Environmental regulation and innovation in high-pollution industries: A case study in a Brazilian refinery

This article discusses the influence of environmental regulation on the adoption of new production techniques by a Brazilian petroleum refinery (Replan). Two kinds of techniques adopted in order to comply with environmental regulation are described: techniques to control local environmental impacts (water, air and soil contamination) and techniques to produce less-polluting diesel. The article uses secondary data and primary data collected in Replan and in the Petrobras R&D Center. The research covers the period between 1999 and 2003, when strict environmental regulation forced Brazilian refineries to update their production processes. Thus, the analysis of this article is focused on how Replan had reacted to the tightening of regulation. From the standpoint of evolutionary economics, the environmental regulation is considered a contextual determinant of the adoption of environmental technology. It is concluded that in the case of Replan, environmental regulation brought about the need of huge investments to adapt processes and products to new standards. The case also demonstrates the usefulness of environmental regulation as a policy tool for inducing highly polluting industries to adopt technologies that can mitigate environmental impacts and also promote technological learning in new environmental technologies.