Can environmental policy promote technological innovation related to environmental matters (environmental innovation, hereafter )? Technological innovation is indispensable for dealing with environmental problems, particularly for long-run environmental problems such as global warming . However, environmental innovation has not been analyzed in sufficient depth. From the policy perspective, it is important to assess how governments can promote environmental innovation. Although economic theory predicts that economic instruments induce environmental innovation than the command-and-control, few empirical studies support the theory. The objective of this project is, thus, to examine the impacts of environmental policy instrument choice on environmental innovation through empirical studies of U.S. and Japanese experiences. The United States provides an important case of environmental policy instruments . The U.S. power industry has extensive experiences of emission trading of sulfur dioxide (S02 allowance market) and emission trading of nitrogen oxides (Ozone Transport Commission NOx Budget Program). Moreover, the emission trading of carbon dioxide (C02) is prepared to be implemented (Regional Greenhouse Gas Initiative). The proposed project will be completed as follows. First, I examine the effects of U.S. emission trading programs on the invention of the new technology and on the improvement of the exiting technology . Using an econometric approach, I quantitatively compare the effects of the emission trading on environmental innovation with the effects of command-and-control approach. The compassion will be accomplished by examining the abatement technology before and after the introduction of emission trading. Second, I investigate how the U.S. emission trading programs promoted the diffusion of environmental technologies. I focus on low NOx -burner for NOx and scrubber (S02 abatement technology) . Using an econometric approach of a panel data analysis, I quantitatively examine the adoption of the new environmental technology at power plants. Finally, I compare research results on Japanese experiences, which I have been working on currently, with these results on innovation of U.S. emission trading. In Japan, a sulfur charge was used to reduce S02 emission from plants. As to NOx, Japanese government recently started to use subsidies to promote a new technology. In addition, Japanese Business Federation has been implementing voluntary action programs to deal with the global warming issue. Most of data on the U.S. emission trading can be obtained from Environmental Protection Agency and Department of Energy in Washington D.C. Data on patent is available from at National Bureau of Economic Research in Cambridge, Massachusetts . Therefore, I will plan to stay in Washington D.C. and in Massachusetts . I already obtained an invitation letter from Resource for the Future, a leading institute in environmental economics in D.C. Professor Nicole Darnall at George Mason University also promised to accept me as a visitor . The results on this project will be disseminated in several forms. First, I would like to publish the research results in international professional journals. Second, I would like to organize an international symposium with U.S., Japan and EU experts on environmental innovation. Finally, I would like to publish a book on environmental innovation that compares the U.S. case with the Japanese case.