Policy instruments to control industrial pollution are all based---implicitly or explicitly---on an assumption that public policy can alter the extent and direction of technological change, whether by promoting the diffusion of existing technologies, by encouraging the development of new technological solutions, or by inducing firms to undertake incremental improvements to existing technologies. But while there is widespread expectation that regulations can provide a stimulus to innovation, the empirical evidence is scarce.; In light of this situation, this thesis undertakes a comparative study of the links between environmental regulation and innovation in the pulp and paper industries in Canada and Chile. Comparison of the two cases allows us to examine the situation of firms in regulated and less-regulated environments, and also to examine the ways in which other, non-regulatory factors affect corporate environmental behaviour.; The thesis develops a conceptual model of firm-level environmental behaviour, emphasizing the ways in which behaviour is shaped by the structural features of the industry, the nature of regulatory and other pressures facing firms, and the historicallyshaped "habits and practices" of firms themselves. It then applies this model to the two cases, focusing on three main issues: (1) the nature of environmental strategies and investments pursued by firms in response to environmental pressures; (2) the way in which non-regulatory factors (ownership, export orientation, internal characteristics) mediate the impact of environmental regulations; and, (3) the extent to which regulations work to spur a process of innovation in the industry and its supplier networks.; Based on empirical analysis of firms in Canada and Chile, the thesis concludes that regulations are effective in promoting the diffusion of existing technologies for pollution abatement and control---and to some degree in stimulating incremental improvements in performance. But the extent to which they stimulate more far-reaching innovations is limited: especially in a mature, supplier-dominated industry like pulp and paper, the ability of policy-makers to stimulate innovation as a result of environmental regulations is extremely limited. In fact, the key relationships seem to go the opposite way: strengthening the innovative capabilities of industry and the domestic supply base is important to ensure strong environmental performance.
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