Removing environmental market failure through support mechanisms: insights from green start-ups in the British, French and German energy sectors

Abstract

Environmentally relevant market failure, related to the lack of value attached to environmentally beneficial economic activity, constrains environmental entrepreneurship as reported by Dean and McMullen (Journal of Business Venturing, 22, 50–76, 2007) . Unless this market failure is addressed, green start-ups will be confined to a “green prison” as stated in Pacheco et al. (Sustainable Development and Entrepreneurship, 25, 464–480, 2010), unable to grow and disseminate their eco-innovations out with environmental niche markets. In Britain, France and Germany, support mechanisms promote the expansion of renewable power technologies. This paper examines environmental entrepreneurs’ perceptions of the importance and effectiveness of support mechanisms in removing environmental market failure in the energy sectors of these three countries. Our findings suggest that these support mechanisms are perceived by entrepreneurs as having provided a crucial pecuniary motivation among consumers to adopt eco-innovation, creating greater market certainty for green start-ups. However, when these support mechanisms are reformed, aiming at greater market integration for eco-innovation, green start-ups find this transition from protection to more market exposure as challenging and more suited for incumbent firms.