This paper discusses the results for Italy of a CDM model (Crepon et al, 1998) further extended with the objective of evaluating drivers and productivity effects of environmental innovations. The particular nature of environmental innovations, especially as regards the need of
government intervention to create market opportunities, is likely to affect the way through which they are pursued (innovation equation within the CDM model) and their effect on productivity (productivity equation). Here I test two main hypothesis: (i) to what extent polluting firms
rely on own innovations to improve their environmental performance? (ii) do the pursue of environmental innovations reduce the likelihood of obtaining other profitable innovations (crowding out)? Results, based
on administrative data (AIDA by Bureau van Dijk and patent data from PATSTAT) show that innovation efforts of polluting firms and sectors is significantly biased towards environmental innovations and that environmental innovations tend to crowd out other more profitable
(at least in the short run) innovations
