this reason,reduction of environmental impact by this innovation strategy is not as widelypursued as, for example, lightweighting. Nevertheless, some companies, especially,but not only, in the detergent industry, have gone down this route. The innovation

database records several examples. One part of recycled PE can be mixed with threeof virgin PE to yield a material with reasonable mechanical properties, reasonableenough to condition liquid detergents. However, recycled PE has a disagreeablegrey-green colour, disliked by marketing


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18 men; furthermore, the colour is subject to random variations. Two routes havebeen attempted by Procter&Gamble to solve these problems. The Viakal bottle,winner of an Italian Oscar in 1992, incorporates a coloured master batch tocamouflage the greygreen: then, a shrinkwrap label with good graphics was added,in order to cover the colour variations. A better result, from an aesthetic pointof view, is guaranteed by the development of a coextrusion technology, that allowsthe blow-moulding of a three-layer bottle. The middle layer is made of recycledPE; the inner and the outer one, of virgin PE. Again, the weight of the former is

about 25% of the total weight of the bottle. This innovation won another ItalianOscar, in 1990. Interestingly, the R&D that led to the invention of thecoextrusion technology was done jointly by P&G and several of its suppliers; thecompany launched the idea and proposed converters to solve the problem. This way,a share of the R&D costs was dumped on to the supplier; the deal was that, hadthey been successful, P&G would sign a large order at a relatively advantageousprice for the new bottle. 10. Strategies for reducing the environmental impact ofpackaging: materials shift

Of particular interest are those innovations that imply a change in the rawmaterials from which the packing is made. This is the only innovation strategythat is not aimed to any one waste management option; it is generally, but notalways, directed to increasing the recyclability of the pack. "Recyclability" is,

in the packaging industry, a fairly abstract concept; which has nothing to do withthe existence of collection, sorting and recycling systems. For example, singlematerial plastic packs are marketed as easily recyclable; what that means is that,if recycling facilities and a separate collection system for that particularplastic existed, the pack could all go into the same polypropylene or PET bin. Thereason why we are interested in looking at this particular kind of innovation isthat packaging regulation, especially in Germany, is now rearranging the set ofincentives to use some raw materials rather than other. The principle is tocollect a sort of levy on packs, that is then used to pay collection, sorting andrecycling costs. Table 5 reports the set of prices that packaging users sellingtheir products in Germany have to pay to participate in the Duales System. TABLE 5- DSD TARIFFS PER KILO OF RAW MATERIAL

Material Glass Paper and cardboard Tin Aluminium Plastics Cardboard compositesOther composites Natural materials Source: DSD, March 1994

DM/Kg 0,15 0,40 0,56 1,50 2,95 1,69 2,10 0,20


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19 The Duales System introduces an incentive to move out of plastics andcomposites. In the case of some polymers, like PE, the DSD levy amounts to about100% of the price of the virgin material, so the incentive can be quitesubstantial2. Under these conditions, one would expect to find a trend to replaceplastic packaging with glass, paper and metal packaging. Some of the firmsinterviewed have reported developing or using "green" innovative packings thatembody some material substitution. A well-marked trend concerns the move out ofPVC, perceived as environmentally unfriendly3.This has gone so far that

Tengelmann, Germany's largest retailer, sells nothing in PVC. In the beverageindustry, for example, PVC was almost totally replaced by HDPE in bottle caps, andby PET in bottles for non-carbonated drinks. The food industry is also moving outof PVC: Marks&Spencer reported replacing its PVC trays for prepared meals (a packthat has to be microwaveable) with foams, whereas Barilla removed PVC trays fromits line of minicakes. The latter is a quite interesting example of howinnovations tend to have consequences all along the packaging filire; Barilla'sminicakes used to sit on PVC trays. The company's environmental policy is now tomove out of all plastics that contain elements other than hydrogen, carbon andoxygen, so as to minimize the environmental impact of incineration, so PVC had tobe taken out. . The choice was to use cardboard instead. This involved noinnovation in the packaging manufacturing technology, because a cardboard tray isvery easy to make with a simple diecuttingshaping-gluing process. However, it

involved adding a step to Barilla's conditioning lines: PVC trays are bought froma converter, put on a conveyor belt by a machine, and another machine places theminicake on them. On the contrary, cardboard trays are shaped and glued inBarilla's plant, so the conditioning line had to be modified in order to support ashaping and gluing continuous process. Barilla's packaging experts designed thetray, and a medium-sized packaging technology firm in Bologna designed andrealized the improvement to the conditioning lines. This move takes out of thewaste stream 150 mln PVC trays a year. Barilla is an example of a company makingextensive use of packaging material shift, aimed at either recyclabilityenhancing, incinerability enhancing or both. Other innovations of this kind arethe substitution of the PE, aluminium and paper composite formerly used in biscuitpacks with a two-layers PE-aluminium composite (with the percentage of paperrising from 60 to 80 per cent) and the replacement of polypropylene-aluminium

composites with metallized polypropylene in all packs. PVC is at the centre ofanother example of all-filire innovation which involves material shifts. In thepharmaceutical industry, pills, capsules and the like are usually conditioned inblisters. The "traditional" blister is made of a PVC transparent shell, glued toan aluminium foil; pressing on the PVC makes the pill tear the aluminium and dropout the back of the packing. In the 80s, German pharmaceutical companies decidedto move out of PVC, which can release toxic substances when incinerated.Unfortunately, PVC was the only cheap polymer with good barrier properties forwhich a thermal shaping technology existed. It was decided that polypropylenecould be the closest substitute for PVC. Bayer started a joint R&D project withthe Italian packaging technology company IMA; IMA technicians built a prototypepolypropylene blister-making machine, initially very

2

It must be noted, however, that the levies are expressed by weight, whichmitigates the disadvantage for low-weight plastics.3The

move out of PVC has reached innovation as well. A Hausman test comparinginnovative packs invented before 1992 with those invented in 1992 show that thelatter use significantly less PVC.


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20 similar to the standard PVC ones, and started feeding it polypropylene. Some ofthe problems they met with could be solved by modifying the machine; for example,it turned out that pre-heating polypropylene before thermally shaping it improvedgreatly the performance of the machine. Other problems were solved by means offine-tuning the grade of the polymer. The process was a trial-and-error one, whereboth fine mechanics and fine chemistry technologies were used to get roundobstacles, and fed into each other. The results of the process were a new blister-making machine that could work with polypropylene and a new grade of propylene to

feed to it. In order to increase the recyclability of blisters, German companiesare now working on the allpropylene blister, which is already employed by somemanufacturers. It is a kind of blister which replaced the aluminium foil with aneasy-to-tear polypropylene foil. Another example of recyclability-improvingmaterial shift is EcoTop, a steel can top developed by British Steel Tinplate.Cans are made of two parts: bodies, which undergo a blow-moulding process, andtops. At the moment, about a half of the bodies are made of steel, the other halfof aluminium; on the contrary, tops are all aluminium made because of technicaldifficulties in producing steel tops with a satisfactory performance. EcoTop hasno ring to pull, but two "buttons" to push down and fond inside the can, one topour the drink, the other for air to flow in as the drink is pulled. It doesn'tperform as smoothly as traditional tops, but it can be marketed as veryenvironmentally friendly because of the lower energy intensity of steel with

respect to aluminium and because of the very easy recyclability of all-steel cans,made possible by the new top. Steel can be pulled out of the waste stream bymagnetic extraction and sent back to the furnace for re-melting. British Steelfeels the environment is now the single most important ground for competition toproducers of raw materials for packaging. 11. Strategies for reducing theenvironmental impact of packaging: developing recycling technologies

Some materials, like plastics and composites, are difficult to recycle; of others,recyclability, while already good, can still be improved. In order to reduce theenvironmental impact of packaging, then, some firms work on the development ofbetter, cheaper recyling technologies. It is mostly raw material manufacturers,who have the necessary expertise and feel the green movement's pressure more thanfirms elsewhere in the filire, engaging themselves in such efforts. Recycling has

become a very important public relation issue for highly visible multinationalcompanies, who fund pilot schemes and produce literature. Especially active inthis field are plastics producers: APME, the association of plastic manufacturersin Europe, lists 109 plastic recycling schemes going on. Nevertheless, technicalprogress in this direction has not so far been impressive. Shell claims to bedoing quite a lot of R&D on what goes under the name of "feedstock recycling". Theidea is to work waste plastics into an oily feedstream suitable for cofeeding toexisting petrochemical or refinery processes, such as gasification, distillationor hydrogenation into more refined processes. This option features a higher publicacceptability than waste-to-energy (the additional plants would be seen as part ofexisting refineries), and a better energy balance, as hydrocarbon molecules arenot destroyed. Moreover, feedstock equipment will be easy to integrate intoexisting refineries or petrochemical plants, thereby minimizing the capital cost

of the operation and exploiting economies of scale in full. However, such plantsare large and very far from each other; this implies such schemes would have hightransportation costs. Fully developed feedstock recycling technology is not yetavailable. Elf Atochem is heavily involved in Valorplast, the French plasticrecycling consortium. They follow a line of research to improve plastics sortingtechnologies; Valorplast will soon be starting a sorting plant which employs anItalian X-ray scanning technology to


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21 separate PVC from PET, and tests are being run on a different line whichseparates PE as well. British Steel Tinplate declared that steel producers areconstantly working for the improvement of their recycling technologies. To them,it is not a public relation issue; scrap steel is a strategic resource for theindustry, since all grades of steel employ a relatively high proportion of scrapand some, like stainless steel, are made of 99% recycled material. A tin-separating treatment to recycle the layer of tin that covers scrap tinplate steelwas also developed. Tetra Pak is engaged in several R&D projects to recycle

cardboard composites. It is trying to develop technologies that recycle wastecomposite into items such as pallet spacers, thermal insulating material and evenshoe sole reinforcements, as well as investigating repulping techniques. However,it is dubious that these products can find a market in the short term. Finally,Marks and Spencer funded the development of a technology for the recycling of PVC.It is not being used, because the company finds it is too expensive. 12. A set ofhypothesis on the microeconomics of environmental innovation in packaging

The interviews show that the packaging filire is simultaneously pursuing severalstrategies in order to reduce the environmental impact of packaging. Often,different strategies are pursued within the same company, as Table 6 shows. TABLE6STRATEGIES

Strategy Companies

-

EXAMPLES

OF

ENVIRONMENTAL

INNOVATION

Elimination of overpacking Lightweighting Re-using Using recycled material

Material shift Developing recycling techniques

Tengelmann, Barilla, German companies Henkel, P&G, Tetra Pak, Barilla, M&S,Cadbury, British Steel Coca Cola, ICI P&G, Henkel IMA, Barilla, M&S, Henkel,British Steel, P&G, Cadbury, Tengelmann Tetra Pak, Shell, British Steel, ElfAtochem

However different in concept and technicalities, these strategies share somesimilarities. Firstly, with the partial exception of the development of recyclingtechniques, environmental innovation in packaging tends to be very incremental.This reflects the existence of a number of technical constraints underpinning thisas well as other sectors. For example, if the beverage industry were to replacecans with glass bottles, transportation costs would increase; this would make the

existing scale-intensive beverage plants inefficient, and would call for a newindustry configuration, characterized by a larger number of smaller plants servingregional or national markets. The Belgian non-returnable beverage container tax ishaving precisely such effects. However, within the rigidities imposed by thetechnical properties of materials and the packaging needs of different products,the environmental impact of packaging attracts quite a lot of attention. Manyroutes to environmental improvements are being investigated at the same time, andthe technologies employed are flexible enough to yield a relatively high degree ofinnovativeness. This is reflected by the unexpectedly high number of innovationsin the database that make some kind of environmental claim, 110 out of 1407.


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22 Secondly, there is a very high degree of "vertical" cooperation in theinnovative process. Often, the history of an environmentally friendly innovativepack begins with its filler imagining it and asking to its supplier of packings tomake it for him. The latter, then, sets out to solve the technical problemsimplied by the manufacturing of the new pack. Sometimes, this implies cooperatingwith the raw material manufacturer to fine-tune the material to suit the need;sometimes it implies modifying the conditioning technology, a task that isgenerally carried out by packaging technology firms. In the long run, suppliers

and customers learn to work together towards a common goal; this is reflected inthe time span, typically very long, of business relationships in this area. Quiteoften, indeed, the researcher investigating these business relationships findthemselves looking at examples of quasi-vertical integration la Richardson; inthe beverage industry, for example, the can factory sits next door to the beveragefactory, and the two are linked by a system of conveyor belts that carry 6,000empty cans a minute from the former to the latter. In the detergent industry,there are examples of a Japanese-style relationship with converters blow-mouldingbottles for liquid detergents; the converter rents a shed inside the detergentproducer's plant, so as to abate transportation and financial costs and to keep areal-time quality control on the blowmoulding process. Thirdly, the environmenthas a marketing appeal. This shows in the marketing policy of both raw materialproducers and packaging users who happen to have environmental claims to make.

British Steel is an obvious example; low collection costs and low (relatively toaluminium) energy content of steel are being banked on by the company, which istrying to stop the loss of market share to aluminium. Several companies takeenvironmental communication seriously enough to fund education programs. Thisseems to be at least compatible with a demand-pull theory of environmentalinnovation in packaging. In fact, some companies maintain their environmentalpolicy is totally consumer-driven, and well ahead of government regulation. Takentogether, the common features of environmental innovation in packaging seem todraw a picture familiar to industrial economists. Its incremental nature seem tofit well Giovanni Dosi's [1984] theory of technical change. He characterizestechnology in terms of technological paradigms or technological research programs.In analogy with Kuhn's [1975] scientific paradigm, a technological paradigm isessentially a body of scientific and technical knowledge used to satisfy a need.

"Normal" innovative activity focuses on improving only some of the characteristicsdisplayed by a certain technology, which Dosi calls a technological trajectory.Economic variables play a focusing role, calling the researchers' attention onsome characteristics, ignoring the other. For example, the oil shocks of the 70sset the internal combustion engine paradigm on an energy saving trajectory; a lowfuel consumption was recognized to "good" even before the oil shocks, but itwasn't important enough to actually work on. Nowadays, energy efficiency improvingis part of the standard research program of engine designers. The rise of greenconsumerism and environmental regulation do not seem to be inducing a change ofparadigm in the packaging industry. On the other hand, they seem to be quitesuccessful in steering the existing paradigms on a whole range of environmentalimpact reducing trajectories, which were described as "innovation strategies" inthis chapter. In passing, one may note that incremental innovation is much more

easily market-driven than paradigm shifts. The notion of technological trajectory,then, fits in well with the marketing appeal of environmental issues describedabove. Keith Pavitt's [1984] notion of "specialized supplier" relationship betweeninnovator and innovation user in certain industries also springs to mind wheninvestigating the packaging filire. It is our conviction that verticaldisintegration plays an important role in making the technology so fluid, liableto be steered smoothly on to "green" technological trajectories. On the one hand,it minimizes sunk costs; when Barilla wanted to replace PVC trays with paper traysit simply cancelled the order to a plastic


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23 converter (who continues, however, to supply it with polypropylene sacks) andplaced a new one on its supplier of paper packaging. This happens all the time,and opens up roads for nonprice competition between "packaging paradigms" (in thiscase, plastic trays or paper trays), and therefore packings producers acrossparadigms. On the other hand, as it is well known [Williamson, 1975], the marketalone has problems carrying "weak" signals like those that lead to an innovation;co-ordination is often needed. The packaging filire solves this problem withvarious forms of what was called "quasivertical integration" above. The Dosi and

Pavitt contributions, taken together, seem to provide a reasonable, if highlystylized, picture of environmental innovation in the European packaging filire. Afurther, relevant question on which theory may help cast light is that of the"specialization" vs. "superproduct" nature of innovation. In a series of papers,dedicated to R&D races in multidimensionally differentiated markets, David Ulph[1993, Ulph and Owen 1993] argues that, under very general R&D cost assumption,and given that imitation is easy and technological lags can be caught up with ,firms will aim for a "superproduct", superior to its competitor in all respects.Both assumptions are fairly reasonable to make with reference to the packagingfilire. The evidence is here less clear: certainly some leading firms seem to bedoing packaging innovation both along the environmentally friendly and along othertechnological trajectories, which seems to support Ulph's views. Accepting such apicture of environmentally friendly technical progress has far-reaching policy

implications. The rest of this study is devoted to an econometric test of thehypothesis that this picture is true.


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24

3.13.

THE

DETERMINANTS OF ENVIRONMENTAL PACKAGING: A DISCRETE- CHOICE MODEL

INNOVATION

IN

The data

As pointed out in chapter 1, the research team collected 1407 packaging innovationawarded with prizes in the countries being con sidered or at the European level.Annexe 1 contains the main descriptive statistics; this section contains a briefoutline of the characteristics of this population of innovative packs. About 100-120 prizes were awarded each year, from 1978 to 1993 (relative to entries datedfrom 1977 to 1992). The number of prizewinning packs making environmental claim

has been constantly on the rise, from 1-2 in the late 70s to around 15 in the late80s, reaching a maximum of 30 in 1992. Medium-sized and large firms are thelargest contributors to innovations.Within the filire, almost all innovatorsbelong to the finished packings and component industry. The second most innovativesector is the raw materials one which, however, has produced no environmentalinnovations. Among the industries using innovative packs, the most important onesare obviously the grocery goods ones; the food industry is the single largestcontributor, followed by the detergent and the beverage industry. The detergentindustry is the single largest contributor to environmental innovation. Thematerials most frequently used are plastics (PE being the most popular one), paperand cardboard, steel, glass and aluminium, in this order. The materials pattern ofenvironmental innovation is roughly the same as that of non-environmentalinnovation. 14. The model

The world of packaging innovation is a multidimensional one. A pack has severalcharacteristics that innovators can choose to improve, from its ability to protectthe product to its aesthetic appeal; in Dosi's terms, innovators can choose tomove along several technological trajectories. In the innovation database, thisshows in the multiplicity of reasons given by juries for the awarding of theirprizes. It seems appropriate to model an innovation decision with discrete-choicetechniques. A dependent discrete-choice variable (CHOICE) was constructed in thefollowing way. Value 1 stands for the decision to innovate on the reduction of theenvironmental impact on the pack. CHOICE takes value 1 whenever the main or oneaccessory motivation for the awarding of the prize is environmental friendliness.There is here an element of asymmetry: environmental innovations are defined bymeans of both main and secondary reasons for the awarding of the prize; other

innovations are grouped according to the main reason only, once environmental oneshave been taken out. This was done for technical reasons: the reduction ofenvironmental impact is the main claim to a packaging award for only 35 packs, toolow a figure to run a multilogit estimation. Value 2 is more complex to define.Loosely, we could say it stands for the decision to minimize the pack's productioncost. CHOICE takes value 2 whenever the main reason for the awarding of the prizeis "cost reduction", "use of new materials" (generally introduced on costeffectiveness grounds), or other minor reasons.


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25 Value 3 stands for the decision to minimize the logistical and distributioncosts. CHOICE takes value 3 whenever the main reason for the awarding of the prizeis "distributor friendliness" or "product protection"; these innovations are aimedat the optimization of exposition space in supermarkets, or of truck space, or atreducing the chances of damaging products during transport. Value 4 stands for thedecision to enhance the pack's user friendliness. CHOICE takes value 4 wheneverthe main reason for the awarding of the prize is "user friendliness"; easy-opencans, no-spill lids and so on. Value 5 stands for the decision to improve the

pack's attractiveness to the consumer. CHOICE takes value 5 whenever the mainreason for the awarding of the prize is "aesthetics". Table 7 shows innovationsgrouped by main reasons for the awarding of the prize and by values assigned toCHOICE. TABLE 7 - INNOVATIONS BY MAIN REASON FOR AWARDING THE PRIZE AND VALUE OFCHOICELow environmental impact Cost reduction Use of new materials Others Distributorfriendliness Packing previously unpacked products Product protection Userfriendliness Aesthetics TOTAL 35 148 44 17 233 20 329 280 238 1344 CHOICE=1CHOICE=2 110 209

CHOICE=3 CHOICE=4 CHOICE=5 TOTAL

538 260 227 1344

Asymmetries apart, CHOICE has a potentially serious shortcoming as aninnovationmodelling device; it implicitly assumes that technical trajectories aremutually exclusive. The reality is quite different, as the discussion in chapter 2should have pointed out, and often R&D efforts lead to packs that are better thanthe ones they replace in more than one characteristics. This suggests that abinary choice approach might be more appropriate than a multiple choice one tomodel innovation. Nevertheless, estimation with a dichotomous version of CHOICE(ENV=1 iff CHOICE=1, 0 otherwise) does not yield significantly different results;furthermore, multiple choice models allow comparisons between groups ofinnovations; for example, the string of parameter characterizing "green"innovation can be tested for statistically significant difference from "costreduction" innovation. The rest of this chapter is therefore devoted to the

presentation and interpretation of multiple choice models. The estimationtechnique employed is the multinomial logit. The model is of the kind prob(1) = ex1 5

1 + ex 1 + e x 3 + e x 4 + e x

where prob(1) stands for the probability that CHOICE=1 and 1 for the set ofcoefficients attached to the vector x of explanatory variables when CHOICE=1.CHOICE=2 is chosen as the base alternative.


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26 Regressors are divided into four groups. The first one, from ITALY to UK refersobviously to the country of the innovator; the second one, FOOD to SERVICES,refers to the industries using innovative packs; the third one, from ALUMINIUM toPVC + OTHER PL. to the materials used; the fourth one, composed of PRESENTATIONand BOTH, to the function performed. All these variables are dummies; NMATERIALS,the number of materials used, INNUMBER, the total number of innovation done by theinnovative firm (at the group level), and TIME (a variable set to 1 in year 1978,2 in 1979 and so on) are continuous variables. Table 8 summarizes the meaning of

setting all dummies of the same groups, to zero, i.e. which countries, industries,materials and function are incorporated within the constant term. TABLE 8 -COMPOSITION OF THE CONSTANT TERM IN COUNTRY Country of the innovative firmIndustry in which the pack is used All but D, F, UK, I, NL Agriculture, clothesand textile, petrochemical, pharmaceutical, hardware, mechanics, automobiles,miscellaneous Paper and cardboard, wood Transport

Materials Functions

It is very important to keep in mind that parameters do not measure absoluteinnovativeness, but the influence on CHOICE given that one is doing an innovationanyway. 15. Results

This section is devoted to the presentation of the multiple choice model section13 has recognized the need for. Estimates for parameters and tests are simplypresented; any attempt of interpretation is left to the following sections. Infact, this section can be skipped altogether by readers who do not findeconometrics exciting. Table 9 summarizes the values of the parameter computedunder the specification of the model we call COUNTRY, for reasons that will soonbecome clear. Regressors regarding firm size and position within the filire aredropped; this allows the model to run on 1337 observations, thus recovering thepossibility of adding regressors regarding the country of the innovator.Coefficients that are significant at the 90% significance level are marked by anasterisk; coefficients that are significant at the 95% significance level by twoasterisks. This notation will be held on to throughout the rest of the paper.


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27

TABLE 9 - THE COUNTRY MODELNumber of obs chi2(96) Prob > chi2 Pseudo R2 Regressor Italy France Germany UKfood dairy beverages chemicals detergents services aluminium glass metals PE PSPET composites PVC+other pl. presentation both innumber nmaterials time constantterm Log-likelihood ENVIRONMENT DIST. COSTS 1337 757,90 0 0.1941 US. FRIEND.(CHOICE=4) -0,0646024 0,026313 -0,4568147 0,8358023 -0,1630353 -0,7371387

-0,0267376 -0,1008564 -0,3792353 -0,2513948 **1,284311 0,2047462 0,5825683**0,817034 -0,1646754 0,6907529 -0,4312786 0,6411559 **1,483126 **1,1670960,0005184 0,0966031 0,0268966 **-1,57022 Base case AESTHETICS (CHOICE=5)-0,9767713 -0,3177113 **-2,25486 0,6556234 **0,687657 0,2767336 **1,077684-0,2011145 **1,336627 -0,4593833 -0,5619221 0,5015573 -0,2806713 -0,3975288-0,57086 -0,9832869 **-1,25944 *-0,529067 **4,806585 **3,400975 -0,0087633**0,823733 *0,0459294 **-5,26455 CHOICE=2

(CHOICE=1) (CHOICE=3) 0,7483295 -0,067276 -0,4272889 -0,0613709 -0,5115607-0,7840004 -0,3592673 -0,125181 0,3252054 0,0368444 -0,0847592 -0,59409110,6441551 0,2622063 0,7326784 0,1146932 0,4910869 -0,802351 0,6246732 -0,2307875-0,0051769 0,4538976 0,3268512 **-0,9911177 -0,8442857 -0,34878814 0,59254490,2071943 -0,7922398 0,0124827 1,220964 -0,4134379 -0,2095655 *-0,5885556

-0,1362668 -0,0363005 0,2819869 **-0,7249768 -0,5283439 0,1734307 0,00151920,0064908 0,2514121 **0,5265409 **0,1922828 **0,466248 **-3,209503 0,4550341-1573,1132

Two separate sets of tests were run on the parameters characterizing COUNTRY. Thefirst one concerns the joint significance of all parameters for each value ofCHOICE. In particular, four F-tests were run on the null hypothesis thati

=

1

i = 2,3,4,5

Their results are summarized in Table 10.


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28

TABLE 10 - COUNTRY: JOINT SIGNIFICANCE OF PARAMETERS DIFFERENCE FROM ENVIRONMENTALINNOVATION (CHOICE=1) OFINNOVATION OF OTHER KINDS

= 3 = 4 = 5 =2

1 1 1 1

KO** KO** KO** KO**

The second set of tests concern the joint significance of groups of parametersacross all different values of CHOICE. The null hypothesis is that, for each groupj of parameters1 j

=

2 j

=

3 j

=

4 j

=

5 j

=0

Table 11 summarizes the results. TABLE 11 - COUNTRY: TESTING FOR ZERO VALUE OFGROUPS OF PARAMETERS ACROSS VALUES OF CHOICE Country Industry in which the pack isused Materials Functions NMATERIALS INNUMBER TIME KO** KO** KO ** KO ** KO ** OKKO**

This model of technological trajectory choice in packaging innovation can be usedto test the appropriateness of the Dosi-Pavitt-Ulph framework spelt out in chapter2 to describe technical change in this filire. In order to do so, that frameworkmust be translated into testable hypothesis; such a translation, and a test of thetranslated hypothesis, is the subject of the following sections. There is,however, one exception. That innovation occurs along a technological trajectory

rather than through a paradigm shift is obviously not picked up by the databasedescribed in chapter 1, and therefore it cannot be tested for. This statement,however, has quite solid nonstatistical evidence standing for it: it is hard notto notice a paradigm shift when one occurs. This point will not be dealt anyfurther with.


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29 16. Interpreting results: technology and demand effects on the innovativeprocess

One of the hypothesis generated by the nonstatistical evidence presented inchapter 2 is that environmental innovation should display demand-pull, as opposedto technologypush, characteristics. If this were true, we would expect that: 1.environmental innovation, when compared to production cost reduction innovation,should be more concentrated on presentation packaging than on transport packaging.

Consumers hardly ever see transport packaging, so the marketing appeal of anenvironmentally friendly shrinkwrap film for pallets is likely to be close tozero. In this respect, environmental innovation should behave more or less likeaesthetic improvements. In terms of the model, this means testing that thecoefficient estimates on PRESENTATION and BOTH when CHOICE=1 are positive andsignificant. A further, useful test is to compare the values of the coefficientestimates of environmental innovation (CHOICE=1) are similar to those of aestheticinnovation (CHOICE=5), which is very likely to be market-pull in nature.environmental innovation, when compared to production cost reduction innovation,should be more concentrated on grocery good industries. In those industries, as itis well known, packs play a strategic role in the purchase decision. In terms ofthe model, this means testing that the coefficient estimates on variablesrepresenting grocery goods industries are positive and significant.This is,

however, a much weaker test than the former, because the role of environmentalissues in determining purchase patterns vary quite a lot across grocery goodmarkets. One feels the need for a deeper investigation in each industry beforeaccepting econometric results as proof of such a hypothesis.

2.

The results do not seem to provide strong support for a consumer-driven theory ofenvironmental innovation in packaging. A glance at table 9 shows that thecoefficient on PRESENTATION packaging is indeed positive, but not statisticallysignificant, whereas the coefficient on the dummy representing packings that serveboth a presentation and a transport purpose (BOTH) is negative (recall that thebase is transport packaging). The parallel we tried to draw with aesthetic

improvements is rejected by the data; when CHOICE=4 the coefficients onPRESENTATION and BOTH are positive, high and significant at the 99% significancelevel. Grocery good industries do not seem to be specializing in environmentalinnovation either. Coefficients on FOOD, BEVERAGES and DETERGENTS are positive asexpected, but the one on DAIRY is unexpectedly negative. None is significant atthe 90% (nor, indeed, at the 80%) level . Again, aesthetic innovation behavesdifferently; all coefficients on grocery goods industries are positive, and allbut DAIRY are significant at the 95% level. Coefficients on other industries arenegative. This regularity seems to point to an important role played by packdesign in determining the purchase decision in supermarkets; obviously the pack'senvironmental friendliness is not as effective in this respect. If demand-pullfactors do not seem to influence environmental innovation any differently thanproduction cost reduction innovation, it is worth it to test for technology-push

effects. In the innovation database, the raw materials variables can beinterpreted as innovation opportunity variables; comparing their coefficients whenCHOICE=1 should give an idea of the extent to which some materials specialize ingreen innovation more than others. With respect to the constant term, whichincorporates paper, cardboard and wood, the coefficient estimates on GLASS, PE andPET are positive; those on ALUMINIUM,


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30 other METALS, PS, COMPOSITES and PVC+OTHER PLastics are negative. None isstatistically significant at the 90% level, although the coefficient on PET, aplastic that has a reputation for being environmentally friendly, is significantat the 85% level. The conclusion is that the environmental innovationopportunities offered by packaging materials do not seem to be radically differentfrom their production cost reduction opportunity. These results do not, bythemselves, allow the researcher to label environmental innovation in packaging asdemand-pull, nor as technology-push. In fact, the whole database only allows to

draw comparisons between innovations along different trajectories, whereasinnovation economics has concentrated mostly on the problem of whether toinnovate. Data do, however, yield some insight into the matter. Nonstatisticalevidence for the demand-pull nature of at least some environmental innovation isquite robust, and nowhere contradicted by data. Nonsignificance of coefficientestimates on industry variables certainly does not, by itself, deny it. Thedetergent industry is an example of an industry where firms anticipateenvironmental regulation in order to compete for market share. The fact that thecoefficient estimate on DETERGENTS is not highly significant in the model shouldnot come as a surprise: in a market where price elasticity of demand is high,innovation that abates production costs also provides innovative firms with aweapon for market share competition. What the model does, then, is simplycomparing two different trajectories along which firms face the same sort of

incentives. The nonsignificance of the coefficient estimate on PRESENTATION cannotdeny that some environmental innovation is demand-pull either; what it does say isthat there is at least some environmental innovation, that done on transportpackaging, that isn't demand-pull. This, together with the significance of thecoefficient estimate on TEMPO, can be interpreted as an indirect proof of theexistence of a regulation effect. On the other hand, it must be kept in mind thatmost environmental innovation, as most packaging innovation in general, is done onpresentation packaging; transport packaging (the "certainly not demand-pull"component) only accounts for 12% of total green innovation. 17. Interpretingresults: the role of firm size and position within the filire

The degree of intra-filire "specialized supplier" cooperation in runninginnovative activities is another variable that is not directly picked up by the

data. On the grounds of rather robust nonstatistical evidence, it is safe to statethat such degree is high. An interesting question, then, is whether thisrelationship holds in environmental innovation as well as in innovation ingeneral. In specialized supplier relationship the innovator is a smaller firm thanher customer, and she is positioned just upstream of the latter in the filire. Ineconometric terms, this means testing for the significance of coefficientestimates on variables representing the position within the filire when CHOICE=1.Unfortunately, we cannot do it with the COUNTRY model, which includes no suchvariables among its regressors. It has proved much more difficult than expected toattach a number of employees to firms in the packaging filire. The ItalianPackaging directory is the only source to report this piece of information for allfirms listed; the number of employees of the UK top 300 firms is also reported, ina separate directory. However, it was not possible, within the time and budget

limits of this paper, to complete French and German records, as well as themajority of British ones. Similar problems, especially in the case of Germanfirms, were met to ascertain the position within the filire of innovative firms.In order to assess the impact of firm size and position within the filirevariables on CHOICE, we have built a different specification


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31 of the model, and fed to it the 384 observations for which both the number ofemployees and the position within the filire is known. Since most of thesedescribe either Italian or British innovations, it is not possible to includedummy explanatory variables for the countries. Table 12 presents the results.TABLE 12 - THE SIZE MODELNumber of obs chi2(96) Prob > chi2 Pseudo R2 Regressor food dairy beverageschemicals detergents services aluminium glass metals PE PS PET compositesPVC+other pl. presentation both innumber nmaterials time emp 100-250 emp > 250

packs machines user constant term Log-likelihood ENVIRONMENT (CHOICE=1) 1,6099781,733797 *1,852976 1,828322 1,52033 **2,890611 1,820642 1,281806 0,4572033**2,580927 0,7494971 1,849628 0,213209 0,6068378 0,868859 -0,7117254 -0,0341353-0,4577608 **0,1305372 0,3348567 -0,2734245 -0,277146 0,7757324 -0,1672445 **-3,413482 -423,53442 384 282,27 0 0.2499

DIST. COSTS US.FRIEND. AESTHETICS (CHOICE=3) -2,247743 -0,5298077 -0,1019609-0,51955181 **-1,620469 -0,1797892 0,4074697 -1,041754 -0,1064408 0,00904340,0003121 -0,1550363 -0,1140569 -0,5703742 -0,5210054 0,2369865 -0,0087868**0,8627923 0,0401625 0,3638188 0,0453242 -0,9251709 -0,957263 -0,4589985 0,132658(CHOICE=4) 0,0999075 -1,859202 -0,5671713 -0,3674815 -0,4611052 0,6017028 1,6195980,129624 0,5322105 0,9999107 1,103055 -0,2274608 -0,1778426 0,7382443 **2,019392**1,939191 -0,032014 0,08258 0,0713587 0,781951 1,027991 -0,6889066 -1,582167

-0,4136654 *-2,287443 Base case (CHOICE=5) 1,089407 1,194231 0,919873 -0,23706261,11425 -0,7675196 -1,826852 0,496791 0,0419431 -0,1352663 0,6220359 -1,597753-0,7624792 -0,6557542 **3,351634 **2,33546 -0,015778 **1,041066 0,07119530,7843987 0,2203095 -1,062358 -1,107866 -0,9300377 **-4,11333 CHOICE=2

Regressors are now divided into five groups. The first one, from FOOD to SERVICES,refers to the industries using innovative packs; the second one, from ALUMINIUM toPVC + OTHER PL. to the materials used; the third one, composed of PRESENTATION andBOTH, to the function performed; the fourth one, composed of EMP 100-250 and EMP >250, to the number of employees; the fifth one, from PACKS to USER, refer to theposition of the innovator within the filire, as defined in chapter 1. As withCOUNTRY, all these variables are dummies; NMATERIALS, the number of materialsused, and INNUMBER, the number of innovation done by the same firm (at the group

level) as the innovative firm, are continuous variables.


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32 Table 13 summarizes the meaning of setting all dummies of the same groups tozero, i.e. which industries, materials, function, firm size and position withinthe filire are incorporated within the constant term.

TABLE 13 - COMPOSITION OF THE CONSTANT TERM IN SIZE Industry in which the pack isused Agriculture, clothes and textile, petrochemical, pharmaceutical, hardware,mechanics, automobiles, miscellaneous Paper and cardboard, wood Transport 1-100Raw materials, services

Materials Functions Number of employees Position within the filire

Two separate sets of tests were run on the parameters characterizing SIZE. Thefirst one concerns the joint significance of all parameters for each value ofCHOICE. In particular, four F-tests were run on the null hypothesis thati

=

1

i = 2,3,4,5

Where i is the vector of all parameters attached to variables when CHOICE=i .Their results are summarized in Table 14. TABLE 14 - SIZE: JOINT SIGNIFICANCE OFPARAMETERS DIFFERENCE FROM ENVIRONMENTAL INNOVATION (CHOICE=1) OFINNOVATION OF OTHER KINDS

= 2 = 3 = 4 =5

1 1 1 1

OK KO** OK KO*

What Table 14 is saying is that environmental innovation cannot be distinguishedfrom "cost reduction and miscellaneous" innovation (CHOICE=5, row 1) and "userfriendliness" innovation (CHOICE=3, row 3) on the basis of the explanatoryvariables included in the model. On the other hand, innovation of the "distributorfriendliness" kind (CHOICE=2, row 2) and of the "aesthetics" kind (CHOICE=4, row4) are both significantly different from environmental innovation. The second setof tests concern the joint significance of groups of parameters across alldifferent values of CHOICE. The null hypothesis is that, for each group j ofparameters


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331 j

=

2 j

=

3 j

=

4 j

=

5 j

=0

Table 15 summarizes the results. TABLE 15 - SIZE: TESTING FOR ZERO VALUE OF GROUPSOF PARAMETERS ACROSS VALUES OF CHOICE Industry in which the pack is used MaterialsFunctions Number of employees Position within the filire NMATERIALS INNUMBER TIMEOK KO * KO ** OK OK KO ** OK OK

A glance at table 12 shows that none of the coefficient estimates on firm size(EMP 100-250 for firms with 100 to 250 employees and EMP > 250 for firms with morethan 250 employees) or position within the filire (PACKS for sector 2, MACHINESfor sectors 4 and 5, USER for packaging users) is significant. Table 15 confirmsthat this is true across all values of CHOICE, and not only for environmentalinnovation. These results, combined with the nonquantitative evidence presentedabove, allow to draw quite strong a conclusion; the packaging filire tackles andsolves all innovation problems in the same way. The specialized supplier approach

to innovation, as explained in chapter 2, is to build long-term alliances ofpackaging users and packaging manufacturers, where the latter solve technicalproblems chosen by the former. Interviews suggest that, as environmental concernsbecame more important, the very same user-supplier teams that had successfullyinnovated along other technological trajectories applied their expertise to thenew problem. Data are fully compatible with the existence of a specializedsupplier relationship: well above 50% of both environmental and non-environmentalinnovation is done by firms with less than 500 employees; about 15% by firms withless than 100. Figure 5 reports the distribution by class of employees of theinnovator referred to environmental and non-environmental innovations.


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34

FIGURE

5 - NON-ENVIRONMENTAL AND ENVIRONMENTAL INNOVATIONS BY NUMBER OF EMPLOYEES OF THEINNOVATIVE FIRM.

50,00 45,00 40,00 35,00 30,00 25,00 20,00 15,00 10,00 5,00 0,00 1-25 26-100 101-

500 > 500 ENV NON-ENV

A reasonable interpretation for the coefficient estimates and figure 5 is that theeconomies of scale in innovative activities are very similar in environmentalinnovation and non-environmental innovations, and that they are not so strong asto prevent small firms to do some innovation. 18. Interpreting results: packaginginnovation as a superproduct quest

The results discussed so far suggest that the profiles of the typicalenvironmental and non-environmental innovators coincide. Variables representingthe industry using innovations, materials used, innovator size, innovator positionwithin the packaging filire do not seem to make any significant contribution toexplaining the innovator's decision to do an environmental innovation rather than

an innovation of another kind. The issue of whether R&D competition in thepackaging filire resembles more a quest for specialization or one for asuperproduct, however, has not been addressed. Tables 16 and 17 present a list ofthe most innovative firms, respectively in nonenvironmental and in environmentalinnovation. They show that some leading firms in innovation in general also leadin environmental innovation.


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35

TABLE 16 - NON-ENVIRONMENTALLY MOST INNOVATIVE FIRMS BYNUMBER OF ENVIRONMENTAL INNOVATIONS, 1978-1992 Top non-env innovators CarnaudMetalbox SOCAR Saint-Gobain Reed Corrugated 4P CEBAL Rochette Europa CartonZewawell Beghin-Say BSN Imprimerie Rey Gustav Stabernack Lembacel AND NON-ENVIRONMENTAL

Env 3 0 2 0 3 1 2 3 0 0 4 0 0 0

Non-Env 47 45 33 26 18 18 17 12 12 12 11 10 10 10

TABLE 17 - ENVIRONMENTALLY MOST INNOVATIVE FIRMS BYNUMBER OF ENVIRONMENTAL INNOVATIONS, 1978-1992 Top env innovators BSN UnileverCarnaud Metalbox 4P Europa Carton Saint-Gobain Rochette Carl Edelmann SCACartotecnica Poligrafica Bianchi G

12286 the microeconomics of environmental innovation in the packaging industry 1994

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