sustainability Article An Analysis of the Eco-Innovation Mechanism and Policies in the Pulp and Paper Industry Based on Coupled Game Theory and System Dynamics Lin MA * and Jiayu HU School of Management Science and Engineering, Nanjing University of Information Science & Technology, Nanjing 210044, China; [email protected] * Correspondence: [email protected] Received: 25 July 2018; Accepted: 21 September 2018; Published: 28 September 2018 Abstract: The environment is the basis for the living and development of the human, and eco-innovation is the key driver of new economic growth. However, for some underdeveloped regions in China, it is still a challenge for the local government to get a balance between the goals of economic and environment. The paper selects the pulp and paper industry, which creates tremendous pollution to the environment and is closely related to the daily life. According to the particular characteristics of pulp and paper industry in Sichuan Province, the industry of pulp and paper of bamboo is redesigned to improve the local ecosystem, while increasing the income of local farmers. From the perspective of game theory, the relationships between the government, the enterprise, and the farmers are analyzed. The result shows that government increases the subsidy and penalty to the enterprise, which can increase the investment in eco-innovation, enhancing the competitiveness of enterprises and raising the income of farmers. Moreover, it can also improve the ecologically fragile areas by the utilization of bamboo park. In addition, in this paper, a system dynamics model is proposed to explore the impact of different policies on the environment. The results show that increasing the subsidy is a more efficient way to protect the environment, and is one of the important drivers to eco-innovation in some underdeveloped regions in China. Keywords: eco-innovation; game theory; system dynamics; pulp and paper industry 1. Introduction The environment is the foundation for the living and development of human. President Xi Jinping said that in his speech in 2018: environment is the livelihood of the people, green mountain is the beautiful, and blue sky is also happiness. Nowadays, sustainable development is a hot issue in industrial upgrading and transformation in China [1]; therefore, Chinese President Xi Jinping stressed to say that “lucid waters and lush mountains are invaluable assets”. As the greenhouse effect has intensified, global warming has caused a series of environmental problems that have made people attach more importance to the environmental issues. As a result of the rapid growth of the population, companies make unrestrained requests and destruction of the environment to meet the demand of global markets. For example, some companies directly discharge waste gas and water into environment without treatments, which will cause serious damage to atmosphere layers and water resources. Eco-innovation is regarded as an important way to achieve industrial transformation and upgrading, especially in the regional pulp and paper industry [2]. Eco-innovation is a new concept that is under development, by improving methods, products, and processes to protect environment and obtain the sustainability for development. Eco-innovation means provides a high quality of life by consuming less resource and minimizing the release of harmful substances. Therefore, eco-innovation Sustainability 2018, 10, 3482; doi:10.3390/su10103482 www.mdpi.com/journal/sustainability Sustainability 2018, 10, 3482 2 of 25 is considered as a major strategy by the European Union to help promote the effectiveness of resources and build a low-carbon society [3]. The Copenhagen Climate Conference in 2009 once again pushed the topic of sustainable development to an unprecedented level, and the green growth has become the political goal pursued by countries around the world. The increase in demand for eco-innovation is due to the pressures of environmental challenges [4]. According to the forecast of the China T21 model constructed by the Millennium Institute of the United States, all the resources in the world are only enough for China to consume 74 years from the current resource consumption rate. Therefore, the government and scholars in China pay more attention to eco-innovation. Nowadays, in China, due to the lack of efficient policy and backward production equipment, a large amount of energy is wasted and the environment is also in dangerous situation, especially in some heavy-pollution industries, such as pulp and paper industry, steel, and chemical engineering. In some underdeveloped areas, due to the lack of awareness of local enterprises and individuals to protect environment, poor areas often develop economics at the expense of environment. At the same time, the local government excessively pursues economic benefits to achieve the goals of poverty alleviation, resulting in the damage of ecological environment in those areas, which increases local ecological vulnerability and the frequent of geological disasters. Moreover, it will cause outflows of population, and the difficulties in introduction of talents. As a result, it is often impossible not only to achieve environmental protection in poor areas, but also to obtain the goal of poverty alleviation. Eco-innovation is a fast-growing area of research. Fussler and James first proposed the concept of eco-innovation, and it refers to innovation that can significantly reduce the impact on environment and obtain benefits for the companies [5]. The concept of sustainable development is defined as development to meet current needs without sacrificing the ability of future generations. Eco-innovation is an important way to contribute to sustainability by R&D new products, improving production processes, and methods [6]. With a clear trade-offs between environmental protection and economic growth, eco-innovation plays a core role by improving environmental technologies to avoid and treat pollution to ensure that the final product will have minimal environmental impact over the product life. Laforet believes that eco-innovation includes economic and environmental benefits, and it can be defined as the production, development of the product, and production process that is useful to reduce environmental risks, pollution, consumption of energy [7]. Peng and Huang believed that eco-innovation is an important way for countries, industries, and enterprises to achieve sustainable development; therefore, it has important theoretical and practical significance [8]. Eco-innovation is not only about technology, but also about organization, culture, and social dimensions [9]. Eryigit and Özcüre divided eco-innovation into three dimensions: technology, organization, and policy [10]. At present, there are many researches about eco-innovation, which focus on pulp and paper industry. The pulp and paper industry is a high energy-consuming industry, and it also generates tremendous pollution to the environment [11]. The researches of eco-innovation in the pulp and paper industry mainly focus on energy consumption, policies and reducing the impact on the environment. Peng and Zeng believed that the pulp and paper industry has huge potential for energy saving, and it can generate huge economic benefits [12]. Kong and Hasanbeigi evaluated 23 kinds of energy-saving technologies and proposed development directions for future R&D [13]. In addition, researches on energy consumption are often associated with the emissions of carbon dioxide [14]. Onarheim and Santos revealed that the application of Carbon capture and storage technology can effectively reduce the emissions of carbon dioxide from the pulp and paper industry [15]. Joelsson and Gustavsson believed that the emissions of carbon dioxide from the pulp and paper industry can be reduced by improving energy efficiency [16]. In some studies, which related to the policies, Scordato and Klitkou believed that the mixes of policies are the key drivers of eco-innovation [17]. Additionally, the strict regulatory measures have the potential to contribute toward long-term competitiveness in the pulp and paper industry [18]. Ericsson and Nilsson also found that the change in climate policy contributes to the revolution of pulp and paper industry in Europe [19]. In addition, effective policies can contribute Sustainability 2018, 10, x FOR PEER REVIEW 3 of 25 Sustainability 2018, 10, 3482 3 of 25 Europe [19]. In addition, effective policies can contribute to the protection of the environment. Zhang and Chen found that the pollutants in the wastewater can be reduced through integrated to the protection of the environment. Zhang and Chen found that the pollutants in the wastewater can policy measures [20]. Bergquist and Keskitalo believed the effective policies can improve the be reduced through integrated policy measures [20]. Bergquist and Keskitalo believed the effective performance in protection of environment while maintaining a high level of productivity [21]. policies can improve the performance in protection of environment while maintaining a high level of The main goal of the paper is to discuss how to reduce the impacts from the pulp and paper productivity [21]. industry on environment in China by utilization of eco-innovation, increase the income of local The main goal of the paper is to discuss how to reduce the impacts from the pulp and paper farmers to realize targeted poverty alleviation, and improve ecological vulnerability of areas. This industry on environment