This paper investigates whether environmental regulations become obstacles or a cause for innovation in Japan by examining some empirical evidences on how environmental regulations affect the course and character of technological change through innovative activities of the firms in Japan. Available literature shows that it is rather very difficult to measure the stringency of environmental regulations and its effects on subsequent innovations at aggregate levels. As a result, this study adopted detailed case studies to overcome the problems of previous empirical studies due to their aggregate nature and to understand well the nature of the relationship between environmental regulations and innovation. In this paper, we picked up the cases of Toyota Prius and Nissan Leaf to study and examine the impacts of environmental regulations on innovation.

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