Do regulations encourage innovation? The case of energy efficiency in housing

This paper addresses the impact of building regulations on constraints and drivers for innovation. It seeks to clarify whether a supposed shift from prescriptive to performance-based regulations has improved the environment for technical innovation in energy efficient housing in Britain. We argue that when 'performance-based' building regulations are treated as static sets of technical requirements, their effect is similar to more traditional prescriptive forms of regulation. A more progressive approach is possible in which regulations can be used as part of a portfolio of policies aimed at improving performance. In this mode, functional performance specifications can stimulate systemic innovation. A flexible 'performancebased' form of standard could provide firms with the freedom, market incentive and institutional frameworks within which to innovate. The process itself could lead to information sharing and cooperation but for this to be achieved, competitiveness and regulatory policies need to be co-ordinated better. Regulatory objectives and mechanisms for achieving them need to match. Regulations need to accommodate technical change at different levels in the production process, including new product development and systems integration.