R E V I EW A R T I C L E The impact of environmental policy on renewable energy innovation: A systematic literature review and research directions Hiva Rastegar1 | Gabriel Eweje2 | Aymen Sajjad1 1School of Management, Massey Business School, Massey University, Auckland, New Zealand 2School of Business and Law, Edith Cowan University, Joondalup, WA, Australia Correspondence Hiva Rastegar, School of Management, Massey Business School, Massey University, QA 3.23, School of Management, Massey University, Auckland 0745, New Zealand. Email: h.r.m.moadab@massey.ac.nz Abstract Renewable energy innovations are imperative to tackle the climate change crisis. However, there is a gap in the literature regarding the effectiveness of environmental policies in promoting renewable energy innovations. To bridge this gap, we have adopted a systematic literature review process covering the period from 2005 to 2023. We identified and analysed 29 articles in our final sample. Further, we employ two levels of analysis (individual-policy and policy-mix levels) for analysing the extant research. Our findings show that fiscal incentives and emissions trading policies such as the European Union (EU) Emissions Trading System (ETS) consistently promote renewable energy innovations. In contrast, the effectiveness of feed-in tariffs and quotas in supporting renewable energy innovations varies, reflecting diverse impacts across distinct regions and renewable energy technologies. Our analysis also suggests that combinations of various policy types can enhance innovation more effectively than individual policies. We contribute to the extant literature by developing a classi- ficatory analysis of the effect of environmental policies on renewable energy innova- tions. Our review also provides research directions for future scholarship. K E YWORD S environmental policy, individual-policy level, policy-mix level, renewable energy innovation 1 | INTRODUCTION The on-going global carbon crisis, coupled with the dwindling avail- ability of traditional energy sources in recent years, underscores the pressing need for energy innovation, particularly in the realm of renewable energy (RE). In 2015, the United Nations introduced a set of 17 Sustainable Development Goals (SDGs), two of which, namely SDGs 7 and 13, are dedicated to the development of alternative energy sources, with a specific focus on RE, to combat the climate change crisis. Additionally, the Paris Agreement aims to restrict the global temperature increase to no more than 1.5�C above the pre- industrial level, underscoring the critical role of green innovation, especially in the field of RE (Glowik et al., 2022). Consequently, transi- tioning towards a low-carbon economy through RE innovation has become imperative not only for the attainment of the SDGs but also for the realisation of the objectives outlined in the Paris Agreement (Hille et al., 2020). While the significance of RE technology in addres- sing climate change is evident, in the real-world context its adoption Informative: This review paper focuses on the relationship between environmental policies and renewable energy (RE) innovation using a systematic literature review (SLR) to examine how environmental policies affect RE innovation. Received: 8 July 2023 Revised: 7 December 2023 Accepted: 25 December 2023 DOI: 10.1002/sd.2884 This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made. © 2024 The Authors. Sustainable Development published by ERP Environment and John Wiley & Sons Ltd. Sustainable Development. 2024;1–18. wileyonlinelibrary.com/journal/sd 1 https://orcid.org/0000-0001-8982-2294 https://orcid.org/0000-0003-4210-2489 https://orcid.org/0000-0002-2768-8277 mailto:h.r.m.moadab@massey.ac.nz http://creativecommons.org/licenses/by-nc-nd/4.0/ http://wileyonlinelibrary.com/journal/sd http://crossmark.crossref.org/dialog/?doi=10.1002%2Fsd.2884&domain=pdf&date_stamp=2024-01-03 is still limited (Monasterolo, 2020). This disparity underscores the urgent need for innovation, particularly to counter critical challenges such as high production costs and an unreliable electricity supply (Sharma et al., 2021; Zhang, Zheng, et al., 2022), which continue to hinder renewable energy consumption. These circumstances empha- sise the pressing necessity for further research on the factors influencing RE innovation. Market supply has long been recognised as a primary driver of innovation (Wang et al., 2019). However, relying solely on the market presents inherent risks of market failure, making it inadequate to ensure the continued development of innovation. Thus, the involve- ment of non-market factors becomes essential to support and catal- yse innovation (Wang et al., 2019), with a particular emphasis on the pivotal role of government in mobilising investments and implement- ing concrete policy interventions (Wang et al., 2019). Environmental policies are designed with the primary objective of redirecting resources from polluting energy sources towards cleaner alternatives (Clancy & Moschini, 2018). However, whether these poli- cies effectively stimulate RE innovation remains inconclusive and a subject of ongoing debate (Godawska & Wyrobek, 2021; Kilinc- Ata, 2016). In particular, the empirical studies examining the effects of environmental policies have demonstrated a wide range of contradic- tory findings. Some scholars believe that environmental policies play a signifi- cant positive role in spurring RE innovation (Bersalli et al., 2020; Kilinc-Ata, 2016). Porter and van der Linde (1995) argued that envi- ronmental policies can actively promote the adoption of green innova- tion, including RE innovations. Importantly, the benefits stemming from innovation are expected to offset the compliance costs (Cai & Ye, 2022; Zhang, Zheng, et al., 2022). Nonetheless, the continuous rise in climate change-related deterio- ration in recent years poses serious concerns about the efficacy of pol- icy intervention in fostering the transition towards RE innovation (Nesta et al., 2014). In essence, environmental policies may affect firms' innovative behaviours in various ways. Notably, RE technology necessi- tates substantial upfront investments, which can act as a disincentive for firms. In addition to these costs, the mandatory and often high com- pliance costs associated with stringent environmental policies further strain the resources of firms, limiting their ability to invest in innovative practices (Nicolli & Vona, 2016; Zhang, Zheng, et al., 2022). Moreover, companies subjected to rigorous policies may opt to relocate their investments to different places (Nesta et al., 2014). Given the mixed findings regarding the effectiveness of environ- mental policies in supporting RE innovation, the purpose of this review is to investigate how environmental policies influence RE inno- vation. Specifically, this review aims to identify research gaps and introduce fresh perspectives to the field by consolidating the latest research findings. The ultimate goal is to provide an in-depth under- standing of the current state of knowledge, identify areas requiring further investigation, and offer insights into the policy and innovation landscape surrounding renewable energy. Hence, this review addresses the following research question: How do environmental poli- cies influence RE innovation? To structure our review effectively, we have classified the 29 selected articles based on policy type, encompassing six categories: RE targets, feed-in tariffs, quotas, fiscal incentives, emissions trading, and carbon pricing. This classification is developed through a rigorous analysis of the selected articles, which enables the identification of diverse policy interventions in the context of RE innovation. Drawing upon these insights, we have identified knowledge gaps within the existing literature and proposed directions for future schol- arship. This critical assessment contributes to a more nuanced under- standing of the interplay between environmental policies and RE innovation. Thus, this review constitutes a valuable three-fold contri- bution to the existing literature. First, it represents one of the early works in the exploration of the inducement effect of environmental policy on RE innovation. Previous studies have offered various classi- fications for environmental policies (Hille et al., 2020; Hille & Oelker, 2023; Nicolli & Vona, 2016; Zhang, Zheng, et al., 2022) without arriving at a consensus. In this review, we analyse the extant literature on environmental policies and introduce a comprehensive six-category framework for categorising environmental policy types. This framework serves as an organising principle for the literature. Furthermore, we provide a two-tiered analysis, encompassing individual-policy and policy-mix levels, to synthesise research con- ducted over the past 17 years on the influence of environmental pol- icy on RE innovation. This analytical approach contributes to a more nuanced understanding of the impacts of diverse policy interventions. Second, building on the identified gaps in our two-level analysis, we suggest directions for future research. We propose nine specific areas that warrant further investigation, thereby enriching the scope of future scholarship in this domain. Lastly, this review holds potential significance for policymakers as it enables them to evaluate the effectiveness of different environmen- tal policies. By drawing upon the findings of this review, policymakers can make informed decisions to enact more efficacious policies that promote and nurture RE innovation, aligning with broader environ- mental sustainability goals. The remainder of the article is organised into four distinct sec- tions. Section 2 introduces and elaborates on the concepts of RE inno- vation and environmental policies. In Section 3, we delve into the methodological procedures, encompassing the planning of the review, the actual review process, and the subsequent reporting and dissemi- nation of our findings. Section 4 is dedicated to the presentation and discussion of the primary findings arising from the review. Finally, the article concludes with a section that summarises our key conclusions, highlights avenues for future research, and acknowledges the research limitations. 2 | RE INNOVATION The escalating concentration of carbon dioxide (CO2) in the atmo- sphere, primarily driven by fossil fuel combustion, and its consequen- tial impacts on climate change have underscored the imperative need to transition towards cleaner energy sources (Bointner, 2014; 2 RASTEGAR ET AL. 10991719, 0, D ow nloaded from https://onlinelibrary.w iley.com /doi/10.1002/sd.2884 by M inistry O f H ealth, W iley O nline L ibrary on [23/06/2024]. See the T erm s and C onditions (https://onlinelibrary.w iley.com /term s-and-conditions) on W iley O nline L ibrary for rules of use; O A articles are governed by the applicable C reative C om m ons L icense Ramzan et al., 2023; Raybould et al., 2020; Xing et al., 2023). In response to these challenges, the concept of a low-carbon economy is gaining momentum, focusing on the utilisation of environmentally friendly energy sources, collectively referred to as RE, in both produc- tion and consumption processes (Antonioli et al., 2022; Hasanov et al., 2021; Yi, 2014). RE is defined as “energy obtained from naturally repetitive and persistent flows of energy occurring in the local environment” (Twidell & Weir, 2015, p.3). This technology is acknowledged for its minimal carbon emissions and has demonstrated increased cost com- petitiveness in recent years (Raybould et al., 2020). Further, in their pursuit of transitioning towards RE sources, firms exhibit varying stra- tegic responses, with some adopting proactive approaches through engagement in RE innovation (Vieira et al., 2022). Innovation serves as a pivotal driver for attaining competitive advantages and fuelling economic growth (Lee & Min, 2015; Wang et al., 2019). RE innova- tion, specifically, is defined as “processes by which new energy tech- nologies are invented and technically improved for commercial use” (Bayer et al., 2013, p.289). The significance of RE innovation is under- lined by its capacity to address the climate crisis through the conser- vation of production factors, the reduction of pollution and emissions, and the promotion of clean energy technology development (Zhang, Zheng, et al., 2022). RE innovation significantly affects the supply side of the energy market by transforming how energy is produced and distributed. Emerging RE technologies lead to changes in industry practices and business models, addressing the evolving energy needs and environ- mental concerns (Birkinshaw, 2023). Climatic changes, such as varia- tions in temperature and water availability, necessitate RE technologies as a sustainable alternative, thereby affecting electricity supply systems and their operations (Steinberg et al., 2020). Simultaneously, RE innovations are also reshaping the demand side. Technological advancements, such as efficient home solar sys- tems, are shifting consumer preferences towards sustainable energy solutions, thereby creating a burgeoning market demand for RE tech- nologies (Creutzig et al., 2018). Moreover, regional factors, including environmental regulations and societal attitudes towards green energy, are significantly influencing the diffusion and adoption of RE innovations (Horbach & Rammer, 2018). These developments on both supply and demand sides indicate the multifaceted nature of RE innovation. On the supply side, it drives changes in production technologies and energy distribution methods. On the demand side, it shapes consumer preferences and energy use patterns, which are further influenced by policy frameworks and soci- etal values. This dual impact of RE innovation plays a crucial role in transitioning towards a more sustainable energy future, demonstrating the interconnected nature of technology, market dynamics, and envi- ronmental policies. Nonetheless, RE innovation have inherent limitations. In compari- son to fossil fuels, it may appear less attractive due to the substantial upfront investments required, the inherent uncertainty associated with the technology, a high level of regulatory dependence, and the relatively low liquidity of assets (Wang et al., 2019). Considering these factors, the transition to RE may appear logical from an environmental perspective, but it may face economic and financial challenges due to the availability of low-cost fossil fuels (van den Bergh, 2013). Furthermore, the trajectory of RE innovation is influenced by two opposing forces: the pressing need to combat climate change through the development of clean energy generation and the prevalence of low-cost fossil fuel energy sources, which can impede the expansion of RE production and usage (Ahmed et al., 2021; Lin & Zhu, 2019). Consequently, the advancement of RE innovation necessitates moti- vations beyond market dynamics, notably through the implementation of environmental policies (Fernández Fernández et al., 2018). Innovation and the adoption of new technology inherently involve elements of uncertainty, making policies that can mitigate this uncertainty essential for fostering innovation (Nicolli & Vona, 2016). While both RE innovation and environmental policies represent paral- lel strategies aimed at achieving a low-carbon economy (Fischlein et al., 2014), it is important to recognise that they can exert mutual influences on each other. Consequently, this article centres on the role of government involvement, in the form of environmental poli- cies, as either an impetus or a deterrent for RE innovation. 3 | ENVIRONMENTAL POLICIES Policymakers have implemented a wide range of policies aimed at facilitating the transition towards a low-carbon economy. Government intervention in fostering RE innovation can yield benefits in three dis- tinct ways. First, policies such as quotas and demand subsidies have the potential to expand the market for RE, consequently increasing the expected return from RE investments, which, in turn, serves as an incentive for innovation. Second, RE innovation is characterised by a significant degree of uncertainty. Policies that help mitigate this uncertainty, such as Research and Development (R&D) subsidies, play a pivotal role in enabling and supporting innovation within the RE sec- tor. Thirdly, based on theoretical underpinnings, the advancement of RE technology can be viewed as a response to two distinct types of market failure: environmental externalities and knowledge external- ities. Accordingly, any specific policy addressing each of these failures, such as a tradable permit scheme and R&D subsidies, needs to be considered in the policy portfolio (Nicolli & Vona, 2016). Various classifications of environmental policies exist. According to Zhang et al. (Zhang, Zheng, et al., 2022), environmental policies can be categorised into two groups based on common regulatory approaches: market-based and nonmarket-based (i.e., command-and- control). The market-based group encompasses policies such as taxes, trading schemes, and feed-in tariffs, while the nonmarket-based group includes measures such as emission limits, R&D subsidies for RE pro- grammes, and voluntary instruments (Zhang, Zheng, et al., 2022). In another study, Hille and Oelker (2023) expanded upon the clas- sification introduced by Zhang, Zheng, et al. (2022). This extended classification encompasses four primary groups of environmental poli- cies. These groups include command-and-control policies, which involve regulatory measures such as laws and renewable portfolio RASTEGAR ET AL. 3 10991719, 0, D ow nloaded from https://onlinelibrary.w iley.com /doi/10.1002/sd.2884 by M inistry O f H ealth, W iley O nline L ibrary on [23/06/2024]. See the T erm s and C onditions (https://onlinelibrary.w iley.com /term s-and-conditions) on W iley O nline L ibrary for rules of use; O A articles are governed by the applicable C reative C om m ons L icense standards, market-based instruments, such as feed-in tariffs and car- bon taxes, hybrid instruments combining elements of both market- based and command-and-control policies, as seen in RE quotas with certificate trading, and voluntary instruments exemplified by initia- tives such as RE targets (Hille & Oelker, 2023). Additionally, Hille et al. (2020) investigated the innovation effect induced by regulations within the solar and wind power industry. They identified a total of 11 policy instruments, which they further cate- gorised into six clusters: (1) targets, which encompass renewable energy targets and strategies; (2) R&D support, comprising research, development, and deployment programmes; (3) quotas, represented by RE quotas with certificate trading and RE quotas without certifi- cate trading; (4) feed-in tariffs, which encompass fixed-rate or pre- mium feed-in tariffs, net metering, and public competitive bidding; (5) fiscal incentives, which involve tax credits, tax reduction, public spending, capital subsidies, and low-cost loans; and (6) carbon trading, which includes greenhouse gas certificate trading systems (Hille et al., 2020). In a similar vein, Nicolli and Vona (2016) have put forth an alter- native classification system encompassing seven distinct types of environmental policies. These classifications include government R&D expenditures on RE technology, feed-in tariffs, investment incentives, tax measures, voluntary programmes initiated by various stakeholders at the national level, obligations imposed on suppliers to source from renewables, and RE certificates with quotas. The categorisations shown in the literature highlight the impor- tance of developing an inclusive classification that encompasses all types of environmental policies. This review endeavours to synthesise existing research on the influence of environmental policy on RE inno- vation. In this pursuit, establishing an inclusive classification that encompasses key environmental policies scrutinised in the literature forms the basis of our approach. To ensure that all policy types are duly considered, we have extracted the policy classifications from our refined sample, as described earlier. Further, drawing upon the com- monalities observed in various policy classifications, we have formu- lated a comprehensive classification of environmental policies based on the predominant policy types. Building on the literature discussed ear- lier, our classification encompasses six categories: RE targets, feed-in tariffs, quotas, fiscal incentives, emissions trading, and carbon pricing. RE targets encompass the establishment of specific targets and strategies related to RE technology. These publicly announced strate- gies signal a political commitment to the growth of RE and are generally viewed as a positive step in this direction (Hille & Oelker, 2023). A feed-in tariff policy is designed to promote RE generation by obligating the government to guarantee above-market prices to RE producers over a predefined period. This, in turn, helps to mitigate the uncertainty associated with future electricity prices (Hille & Oelker, 2023; Nicolli & Vona, 2016). Feed-in tariffs can include both classic fixed-rate and pre- mium tariffs and may incorporate advanced mechanisms such as net metering and tendering (Hille & Oelker, 2023). Quotas, also known as Renewable Portfolio Standards (RPS), rep- resent a quantity-based policy instrument that mandates electricity retailers to provide a fixed or increasing portion of their electricity demand from renewable sources (Hille & Oelker, 2023; Kilinc-Ata, 2016). Quotas encompass RE quotas with or without cer- tificate trading, and they can have implications for R&D activities, con- sequently affecting innovators (Clancy & Moschini, 2018). Fiscal incentives, as another category of policies, take the form of investment-based instruments. These incentives are primarily crafted by governments to alleviate the capital costs associated with the adoption of RE technology (Nicolli & Vona, 2016). Examples of such incentives include government grants, subsidies, investment tax credits, and payments for energy production (Hille & Oelker, 2023). Emissions trading represents another category of environmental policy, encompassing a range of schemes that can be either quantity- based or include price ceiling programmes (Yao et al., 2021). Notable examples of these schemes include the Carbon Trading Policy (CTP) in China, the Cap-and-trade programme in Quebec province, Canada, and the European Union's Emissions Trading System (EU ETS) (Calel & Dechezleprêtre, 2016). The final type of environmental policy is carbon pricing, which involves increasing the price of fossil fuels to discourage their produc- tion (Bubna-Litic & Stoianoff, 2014). This strategy aims to promote the decarbonisation of the economy. According to Bubna-Litic and Stoianoff (2014), carbon pricing can influence low-carbon innovative practices in three key ways. First, it can impose substantial costs on carbon-intensive companies, motivating them to transition towards low-carbon technologies in order to avoid the high carbon taxes. However, it is important to note that for carbon pricing to act as an incentive for RE innovation, it must reach a certain threshold. Second, carbon pricing can encourage government support and incentives for the private sector to invest in new technologies. Third, it can system- atically constrain less environmentally conscious companies, poten- tially leading to their failure, and providing an opportunity for innovative companies to assume their market share (Bubna-Litic & Stoianoff, 2014). 4 | METHODOLOGY This article employs a systematic literature review (SLR) methodology to examine the impact of environmental policy on RE innovation. The selection of an SLR methodology is grounded in its capacity to enhance transparency in data collection, as well as ensure increased objectivity and the reproducibility of findings. This approach is distinct from traditional review methods (Kraus et al., 2020). In selecting the SLR methodology, we recognise that as a review article, our objective is to provide a structured and inclusive overview of the current state of knowledge regarding the impact of environ- mental policies on RE innovation. The SLR approach offers the struc- tured pathway required to sift through and analyse the relevant studies within this specific research field (Hassan et al., 2022). This is particularly advantageous for a review of this nature. In addition to this advantage, the SLR methodology has gained popularity in the management literature domain (Hassan et al., 2022; Kraus et al., 2020). 4 RASTEGAR ET AL. 10991719, 0, D ow nloaded from https://onlinelibrary.w iley.com /doi/10.1002/sd.2884 by M inistry O f H ealth, W iley O nline L ibrary on [23/06/2024]. See the T erm s and C onditions (https://onlinelibrary.w iley.com /term s-and-conditions) on W iley O nline L ibrary for rules of use; O A articles are governed by the applicable C reative C om m ons L icense In this context, a well-defined protocol has been established, adhering to standard SLR procedures prevalent in management research (Hassan et al., 2022; Thomé et al., 2016). This protocol begins with the formulation of a research question, serving as the guiding force for thematic searches, initial screening, and the estab- lishment of inclusion/exclusion criteria for article selection (Obregon et al., 2022). The entire process of article selection is illustrated in Figure 1. Consistent with the SLR approach and with an emphasis on upholding objectivity and the ability to reproduce the review, this arti- cle follows a three-stage model introduced by Tranfield et al. (2003). These three stages encompass planning the review, conducting the review, and reporting and dissemination. 4.1 | Planning the review During this initial stage, we first assessed the necessity of conducting an SLR in light of our research question. To ascertain this, we ran a search on the Scopus database using search strings that encompassed the themes of environmental policy, RE innovation, and literature review, as depicted in Figure 1. This search yielded four articles. The first article by He et al. (2021) is centred on the development of an integrated energy-cost model with the aim of identifying sus- tainable retrofit measures for existing high-rise residential buildings in various climatic zones. The second article by Mignon and Kanda (2018) represents an empirical examination of the potential differ- ences and similarities among intermediaries regarding policies designed to facilitate the sustainable transition. The third article by Kelly-Richards et al. (2017) delves into the literature concerning small hydropower as a climate mitigation strategy. The final article by Jardot et al. (2010) focuses on the examination of the effects of economies of scale and experience on the costs of energy-efficient electric motors in Germany. Notably, none of the aforementioned articles addressed the role of environmental policies in shaping RE technology. This highlights the absence of systematic analysis in the existing literature regarding the relationship between environmental policy and RE innovation, thus underscoring the originality of this review. Consequently, we assert that this article stands as one of the pio- neering works to offer a comprehensive literature review on the sub- ject of environmental policy and its impact on RE innovation. In the subsequent phase, to aggregate the most pertinent articles, we conducted a pilot search on Scopus using the terms “Environmen- tal policy” and “Renewable energy innovation”. We meticulously ana- lysed the initial 50 articles to identify any additional keywords or terms that function similarly to the two core terms. This process was instrumental in guaranteeing that we did not overlook any relevant articles during the review. Subsequently, we refined and expanded our initial list of keywords for the search. ssecorp RLS Planning the review Ini�al search Search string: TITLE-ABS- KEY (( "environme ntal policy" OR "climat e policy") AND ("re newable energy technology" OR "r enewable energy innova�on") AND ( "literature review" OR "syste ma�c literature review" OR "syste ma�c literature")) Database: Scopus (4) Search themes Search string: (“environmental policy” OR “green policy” OR “climate policy” OR “green regula�on” OR “environmental regula�on” OR “climate regula�on”) AND (“renewable energy technology” OR “clean energy technology” OR “eco renewable innova�on” OR “eco renewable technology” OR “clean energy innova�on” OR “renewable energy innova�on” OR “green renewable innova�on” OR “low-carbon innova�on”) Date range: 2005-2023 Databases: Scopus (229) Web of Science (188) Pilot search Search string: TITLE-ABS- KEY (( "environmen tal policy" OR "climate policy") AND ("ren ewable energy technology" OR "re newable energy innova�on") ) Database: Scopus (50) Conduc�ng the review Inclusion/Exclusion criteria - Ar�cles published in peer-reviewed journals - Ar�cles published in English Research domain: Scopus: Environmental Science, Energy, Business, Management and Accoun�ng, Social sciences, and Economics, Econometrics, and Finance. WoS: Science technology, Social sciences, and Technology. Databases: Scopus (131) Web of Science (176) Total- Non-duplicate (231) Repor�ng and dissemina�on Screening criteria -Ar�cles that did not provide firm-level analysis of the rela�onship between environmental policies and RE innova�on -Ar�cles that had no relevance to the rela�onship we are inves�ga�ng -Ar�cles that addressed the effect of environmental policies on a firm’s overall performance or financial performance but not specifically on the firm’s RE innova�on Abstract screening Excluded a�er reading the abstracts and keywords (133) Full-text screening Excluded a�er reading the full text (70) Cita�on analysis Added a�er reading the full text (1) Final ar�cle pool Ar�cles used in this review (29) Ar�cle descrip�ves including year of publica�ons, journal of publica�on, research method F IGURE 1 SLR process. RASTEGAR ET AL. 5 10991719, 0, D ow nloaded from https://onlinelibrary.w iley.com /doi/10.1002/sd.2884 by M inistry O f H ealth, W iley O nline L ibrary on [23/06/2024]. See the T erm s and C onditions (https://onlinelibrary.w iley.com /term s-and-conditions) on W iley O nline L ibrary for rules of use; O A articles are governed by the applicable C reative C om m ons L icense 4.2 | Conducting the review In this phase, we initiated our search across the Scopus and Web of Science (WoS) databases employing the updated list of keywords. We selected these two article databases due to their extensive coverage of journals, making them particularly suitable for SLRs, especially in the domain of management research (Farooque et al., 2019; Hassan et al., 2022; Obregon et al., 2022). The search strings tailored for both Scopus and WoS, along with the search results, are illustrated in Figure 1. The timeframe for our search was defined from 2005 to 2023, as this period corresponds to the increased scholarly focus on climate change in the last two decades. At the global level, climate change policies became operational with the commencement of the Kyoto Protocol. The Kyoto Protocol, which took effect in 2005, is the most comprehensive international agreement addressing climate change to date (Kumazawa & Callaghan, 2012). Therefore, we antici- pate that the timeframe covered in this review encompasses relevant literature on the impact of environmental policies on RE innovation. In total, we retrieved 417 articles, with 229 sourced from Scopus and 188 from the WoS database. Next, we implemented a series of filters to maintain the quality of content and the relevance of articles. Our search was refined based on the type of document, specifically focusing on “articles” published in peer-reviewed journals. Additionally, we limited the language of the articles to “English” exclusively. To ensure the relevance of the arti- cles to the management field, we narrowed down the research domain to include Environmental Science, Energy, Business, Manage- ment and Accounting, Social Sciences, Economics, Econometrics, and Finance in Scopus, and Science Technology, Social Sciences, and Technology in WoS. This search was carried out on the databases on 12th and 13th February 2023. Through the combination of results from both databases and after removing 38 duplicate articles, we curated a collection of 231 articles. Each of the chosen articles underwent a comprehensive evalu- ation, and the decision to include or exclude them was based on a thorough examination of their abstracts. We excluded studies that (a) did not present a firm-level analysis of the connection between environmental policies and RE innovation, (b) lacked relevance to the specific relationship under investigation, and (c) focused on the impact of environmental policies on a firm's overall performance or financial performance, rather than on the firm's RE innovation. Fol- lowing this scrutiny, it was determined that 133 articles did not meet our inclusion criteria and were thus excluded from the review. Subsequently, we proceeded to assess the full text of the remain- ing articles to determine their eligibility. This full-text screening resulted in a further reduction of relevant articles, leaving us with a total of 28. To ensure that no relevant literature had been inadver- tently omitted, we conducted a manual examination of the reference lists of these 28 articles, as well as studies that had cited them. This meticulous process led us to manually include one additional paper in our dataset, ultimately resulting in a refined sample of 29 articles for our SLR. 4.3 | Reporting and dissemination Our analysis of the refined sample commenced with a comprehensive review of the characteristics and complete content of the selected articles. To provide an overview of the existing literature, we compiled information concerning the year of publication, journal source, research methodology, the country or countries included in the sam- ple, the industry or sector studied, and the types of environmental policies being investigated. This data is presented in Table 1. Figure 2 demonstrates the distribution of articles based on the year of publication. The publication trend reveals that scholarly inter- est in this topic has grown over the years. Nearly 80% of the research in this field has been conducted in the past 7 years, with a noteworthy surge in 2022 (6 articles). While the review's timeframe was initiated in 2005, the distribution indicates a gradual increase in scholarly inter- est in recent years, especially after 2016. This heightened interest in publication may be linked to the international call for action against grand challenges, as embodied in the UN's SDGs adopted by all UN Member States in 2015. It is important to note a significant decline in the number of publi- cations in 2023 (1 article). However, since the article search for this review was conducted in February 2023, the publication data for the full year of 2023 was not available. Therefore, any interpretation of the 2023 data should be approached with caution. The distribution of publications by their respective journals is depicted in Figure 3. The sample encompasses articles from a diverse array of journals (22 in total). Within the 29 articles, the “Energy Pol- icy” journal stands out, featuring the highest number of articles on this topic, with a total of four articles. Additionally, “Energy Economics”, “Journal of Cleaner Production”, “Journal of Environmental Manage- ment”, and “Technological Forecasting and Social Change” each pub- lished two articles. The remaining journals contributed one article each. In terms of research methods, the majority of studies employed quantitative analysis. Out of the 29 articles, 25 utilised quantitative methods, three opted for qualitative approaches, and only one article employed a mixed-method research design. 5 | FINDINGS In this section, we present an analysis of selected articles to compre- hend the relationship between environmental policies and RE innova- tion. Through a synthesis of the literature, we categorised the impact into two levels: (i) individual-policy and (ii) policy-mix. The individual- policy level encompasses studies that assess the effectiveness of one or multiple environmental policies independently, without considering the simultaneous presence of other environmental policies in a given context. Furthermore, we extended our analysis to encompass environ- mental policies at the aggregate level by considering policy mixes. This is grounded in the recognition that policies do not operate in isolation; rather, they often interact with other policies, which can influence 6 RASTEGAR ET AL. 10991719, 0, D ow nloaded from https://onlinelibrary.w iley.com /doi/10.1002/sd.2884 by M inistry O f H ealth, W iley O nline L ibrary on [23/06/2024]. See the T erm s and C onditions (https://onlinelibrary.w iley.com /term s-and-conditions) on W iley O nline L ibrary for rules of use; O A articles are governed by the applicable C reative C om m ons L icense T A B L E 1 K ey fe at ur es o f st ud ie s se le ct ed fo r re vi ew . A ut ho r( s) Jo ur na l C o un tr y/ co un tr ie s In du st ry /s ec to r R es ea rc h m et ho d P o lic y ty p e R E ta rg et s F ee d -i n ta ri ff s Q u o ta s F is ca l in ce n ti ve s E m is si o n tr ad in g C ar b o n p ri ci n g H ill e an d O el ke r ( 2 0 2 3 ) E co lo gi ca l E co no m ic s 1 8 9 co un tr ie s So la r an d w in d Q ua nt it at iv e * * * * Lu ce na -G ir al do et al . ( 2 0 2 2 ) Jo ur na lo f C le an er P ro du ct io n 1 1 E ur o pe an co u nt ri es In du st ri al se ct o r (in cl ud in g m in in g, qu ar ry in g, an d co ns tr uc ti o n) Q ua nt it at iv e * Z ha ng ,Z he ng ,e t al . ( 2 0 2 2 ) R en ew ab le E ne rg y A us tr al ia ,A us tr ia ,B el gi um ,C an ad a, C ze ch R ep ub lic ,D en m ar k, F in la nd ,F ra nc e, G er m an y, G re ec e, H un ga ry ,I re la nd ,I ta ly , K o re a (S o ut h ), M ex ic o ,T he N et he rl an ds , N o rw ay ,P o la nd ,P o rt ug al ,S lo va k R ep ub lic ,S lo ve ni a, Sp ai n, Sw ed en , Sw it ze rl an d, T ur ke y, U ni te d K in gd o m , U ni te d St at es ,C hi na ,R us si an F ed er at io n, In di a, B ra zi l, In do ne si a, an d So ut h A fr ic a. E ne rg y se ct o r Q ua nt it at iv e * * * * * H er m an an d X ia ng ( 2 0 2 2 ) E ne rg y R es ea rc h an d So ci al Sc ie nc e A us tr al ia ,A us tr ia ,B el gi um ,B ra zi l, C an ad a, C hi na ,C ze ch R ep ub lic ,D en m ar k, F in la nd , F ra nc e, G er m an y, G re ec e, H un ga ry ,I nd ia , Ir el an d, It al y, Ja p an ,K o re a, M ex ic o , N et he rl an ds ,N o rw ay ,P o la nd ,P o rt ug al , R us si a, Sl o va ki a, So ut h A fr ic a, Sp ai n, Sw ed en ,S w it ze rl an d, T ur ke y, U ni te d K in gd o m ,a nd U ni te d St at es C o un tr y- le ve l Q ua nt it at iv e * * * G as se r et al .( 2 0 2 2 ) Su st ai na bi lit y (S w it ze rl an d) A us tr ia ,B el gi u m ,C ze ch R ep ub lic ,G er m an y, D en m ar k, Sp ai n ,F in la nd ,F ra nc e, H un ga ry ,I re la n d, It al y, T he N et he rl an ds , N o rw ay ,P o la nd ,P o rt ug al ,S w ed en ,a nd Sl o va ki a. C o un tr y- le ve l Q ua nt it at iv e * Lu an d Z ha ng ( 2 0 2 2 ) E ne rg y E co no m ic s C hi na M in in g, m an uf ac tu ri ng , an d pu bl ic ut ili ti es se ct o rs Q ua nt it at iv e * C ai an d Y e ( 2 0 2 2 ) Su st ai na bl e P ro du ct io n an d C o ns um pt io n C hi na P ro vi nc e- le ve l Q ua nt it at iv e * Q ie t al .( 2 0 2 1 ) C lim at e P o lic y C hi na A ll in du st ri es Q ua nt it at iv e * (C o nt in u es ) RASTEGAR ET AL. 7 10991719, 0, D ow nloaded from https://onlinelibrary.w iley.com /doi/10.1002/sd.2884 by M inistry O f H ealth, W iley O nline L ibrary on [23/06/2024]. See the T erm s and C onditions (https://onlinelibrary.w iley.com /term s-and-conditions) on W iley O nline L ibrary for rules of use; O A articles are governed by the applicable C reative C om m ons L icense T A B L E 1 (C o nt in ue d) A ut ho r( s) Jo ur na l C o un tr y/ co un tr ie s In du st ry /s ec to r R es ea rc h m et ho d P o lic y ty p e R E ta rg et s F ee d -i n ta ri ff s Q u o ta s F is ca l in ce n ti ve s E m is si o n tr ad in g C ar b o n p ri ci n g M aa so um ie t al .( 2 0 2 1 ) E m pi ri ca l E co no m ic s 2 7 O E C D co un tr ie s (A us tr al ia ,A us tr ia , B el gi um ,C an ad a, C ze ch R ep ub lic , D en m ar k, F in la n d, F ra nc e, G er m an y, G re ec e, H un ga ry ,I re la nd ,I ta ly ,J ap an , Lu xe m bo ur g, M ex ic o ,T he N et he rl an ds , N ew Z ea la nd ,N o rw ay ,P o la nd ,P o rt ug al , Sp ai n, Sw ed en ,S w it ze rl an d, T ur ke y, U ni te d K in gd o m ,a nd U ni te d St at es ) C o un tr y- le ve l Q ua nt it at iv e * * Y an g et al .( 2 0 2 1 ) M at he m at ic al P ro bl em s in E ng in ee ri ng C hi na P ro vi nc e- le ve l Q ua nt it at iv e Y ao et al .( 2 0 2 1 ) E ne rg y P o lic y C hi na P ro vi nc e- le ve l Q ua nt it at iv e * H ill e et al .( 2 0 2 0 ) T ec hn o lo gi ca l F o re ca st in g an d So ci al C ha ng e 1 9 4 co un tr ie s C o un tr y- le ve l Q ua nt it at iv e * * * * * R ay bo ul d et al .( 2 0 2 0 ) C le an T ec hn o lo gi es an d E nv ir o nm en ta l P o lic y U ni te d K in gd o m F o o d an d tr an sp o rt at io n in du st ri es M ix ed * * C al el ( 2 0 2 0 ) A m er ic an E co no m ic Jo ur na l: E co no m ic P o lic y B ri ta in A ll in du st ri es Q ua nt it at iv e * B ru ne l( 2 0 1 9 ) Jo ur na lo f E nv ir o nm en ta l M an ag em en t 3 1 O E C D co un tr ie s R en ew ab le en er gy se ct o r Q ua nt it at iv e * * * H er m an an d X ia ng ( 2 0 1 9 ) T ec hn o lo gi ca l F o re ca st in g an d So ci al C ha ng e B ra zi l, R us si a, In di a, C hi na ,S o ut h A fr ic a, A us tr al ia ,A u st ri a, B el gi um ,C an ad a, C ze ch R ep ub lic ,D en m ar k, F in la nd , F ra nc e, G er m an y, G re ec e, H un ga ry , Ir el an d, It al y, Ja p an ,L ux em bo ur g, M ex ic o , T he N et he rl an ds ,N ew Z ea la nd ,N o rw ay , P o la nd ,P o rt ug al ,S pa in ,S w ed en , Sw it ze rl an d, T ur ke y, U ni te d K in gd o m , an d U ni te d St at es C o un tr y- le ve l Q ua nt it at iv e * * * 8 RASTEGAR ET AL. 10991719, 0, D ow nloaded from https://onlinelibrary.w iley.com /doi/10.1002/sd.2884 by M inistry O f H ealth, W iley O nline L ibrary on [23/06/2024]. See the T erm s and C onditions (https://onlinelibrary.w iley.com /term s-and-conditions) on W iley O nline L ibrary for rules of use; O A articles are governed by the applicable C reative C om m ons L icense T A B L E 1 (C o nt in ue d) A ut ho r( s) Jo ur na l C o un tr y/ co un tr ie s In du st ry /s ec to r R es ea rc h m et ho d P o lic y ty p e R E ta rg et s F ee d -i n ta ri ff s Q u o ta s F is ca l in ce n ti ve s E m is si o n tr ad in g C ar b o n p ri ci n g F .Y an g et al .( 2 0 1 9 ) Jo ur na lo f C le an er P ro du ct io n C hi na P ro vi nc e- le ve l Q ua nt it at iv e * * W an g et al .( 2 0 1 9 ) Jo ur na lo f E nv ir o nm en ta l M an ag em en t C hi na W in d po w er in du st ry Q ua nt it at iv e N o t sp ec if ie d R o gg e an d Sc hl ei ch ( 2 0 1 8 ) R es ea rc h P o lic y G er m an y R en ew ab le en er gy se ct o r Q ua nt it at iv e C la nc y an d M o sc hi ni (2 0 1 8 ) A m er ic an Jo ur na l o f A gr ic ul tu ra l E co no m ic s U ni te d St at es R & D se ct o r Q ua nt it at iv e * C al el an d D ec he zl ep rê tr e ( 2 0 1 6 ) R ev ie w o f E co no m ic s an d St at is ti cs A us tr ia ,B el gi um ,C ze ch R ep ub lic ,D en m ar k, E st o ni a, F in la nd ,F ra nc e, G er m an y, Ir el an d, Li th ua n ia ,L ux em bo ur g, N et he rl an ds ,P o la nd ,P o rt ug al ,S lo va ki a, Sp ai n, Sw ed en ,a nd U ni te d K in gd o m A ll in du st ri es Q ua nt it at iv e * N ic o lli an d V o na ( 2 0 1 6 ) E ne rg y E co no m ic s F in la nd ,G re ec e, It al y, Lu xe m bo ur g, Sw ed en , th e U K ,A us tr ia ,t he C ze ch R ep ., F ra nc e, H un ga ry ,t he N et he rl an ds ,P o rt ug al , B el gi um ,D en m ar k, G er m an y, Ir el an d, Sp ai n, P o la nd ,a nd th e Sl o va k R ep ub lic . C o un tr y- le ve l Q ua nt it at iv e * * * C ha ng et al .( 2 0 1 6 ) E ne rg y P o lic y B ru ne i, C am bo di a, In do ne si a, La o s, M al ay si a, M ya nm ar ,P hi lip pi ne s, Si ng ap o re ,T ha ila nd ,V ie tn am ,A us tr al ia , N ew Z ea la nd ,C hi na ,I nd ia ,J ap an ,a nd So ut h K o re a C o un tr y- le ve l Q ua nt it at iv e * * * * B ub na -L it ic an d St o ia no ff ( 2 0 1 4 ) E nv ir o nm en ta l an d P la nn in g La w Jo ur na l U ni te d K in gd o m ,C an ad a, an d A us tr al ia E le ct ri ci ty se ct o r Q ua lit at iv e * N es ta et al .( 2 0 1 4 ) Jo ur na lo f E nv ir o nm en ta l E co no m ic s an d M an ag em en t O E C D co un tr ie s (A us tr al ia ,A us tr ia ,B el gi um , C an ad a, C ze ch R ep ub lic ,D en m ar k, F in la nd ,F ra nc e, G er m an y, G re ec e, H un ga ry ,I re la nd ,I ta ly ,J ap an , Lu xe m bo ur g, M ex ic o ,T he N et he rl an ds , N ew Z ea la nd ,N o rw ay ,P o la nd ,P o rt ug al , Sp ai n, Sw ed en ,S w it ze rl an d, T ur ke y, U ni te d K in gd o m ,a nd U ni te d St at es ) C o un tr y- le ve l Q ua nt it at iv e * * * * (C o nt in u es ) RASTEGAR ET AL. 9 10991719, 0, D ow nloaded from https://onlinelibrary.w iley.com /doi/10.1002/sd.2884 by M inistry O f H ealth, W iley O nline L ibrary on [23/06/2024]. See the T erm s and C onditions (https://onlinelibrary.w iley.com /term s-and-conditions) on W iley O nline L ibrary for rules of use; O A articles are governed by the applicable C reative C om m ons L icense their effectiveness (Schmidt & Sewerin, 2019). This phenomenon is known as the “simultaneous effectiveness” of policies (Hille & Oelker, 2023). A well-designed policy mix, when appropriately com- posed, can effectively induce RE innovation (Hille & Oelker, 2023). The combination of various policies can generate a synergistic effect by reducing the uncertainty associated with each individual policy. For instance, the ratification of the Kyoto Protocol enhances the inducement effect of policies on RE innovation and positively affects this relationship by mitigating the uncertainty linked to policies (Nicolli & Vona, 2016; Wang et al., 2019). Additionally, within the sample of studies, there are instances where the relationship was examined at both levels, encompassing individual-policy and policy-mix analyses. For these studies, we ana- lyse the findings related to the impact of individual policies in the sub- section labelled “Individual-policy level”. Findings related to the role of policy mixes in promoting RE innovation are subsequently dis- cussed in the subsection titled “Policy-mix level”. Through our discus- sion at each level, we pinpoint critical gaps within the existing body of research and propose directions for future studies. 6 | INDIVIDUAL-POLICY LEVEL In this subsection, we analyse and discuss the existing research on each of the six environmental policy types developed (RE targets, feed-in tariffs, quotas, fiscal incentives, emissions trading, and carbon pricing) at the individual-policy level. 6.1 | RE targets Regarding the effect of RE targets, Hille et al. (2020) identified a sub- stantial impact on RE innovation, particularly in the domain of wind energy innovation. This significant effect may be attributed to the announcement of RE targets, which often do not coincide with the implementation of specific environmental policies (Hille et al., 2020). However, another study by Hille and Oelker (2023) focused on the effectiveness of environmental policies in wind and solar energy, revealing that frequently implemented instruments such as RE targets tend to be the least effective in stimulating RE innovation. 6.2 | Feed-in tariffs Analysing the effect of feed-in tariff policies, we find contrasting find- ings in different studies and regions. In Germany, Frondel et al. (2010) argued that Germany's feed-in tariff, a form of RE-supportive policy, lacks the power to stimulate technological innovation. Their study suggested that environmental policies in Germany do not effectively incentivise RE innovation. However, in a qualitative study conducted by Raybould et al. (2020) in the UK between 2009 and 2016, govern- ment regulation and policies were found to have induced RET A B L E 1 (C o nt in ue d) A ut ho r( s) Jo ur na l C o un tr y/ co un tr ie s In du st ry /s ec to r R es ea rc h m et ho d P o lic y ty p e R E ta rg et s F ee d -i n ta ri ff s Q u o ta s F is ca l in ce n ti ve s E m is si o n tr ad in g C ar b o n p ri ci n g B ay er et al .( 2 0 1 3 ) E ne rg y fo r Su st ai na bl e D ev el o pm en t 7 4 co un tr ie s C o un tr y- le ve l Q ua nt it at iv e * Sh ir le y an d K am m en (2 0 1 3 ) E ne rg y P o lic y F o ur C ar ib be an is la nd s (G re na da ,B ar ba do s, Ja m ai ca ,a nd N et he rl an d A nt ill es ) C o un tr y- le ve l Q ua lit at iv e * * * * Si ng h (2 0 1 2 ) M an ag em en t o f E nv ir o nm en ta l Q ua lit y P ac if ic Is la nd C o un tr ie s (P IC ) C o un tr y- le ve l Q ua lit at iv e F ro nd el et al .( 2 0 1 0 ) E ne rg y P o lic y G er m an y C o un tr y- le ve l Q ua nt it at iv e * 10 RASTEGAR ET AL. 10991719, 0, D ow nloaded from https://onlinelibrary.w iley.com /doi/10.1002/sd.2884 by M inistry O f H ealth, W iley O nline L ibrary on [23/06/2024]. See the T erm s and C onditions (https://onlinelibrary.w iley.com /term s-and-conditions) on W iley O nline L ibrary for rules of use; O A articles are governed by the applicable C reative C om m ons L icense innovation since 1990. The study highlighted that feed-in tariff poli- cies in the UK between 2009 and 2016 led to increased RE implemen- tation. It was observed that fixed-rate and premium tariffs appeared more effective in fostering RE innovation compared to their advanced counterparts, such as net metering and public competitive bidding. This difference in effectiveness could be related to the timing of pol- icy implementation, with classic feed-in tariff instruments established during the early stages of technological development in wind and solar technology, while the advanced versions were often implemented during or after the peak years of technological development in these fields (Hille et al., 2020). The global impact of feed-in tariff policies varies, with the highest impact observed in the wind energy sector, according to Hille et al. (2020). Additionally, Nicolli and Vona (2016) found that the feed-in tariff had a significant impact only on solar energy technology across 19 countries. These diverse findings high- light the importance of considering regional and technological nuances when assessing the effectiveness of feed-in tariff policies in driving RE innovation. 6.3 | Quotas The effectiveness of quotas in promoting RE innovation has been a topic of discussion in the literature. Clancy and Moschini (2018) sug- gested that mandates may provide more incentives for minor RE inno- vation compared to carbon taxes. However, their effectiveness diminishes when it comes to radical innovation, making carbon taxes a preferable choice for the latter. Overall, their findings imply that F IGURE 2 Annual distribution of articles. Journal of Environmental Economics and… F IGURE 3 Distribution of publications by their journal. RASTEGAR ET AL. 11 10991719, 0, D ow nloaded from https://onlinelibrary.w iley.com /doi/10.1002/sd.2884 by M inistry O f H ealth, W iley O nline L ibrary on [23/06/2024]. See the T erm s and C onditions (https://onlinelibrary.w iley.com /term s-and-conditions) on W iley O nline L ibrary for rules of use; O A articles are governed by the applicable C reative C om m ons L icense mandates might not be effective in spurring market-based innovation. Hille et al. (2020) added to this argument by examining the wind and solar sectors. They found that technology-specific quotas have limited effects on fostering innovation. This limited impact was attributed to the observation that tradable renewable certificates tend to benefit mature and price-competitive technologies such as hydro, geothermal, and biomass. Nicolli and Vona (2016) also explored the heterogeneous impact of RE policies on innovation, noting that this impact varies with the maturity of each technology source. Mature forms of RE, such as wind, tend to benefit from quotas due to lower compliance costs. In contrast, Hille and Oelker (2023) argued that quotas with certificate trading can be among the most effective environmental policies for promoting low-carbon innovation. Lu and Zhang (2022) examined the impact of carbon reduction mandates on low-carbon innovation deployment by firms. Their find- ings revealed that carbon reduction mandates induce low-carbon innovation but with variations. For state-owned firms, the positive effect is on the ratio of low-carbon patents, while for non- state-owned firms, the effect is observed in the number of patents. Furthermore, the effect varies based on the type of low-carbon inno- vation, with low-quality innovation showing a more significant impact than deep innovation. These findings underscore the need to consider various factors, including policy design, technology maturity, and innovation type when assessing the effectiveness of quotas in promoting low-carbon innovation. 6.4 | Fiscal incentives The literature emphasises the significant impact of fiscal incentives on fostering RE innovation, particularly due to the substantial upfront investments required by RE technologies. Government subsidies can motivate new entrants to the market, increasing competitive intensity. This competition can encourage firms to take risks and engage in innovative practices. As a result, the positive effect of RE-supportive fiscal policies is stronger in countries with liberalised energy markets (Nesta et al., 2014). Nicolli and Vona (2016) pointed out that fiscal incentives, includ- ing demand subsidies and government R&D expenditure, have a more significant innovation effect on less mature RE technologies. How- ever, Hille et al. (2020) reported a significant impact of RE-supportive fiscal policies on all RE technologies, including mature ones such as wind energy. Additionally, Hille and Oelker (2023) found fiscal incen- tives to be among the most effective policies in the wind and solar energy sectors. Focusing on government R&D expenditure, Yang et al. (2019) examined its impact on both fossil fuel and RE innovation using Chi- nese provincial data. They demonstrated that environmental regula- tions, particularly in the form of government R&D expenditure, stimulate innovation. This effect is significant for renewables but insignificant for fossil fuel technology. Furthermore, Yang et al. (2021) confirmed the Porter hypothesis in China, showing that climate policies, including government R&D expenditures, stimulate low- carbon innovation. In another study, Gasser et al. (2022) investigated the effect of public R&D expenditures on the development of RE technologies from 2000 to 2015. Their research, based on country-level data, revealed that these policies drive RE innovation. The effectiveness of the policy, however, varies across different RE sources (biomass, solar, and wind energy) and countries. 6.5 | Emissions trading Emissions trading policies, such as the EU ETS and carbon trading schemes, have been the subject of extensive research regard- ing their impact on low-carbon and RE innovation. Calel and Deche- zleprêtre (2016) used the difference-in-difference method to investigate how the EU ETS, a prominent cap-and-trade system, influ- enced low-carbon patenting. They found that the EU ETS significantly increased low-carbon innovation among EU ETS-regulated firms, lead- ing to a 10% increase in their innovation output. However, when com- pared to similar non-EU ETS firms, the overall effect of the EU ETS on innovation was weaker, resulting in only a 1% increase in innovation. This suggested that the EU ETS had a limited effect on supporting RE innovation (Calel & Dechezleprêtre, 2016). On the other hand, other studies, including those by Calel (2020), Qi et al. (2021), Yao et al. (2021), Lucena-Giraldo et al. (2022), and Cai and Ye (2022), demonstrated the innovation-inducing effect of emis- sion trading policies. Calel (2020) found that the EU ETS encouraged low-carbon innovation, including RE, by increasing low-carbon patent- ing and R&D spending. Qi et al. (2021) and Yao et al. (2021) focused on China's pilot carbon trading policy and highlighted the role of envi- ronmental policies as drivers of RE innovation. They showed that emission trading schemes stimulate low-carbon innovation across var- ious sectors, with the inducement effect strengthening over time as financial constraints ease (Qi et al., 2021). Yao et al. (2021) also highlighted the influence of market characteristics on the strength of this relationship and underscored the positive impact of policy strin- gency on driving low-carbon innovation. In a study conducted by Lucena-Giraldo et al. (2022), the focus was on the EU ETS, and the researchers explored whether the effec- tiveness of different temporal phases of the EU ETS had a significant impact. To assess the firm's response to green policies and its effect on green innovation, the authors applied the Schumpeterian “creative response” framework. This creative response involves implementing novel approaches to conduct business (Lucena-Giraldo et al., 2022). Their findings indicated that the creative response to the EU ETS, par- ticularly in the context of environmental innovation, was observed in firms that operate in energy-intensive industries. This suggests that companies in these sectors responded to the EU ETS with innovative practices and strategies, thereby contributing to green and environ- mentally conscious innovation (Lucena-Giraldo et al., 2022). In the research conducted by Cai and Ye (2022), the focus was on investigating how China's national carbon emission scheme contrib- utes to the improvement of low-carbon technology (Cai & Ye, 2022). 12 RASTEGAR ET AL. 10991719, 0, D ow nloaded from https://onlinelibrary.w iley.com /doi/10.1002/sd.2884 by M inistry O f H ealth, W iley O nline L ibrary on [23/06/2024]. See the T erm s and C onditions (https://onlinelibrary.w iley.com /term s-and-conditions) on W iley O nline L ibrary for rules of use; O A articles are governed by the applicable C reative C om m ons L icense Unlike many other studies in this field, which typically employ patent- ing as a measure of RE innovation, Cai and Ye (2022) took a different approach. They examined the relationship between low-carbon inno- vation input and output under environmental constraints to evaluate innovation efficiency (Cai & Ye, 2022). Their findings indicated that the carbon emission scheme had an impact on innovation but with a three-year lag. However, in contrast to previous studies, their results did not confirm a rapid development in RE innovation (Cai & Ye, 2022). This suggests that the effects of environmental policies, particularly carbon emission schemes, on low-carbon technology inno- vation may vary in terms of timing and intensity. 6.6 | Carbon pricing Carbon pricing policies, which include carbon taxes and other mea- sures, can have varying effects on RE innovation. Research in this area has produced mixed findings. The effectiveness of these policies depends on various factors, including the specific context and the out- look for R&D. Bayer et al. (2013) explored the effects of institutional determi- nants on RE innovation across different countries. They found that an increase in oil prices could stimulate RE innovation, although the effect varied across countries. The impact was smaller for OECD countries compared to non-OECD countries, and it was more signifi- cant for certain RE technologies, such as wind and solar innovation. In contrast, Yang et al. (2019) examined the impact of energy prices as a demand-pull policy instrument on both fossil fuel and RE innovation. They found that changes in energy prices had a more sub- stantial impact on fossil fuel technology compared to RE technology, indicating that the impact of carbon pricing can vary by energy source and technology. Regarding the effectiveness of carbon taxes specifically, Hille and Oelker (2023) reported that carbon taxes were among the least effec- tive policy instruments in the wind and solar energy sectors. These taxes had limited effects on promoting RE innovation within these sectors. However, Clancy and Moschini (2018) compared the innovation-inducing effects of mandates and carbon taxes and found that the impact of a carbon tax on RE innovation depended on the outlook for R&D. When the outlook for R&D was strong, carbon taxes tended to be more effective at inducing RE innovation compared to mandates, but this was reversed in cases of a weaker R&D outlook. Maasoumi et al. (2021) studied the impact of environmental poli- cies, including carbon taxes and regulations, on RE innovation in the electricity sector across 27 OECD countries. They found that carbon taxes were more effective in stimulating investment in RE technology than regulatory standards. However, the effectiveness of carbon taxes exhibited heterogeneity across countries, suggesting that their impact on RE innovation varied depending on national contexts. Some studies in the sample examined the role of generic environ- mental policies in promoting RE innovation. These studies did not focus on the specific policy types discussed earlier and, therefore, their results are presented separately. Singh (2012) and Shirley and Kammen (2013) found that these policies positively influenced RE innovation, emphasising the importance of supportive policy frame- works in fostering innovation. In contrast, Chang et al., (2016) presented a different perspective. They evaluated RE policies across countries and found that technology-related indicators, crucial for RE innovation, were less prevalent. This suggests a potential negative relationship between policy measures and RE technology development. Chang et al. (2016) argued that the development and adoption of RE innovation should receive more attention from policymakers. Brunel (2019) examined how environmental policies affect domestic economies both directly and indirectly through innovation. The results were mixed, with RE policies leading to less innovation in most of the sample countries, except for Germany, Japan, and the USA. Herman and Xiang (2022) applied the “California effect” theory, proposing that foreign environmental policies implemented by trading partner countries exerted a substantial influence on domestic firms' innovation in RE through international trade. This influence could sometimes surpass the impact of domestic policies. These studies reveal the nuanced and context-dependent nature of the relationship between generic environmental policies and RE innovation. Further research is needed to gain a more comprehensive understanding of this relationship. 7 | POLICY-MIX LEVEL In the previous subsection, we reviewed the literature on the direct effects of each type of environmental policy. In this subsection, we analyse and integrate the components of various environmental poli- cies and how, when combined, these policies collectively influence RE innovation. We also assess how these findings differ from those related to each individual policy. Schmidt and Sewerin (2019) have recommended analysing a pol- icy mix rather than investigating individual policies for two main rea- sons. First, technological change involves different market failures and risks, and a single policy alone cannot fully reflect the overall effect (Schmidt & Sewerin, 2019). Many scholars have also emphasised the importance of policy mixes in addressing market failures such as externalities and information asymmetry (Wang et al., 2019). Second, policies do not exist in isolation; they evolve in conjunction with exist- ing policies. Consequently, a policy mix can better illustrate the insti- tutional effects as opposed to a single policy (Schmidt & Sewerin, 2019). At the very least, we need to control the simultaneity of policies, as it can influence both the magnitude and direction of the effects on RE innovation (Hille & Oelker, 2023). A “policy mix” refers to the combination of various policies as a means to address complex issues (Borrás & Edquist, 2013). When designing such combinations, it is crucial to consider both the comple- mentary and conflicting effects. In other words, in a policy mix, it is not only the effectiveness of each individual policy that matters but also how these policies interact with each other, whether in a comple- mentary, synergistic, or conflicting manner, as these interactions can RASTEGAR ET AL. 13 10991719, 0, D ow nloaded from https://onlinelibrary.w iley.com /doi/10.1002/sd.2884 by M inistry O f H ealth, W iley O nline L ibrary on [23/06/2024]. See the T erm s and C onditions (https://onlinelibrary.w iley.com /term s-and-conditions) on W iley O nline L ibrary for rules of use; O A articles are governed by the applicable C reative C om m ons L icense significantly influence the overall effectiveness of the policies as a whole (Borrás & Edquist, 2013). Consequently, a critical question arises: which policy mix proves to be the most effective (Wang et al., 2019)? Drawing from the existing literature, we delve into dif- ferent policy mixes that scholars have examined. It is worth noting that most of the studies presented in this subsection focus on policy mixes at a cluster level, rather than individual policy types. According to Jordaan et al. (2017) and van den Bergh (2013), it is essential for both market-pull and technology-push policies to work in tandem. In the absence of market-pull policies that create a market for clean energy technology, technology-push policies, which aim to foster technological innovation, are less effective (Jordaan et al., 2017). For example, policies supporting RE could influence demand behaviour while leaving supply behaviour unaffected. A decrease in demand can lead to lower fossil fuel prices, which, in turn, stimulate its supply and increases demand for fossil fuels, contrary to the goals of these policies (van den Bergh, 2013). Hille et al. (2020) found that a mix of various types of RE- supportive policies can enhance their positive impact on RE innova- tion, a result also supported by Hille and Oelker (2023), who found that a heterogeneous set of RE-supportive instruments appears to be the most effective design for a policy mix (Hille & Oelker, 2023). How- ever, (Zhang, Zheng, et al., 2022) contested the innovation effect of market-based policies. The authors argued that, due to incomplete energy pricing mechanisms, market-pull policies can only exert cost pressures on firms and cannot induce innovation. Nevertheless, they confirmed the innovation effect of technology-push policies, which is more significant for OECD and high-income countries. Wang et al. (2019) conducted an examination of various combina- tions of policy mixes within the wind energy industry. They categorised these policies into three broad groups: Supply-side policies (SSP), Demand-side policies (DSP), and Environmental-side policies (ESP). The first two categories represent market-based policies, while the last rep- resents non-market-based policies. The results of their study confirm the synergies between ESP and SSP mixes, DSP and SSP mixes, and ESP, DSP, and SSP mixes. In essence, these synergies within the policy mix can mitigate conflicts and uncertainties associated with each indi- vidual policy and, as a result, have a significantly positive impact on RE innovation (Wang et al., 2019). These findings align with the studies of van den Bergh (2013) and Jordaan et al. (2017). However, in contrast to previous research on mixed policies, Wang et al. (2019) identified a conflicting effect between policies, particularly between DSP and ESP, which requires resolution (Wang et al., 2019). Rogge and Schleich (2018) also confirmed that combining differ- ent policy types can support RE innovation. However, the effective- ness of a policy mix in driving innovation depends on the design and features of each policy. Using survey data from the German RE sector, Rogge and Schleich (2018) investigated whether policy design fea- tures influence RE innovation and the relationship between a policy mix and induced innovation. They focused on four key characteristics of a policy mix: consistency, credibility, comprehensiveness, and coherence (Rogge & Schleich, 2018). Their study not only addresses the positive impact of a policy mix on low-carbon innovation but also highlights that consistency and credibility within a policy mix enhance this relationship (Rogge & Schleich, 2018). In a separate study, Bubna-Litic and Stoianoff (2014) explored the influence of greenhouse gas prices and their interaction with support- ive policies on RE innovation in Australia, Canada, and the UK. Their findings indicate that greenhouse gas prices have the potential to encourage innovative approaches aimed at mitigating climate change. It is noteworthy that without carbon pricing, supportive policies alone may not be effective in driving RE technology advancements (Bubna- Litic & Stoianoff, 2014). 8 | DISCUSSION, FUTURE RESEARCH, AND IMPLICATIONS In the preceding section, we analysed the existing literature, examin- ing how various environmental policies influence RE innovation. In the following discussion, we first explore how research on the relationship between environmental policies and RE innovation has evolved since 2005. Further, we utilise this framework to propose directions for future research. Additionally, we elucidate both the theoretical and practical implications of our review, offering insights for policymakers and contributing to the broader academic discourse on environmental policy and RE innovation. 8.1 | Discussion It is widely acknowledged that policymakers play a pivotal role in the transition to a low-carbon economy and the promotion of clean energy technologies (Hille et al., 2020). These policymakers generate an induced effect through the formulation of appropriate environmen- tal policies (Yu et al., 2022). It is important to note that this impact varies across different types of environmental policies. In our analysis, we employed a two-tier approach, scrutinising individual-level policies and policy mixes to assess their impact on RE innovation. Analysing individual policies provides a detailed under- standing of specific effects (Gasser et al., 2022; Hille & Oelker, 2023), but may inadvertently overlook the potential synergistic effects that arise when various policies are combined (Nicolli & Vona, 2016; Wang et al., 2019). Policy-mix analysis, as advocated by Schmidt and Sew- erin (2019), captures these synergies and reduces uncertainties asso- ciated with individual policies. It also accounts for the complex interactions between policies (Hille & Oelker, 2023). Policymakers should choose an approach aligned with their objectives and regula- tory context, recognising the trade-offs and benefits of each (Schmidt & Sewerin, 2019). At the individual-policy level, our analysis delved into the litera- ture concerning six distinct policy types. While there is a consensus in the literature regarding the positive impact of fiscal incentives on RE innovation (Gasser et al., 2022; Hille et al., 2020; Hille & Oelker, 2023; Nesta et al., 2014), the research on the remaining policy types yields inconclusive findings. 14 RASTEGAR ET AL. 10991719, 0, D ow nloaded from https://onlinelibrary.w iley.com /doi/10.1002/sd.2884 by M inistry O f H ealth, W iley O nline L ibrary on [23/06/2024]. See the T erm s and C onditions (https://onlinelibrary.w iley.com /term s-and-conditions) on W iley O nline L ibrary for rules of use; O A articles are governed by the applicable C reative C om m ons L icense Existing studies on the effects of RE targets on RE innovation are limited, and the available research by Hille and Oelker (2023) appears to offer inconclusive results. Additionally, Hille and Oelker (2023) argued that the effectiveness of policies is negatively correlated with their maturity. Conversely, Hille et al. (2020) suggested that the classic forms of feed-in tariffs have been more effective than newer advanced versions due to their maturity. In the case of the impact of feed-in tar- iffs on RE innovation, scholars have yet to reach a consensus. This lack of agreement can be attributed to variations across countries and RE technologies (Frondel et al., 2010; Raybould et al., 2020). The literature concerning quotas presents conflicting results. While Hille and Oelker (2023) and Lu and Zhang (2022) offered evidence of the positive impacts of quotas on RE innovation, Clancy and Moschini (2018), Hille et al. (2020), and Nicolli and Vona (2016) found that this impact is insignificant. Regarding the influence of emission trading sys- tems on RE innovation, existing research indicates that these systems stimulate RE innovation (Cai & Ye, 2022; Calel, 2020; Lucena-Giraldo et al., 2022; Qi et al., 2021; Yao et al., 2021). Nevertheless, the work by Calel and Dechezleprêtre (2016) revealed that this positive impact is specific to regulated firms and hence not universally applicable to all firms. Additionally, the literature review on carbon pricing highlights mixed findings on the innovation effect of both energy prices (Bayer et al., 2013; F. Yang et al., 2019) and carbon taxes (Clancy & Moschini, 2018; Hille & Oelker, 2023; Maasoumi et al., 2021). At the policy-mix level, scholars have demonstrated that the com- position of environmental policies with a synergistic effect can enhance the innovation impact of the institutional setting (Bubna- Litic & Stoianoff, 2014; Hille et al., 2020; Hille & Oelker, 2023; Jordaan et al., 2017; Rogge & Schleich, 2018; van den Bergh, 2013; Wang et al., 2019). Jordaan et al. (2017) and van den Bergh (2013) argued that market-pull and technology-push policies need to work in conjunction to maximise their innovation effect since their combina- tion ensures support for both the supply and demand sides of RE innovation. In contrast, Zhang et al. (Zhang, Zheng, et al., 2022) con- tended that market-pull policies may not be effective in this context. 8.2 | Future research agenda In light of our discussion, it is clear that future research should embark on several critical pathways to fill existing gaps in the literature. This includes a thorough examination of the effects of RE targets, extending beyond the frequently analysed wind and solar sectors. Studies such as those by Hille et al. (2020) and Hille and Oelker (2023) provide incon- clusive insights, signalling a need for broader exploration into diverse RE sources. In terms of feed-in tariffs, their effectiveness, as evidenced in various countries (Hille et al., 2020; Nicolli & Vona, 2016; Raybould et al., 2020), suggests a need for targeted investigation. Future research should analyse their specific impacts on different RE technologies within distinct national contexts. The role of quotas in RE innovation also demands attention. The literature presents contrasting views: some studies (e.g., Clancy & Moschini, 2018; Nicolli & Vona, 2016) sug- gest limited effectiveness for newer technologies, while others (Hille & Oelker, 2023; Lu & Zhang, 2022) offer opposing evidence. This calls for more definitive research. Moreover, emission-trading schemes, especially China's CTP and the EU ETS, require more in-depth study. While the CTP's significant effect on RE innovation is established (Cai & Ye, 2022; Qi et al., 2021; Yao et al., 2021), mixed results from the EU ETS (Calel, 2020; Calel & Dechezleprêtre, 2016) call for additional exploration. Additionally, the specific influence of carbon taxes on RE innovation is underexplored. Research often overlooks its standalone effects, suggesting a gap for focused studies. Furthermore, the interactions within policy mixes and their collec- tive impact on RE innovation are not adequately captured in the cur- rent literature. Future research should dissect these combinations to identify effective synergies. Lastly, the design of environmental policy mixes and their impact on innovation present inconclusive findings. While some studies suggest that a variety of policy types can enhance a mix's impact (Hille et al., 2020), others, such as Rogge and Schleich (2018), find no significant relationship. This inconsistency, coupled with the limited use of qualitative methods, points to opportunities for more in-depth research, potentially using varied methodologies to gain comprehensive insights. 8.3 | Theoretical implications From a theoretical standpoint, this review contributes to the expand- ing body of knowledge on environmental policy and RE innovation. It underscores the complex and multifaceted nature of policy impacts on RE innovation, challenging the traditional understanding of policy effectiveness in isolation. Our review advocates for a nuanced inter- pretation of policy impacts, considering the interplay of different pol- icy instruments and their collective influence on RE innovation. This suggests the need for theoretical models that can better capture the dynamics of policy mixes and their interactions. Moreover, the review highlights gaps in current theoretical frameworks regarding the spe- cific impacts of diverse policy types, such as RE targets, feed-in tariffs, and quotas, on RE innovation. This calls for further theoretical devel- opment that can accommodate the varying effects of these policies across different technological and national contexts. 8.4 | Practical implications The insights gleaned from this review offer substantial practical impli- cations for policymakers and industry stakeholders in the realm of RE innovation. Firstly, understanding the nuanced effects of various envi- ronmental policies is crucial for designing effective policy frameworks. For instance, our analysis suggests that while RE targets and feed-in tariffs have been instrumental in certain contexts, their effectiveness varies significantly across different national settings and RE technolo- gies. Policymakers should tailor these policies to suit the specific needs and maturity levels of their respective RE sectors. The mixed results concerning quotas and emission trading schemes, such as the RASTEGAR ET AL. 15 10991719, 0, D ow nloaded from https://onlinelibrary.w iley.com /doi/10.1002/sd.2884 by M inistry O f H ealth, W iley O nline L ibrary on [23/06/2024]. See the T erm s and C onditions (https://onlinelibrary.w iley.com /term s-and-conditions) on W iley O nline L ibrary for rules of use; O A articles are governed by the applicable C reative C om m ons L icense EU ETS and China's CTP, indicate the importance of continuous policy evaluation and adaptation. This highlights the need for a dynamic pol- icy approach that remains responsive to technological advancements and market changes. Additionally, the limited research on carbon taxes' direct effects on RE innovation reveals a vital area for policy investigation. Policy- makers should consider targeted studies to understand and leverage carbon taxes specifically for fostering RE innovation. The findings also suggest the necessity for a synergistic policy mix, integrating various policy types to create a conducive environment for RE innovation. Policymakers should focus on developing comprehensive policy port- folios that address the specific challenges and opportunities within RE sectors, thereby fostering an ecosystem that supports sustained inno- vation and growth in renewable technologies. 9 | CONCLUSION Research interest in the field of RE innovation has been steadily grow- ing, and the critical role of environmental policies in motivating or hin- dering innovation has garnered considerable attention. This review represents the first systematic attempt to consolidate and synthesise the existing literature in this domain. For this review, we have specifi- cally examined and synthesised 17 years of past research regarding the inducement effect of environmental policies on RE innovation. The primary objective of this article was to identify the gaps in this field of research, with a specific focus on policy types. Employing an SLR methodology, we have developed six distinct categories of policy types (RE targets, feed-in tariffs, quotas, fiscal incentives, emis- sion trading, and carbon pricing) to encompass all aspects of environ- mental policies. Our proposed classification is of paramount significance, given the existing categorisations in the literature remain inconclusive. We have constructed this classification through a thor- ough examination and synthesis of the categorisations in the existing literature. This categorisation galvanises us to distinguish among pol- icy types based on their influence on RE innovation. Further, we have also examined the findings of the existing litera- ture at two distinct levels: the individual-policy level and the policy- mix level. Our analysis has revealed a diverse range of effects of envi- ronmental policies on RE innovation. However, for certain policy types, such as fiscal incentives, there appears to be a current consen- sus in the literature. This literature review comes with certain limitations. We have excluded sources in the form of conference papers, book chapters, books, and reports, focusing solely on academic journal articles to maintain the quality of the final sample. While this approach enhances the rigour of the review, it might have resulted in the omission of potentially relevant information from these alternative sources. Fur- ther, the selection of studies was based on specific keywords and databases. Hence, we acknowledge that some relevant studies might have been excluded from the analysis of our review that employed dissimilar terminologies and/or published in non-peer-reviewed or less prominent academic journals. ACKNOWLEDGMENT Open access publishing facilitated by Massey University, as part of the Wiley - Massey University agreement via the Council of Australian University Librarians. 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