Abstract
This study extends knowledge on Environmental Innovation (EI) by exploring the multifaceted barriers that deter firms from embracing EI strategies, a vital component for mitigating the impact of climate change. Drawing on market failure theory, this study examines how these barriers are disproportionately encountered by firms based on size, within the context of the UK amidst the Brexit transition period. The findings underscore significant market failure-driven obstacles, including regulatory frameworks, financing difficulties, economic risks, and information gaps, which notably hinder firms engaged in EI compared with firms engaged in broader innovation activities. Furthermore, it sheds light on the variances in challenges faced by firms of different sizes, enriching the discourse on the applicability of market failure theory to environmental innovation dynamics. This contribution is pivotal in disentangling the barriers to EI from wider innovation barriers, thus enabling more focused EI policy interventions, as well as guiding future research in fostering a conducive environment for EI amidst changing regulatory landscapes.