The topic of the transitionfrom a concentrated and unidirectional economic model, based on fossil fuels toa decarbonized one is increasingly current, despite the resistant of someconcentrations of interest that are strenuously opposed to an unavoidablechange of paradigm.We are living an era that inthe next few years foresees a sharp increase in population, an expansion ofdeveloping economies together with the improvement of citizens’ livingstandards. As a result, global energy demand is expected to doublesimultaneously with these expansions by 2050 and a further increase ingreenhouse gas emissions could occur if energy demand is not brought undercontrol. However, this is not the only reason behind why today activity againstenvironmental change represents a priority for governments around the world. Atimely transition can provide an opportunity for competitive advantage,development and new additional business for precursors. The so-calledlow-carbon economy is part of the bigger phenomenon named green economy, a neweconomy that is making its way in the world.
It represents a more democratic,egalitarian and respectful economy, destined to transform and replace the oldeconomy based on the maximum exploitation of natural resources and on thescares attention to the impacts of human activities on the environment and onsociety. The low-carbon economy represents an almost anthropological changethat can change our society from its foundations and that requires a differentperspective also with respect to the concepts of work and profit. A perspectivethat involves everyone, from businesses to citizens called to interpret a newrole and to take on new responsibilities. In fact, the issue around thelow-carbon economy is not just about environmental sustainability, but alsosocial and economic sustainability. It is therefore not just a business of thisor that sector, but it is an overall productive culture that concerns and caninvest the entire economic system of a country. In fact, the path of transitioncould encounter many obstacles.
First of all, the inertia of the old systems ofproduction and consumption along with the equally strong resistance of thepolitical class, which is much more tied to a traditional vision of the economy.Second, there is the chronic delay in conceiving research and training asstrategic. Yet, beyond all these aspects, perhaps the most detrimental is thelack of a clear and solid shared vision. That is the decisive component thatallows for the implementation of integrated economic, social and environmentalpolicies, which would eliminate partial and sectoral solutions only capable ofpromoting particular interests. Therefore, the road to be taken for theadoption of a low-carbon economic system is long and requires a profoundtransformation of the economic regime.
It is therefore on the differentattitude to resilience and innovation that different models of capitalism playthe shift to a low-carbon economy. In thisanalysis, will be employed the Soskice and Hall’s LME/CME approach (2001),which aims to define the socio-institutional characteristics of differentsystems, in order to establish the aspects on which a model has a comparativeadvantage in a low-carbon transition over the other. This study considers thechance for the two pure models of capitalism, coordinated and liberal marketeconomies as defined by the VoC framework, of transiting to a low-carbon economy.The essay provides a picture of three key driving factors that allow thetransition; in sequence innovation, financing and the political-institutionalcontext and applies them to the CMEs/LMEs perspective.Based on the mentioned, threecomponents of the transitions, the analysis will argue that LMEs, having acomparative advantage in radical innovation and in getting private funding forit, are more suitable than CMEs for the emergence of a low-carbon economy.Actually, the chance for CMEs to move towards a low-carbon economy is lowbecause they are organized on the heavy presence of industries and trade unionsthat would obstacle the dismantling of the whole economic structure or at leastthey would slow it down. The essay is so structured.
Section 2 shortly exposes studies on LMEs and CMEs’ prospects to move to agreener economy. Section 3 introduces the low-carbon economy and lists itsimplications. Sections 4, 5, 6 apply the three main drivers of the transitionto LMEs and CMEs’ settings to examine the probability for them that alow-carbon economy will emerge. Section 7 takes the UK and Germany as examples,for LMEs and CMEs respectively, to observe current outcomes. Finally, section 8outlines main conclusions. I) CMEs VS LMEs in the transition Differentstudies state that, according to the new institutionalism theory, thedevelopment and support of new sustainable technologies and the institutionalarchitecture of the countries are directly related. Therefore, CMEs, facing amore stable political structure and a clear integration between actors involved,are more predisposed to encourage new sustainable technologies development.
Accordingto S. Cetkovic and A. Buzogàny (2016), features of political coordination andthe State’s decentralization, united with a targeted support for research, makeCMEs able to acquire a pivotal role in the transition to renewableenergies.
While S.Cetkovic and A. Buzogàny focus their attention on the level of coordinationwithin a State and in particular in Germany, however, according to Lema et. Al(2014) was the existence of a number of favourable factors, the most importantof which is the full and stable support of the government, to ensure thatGermany put efforts in favour of renewable energies.However, these studies primarilyfocus on political and institutional changes, leaving a marginal place toinnovation and its relationship with governance.
Instead, in this analysis,innovation, seen as a vital element of the transition, becomes a starting pointto understand how LMEs and CMEs support innovation and consequently how likelyis the transition for them. II) A TRANSITION TO A LOW-CARBONECONOMY A transitiontowards a progressively more sustainable future, with decreasing greenhouse gasemissions and the recovery of environmental degradation, requires a differenteconomy, namely more environmentally friendly production, processes andtechnologies and a different concept of well-being, associated with newcriteria through which companies can evaluate the added value they produce as afunction of the whole wealth and not just the flow of revenues and the numberof accumulated machines and infrastructures. The vector of this absolutelyneeded transformation is the low-carbon economy which, although declinedaccording to different sectoral meanings and scaled to the levels ofdevelopment of various nations and their vocations, gathers all the effortcurrently ongoing in the world towards sustainable development. The low-carboneconomy involves a new vision of problems and dynamics of development, newcultures, different skills and training methods.
Indeed, from this transition,derive new sectors (low-carbon sectors), new types of job (green jobs) and newtechnologies (green technologies).The technicaland economic feasibility of this challenge will depend not only in the realconviction for the cause but also on the different development perspectives,public policies and risks that will take place on the road to change. This willrequire a structural transformation of society, a new consciousness, arevolutionary order. A modern economycannot move towards a low-carbon path if traditional industries do not increasetheir energy, carbon and material efficiency through new ways of organizing orthrough new forms of innovation that lead to products that are less energeticin their use, even if this innovation is triggered by considerations of cost orcompetitiveness rather than genuine environmental concerns. However, withoutenvironmental interests and without an adequate vision of their future, no onewould be able to remain for long on a coherent transition path towards adifferent and sustainable type of economy.
Hence, a transition with deepmeanings, which go far beyond the narrow energy and economic boundaries, leadingto ethical and social contexts. The possible success in thelong term will require new skills, different collaborations, continuousinnovation, investments with uncertain returns and a change in what are today’smarket values. In recent years,many are the temporal hypotheses linked to the scenarios of such a transition.One of these is represented by the interesting study by Benjamin K.
Sovacool(2016) entitled “How long will it take? Conceptualizing the temporal dynamicsof energy transitions”, according to which the new energy and economicrevolution can be completed within a fraction of the time that was necessaryfor previous revolutions. However, he says, in order to get there “it wouldtake an interdisciplinary collaboration, a multi-scale effort”. He argues thatthe transition towards a low-carbon economy may be different than the pasttransitions since resource scarcity, the threat of climate change and thegreatly improved technological knowledge and innovation could greatlyaccelerate global change for a cleaner economic future. III) Innovation According toAldo Bonomi’s holistic view, “Low-carbon economy means reasoning around theways in which the model of capitalist development incorporates the sense of’limit’ (environmental, social, productive), as a new principle ofaccumulation, making it the engine of a new cycle.
It appears as a paradigmthat invests productive processes, products, regulatory policies, lifestyles,artistic representations, (re)use of the territory, smart cities, smart lands”,(Il Sole 24 Ore, 30th of April 2014). The sense of the limit,identified as the new principle of accumulation, offers a new interpretation tothe low-carbon economy, whose efficient achievement is only possible bymodifying in depth not only the production processes and products, but also theorganization of the industrial and territorial supply chains.In fact, thetransition towards a low-carbon economy is a complex process that not onlyrepresents the transition from a traditional economy to a greener one but itpresupposes a radical change in the structure, culture and practices thatcharacterize the society. It is a transversal challenge as well as anopportunity of growth for countries. This can be achieved through thedevelopment and implementation of eco-innovations; ie. those types ofinnovation which take into account not only the economic profile, but also thesocial and environmental dimensions as essential components of sustainabledevelopment. The low-carbon economy is a constantly moving construction site inwhich the traditional economy is transformed, bringing with it a radical changein the structure of society and in its culture. Therefore, innovations seems tobe the first driving factor for the development of a low-carbon economy and, inthis context, we talk about the so-called ‘eco-innovations’.
The objective of aneco-innovation is that of a radical change towards new production andconsumption systems based on a sustainable supply and use of resources and areduction/elimination of emissions and consequent impacts, which graduallyleads to the absolute decoupling between growth, use of resources and impactson ecosystems. Each type of eco-innovation per se leads to incrementalimprovements. However, the path to sustainability requires the shift fromincremental innovations to radical innovations that have broad systemic effectsand are the only way to solve environmental problems.Therefore, it can be deducedthat the low-carbon transition makes a difference between incremental and radicalinnovation, where the latter seems to be more important; even better ifaccompanied by a risk-taking attitude which is essential to produce radicallyinnovative strategies. Linking thisfeature to the VoC framework, Soskice and Hall (2001) distinguish the twomodels of capitalism starting directly from the innovation sector which, inthis perspective, is identified as one of the main factors in the determinationof a comparative advantage.By definition, the radicalinnovation concerns a shift in the technological regime of an economy and leadto changes in the enabling technologies.
This type of innovation iscompetence-destroying and needs some kind of deregulation (Dicken, 2003). Deregulationis usually particular characteristic of liberal economies that exploit it as amethod to improve their level of coordination. Indeed, LMEs are known to be pioneersin areas where innovations are more important and where firms’ mergers andacquisitions are widespread and necessary practices. These are also sectors inwhich the assumption of a business risk plays a more fundamental role in orderto produce innovative strategies that can attract the attention of the market.In contrast, while CMEs enjoyorganizational models based on large companies and structured networks withpolicies specifically aimed at supporting innovation, however they arespecialized in sectors in which incremental innovation is more diffuse. Thus,in the case of coordinated market economies, innovation is usually continue,aimed at introducing improvements to existing processes and services, without fundamentallychanging the underlying key technologies (Dicken, 2003). In fact, it mainlytakes place in traditional industrial field, such as machinery and chemicalsectors, which are in contrast with the emergence of a greener economy.
In conclusion,the innovation is prerogative of the emergence of a low-carbon economy whichrequires a total disruption of production processes and the introduction of notonly radically innovative products, but also radically innovative strategies. Therefore,starting from this point of view and connecting the VoC framework, a low-carboneconomy seems to find more chances to emerge in liberal economies rather thanin coordinated ones, which are far from an incremental innovation model; anindispensable feature of this transition. IV) Financing The process ofinnovation needs the involvement of many subjects. In order to achieve thetransition to a low-carbon economic system, scientific and technologicalresearch play a crucial role. That is why the previous analysis allows us aconnection to the need of financing for R&D and training. The low-carboneconomy requires technological innovations that are guaranteed not only byambitious policies but also by investments, which has a key function toaccelerate the development of technologies, reduce costs and facilitate theimplementation on a large scale.
Moreover, the new technologies are those thatwill have to challenge the old economic system, a transformation of thismagnitude cannot consider to be obtained without a constant search fordevelopment and innovation by both public and private entities. Indeed, R&Doffers a very important contribution that is not only of vital importance inthis sector, but it also offers a chance for an action plan focused onlong-term objectives. The development of low-carbon technologies is alsoclearly connected to the lack of infrastructure, a key problem in the energysector. It can be argued that low-carbon technologies are the best response tothis deficit, especially from a sustainability and equity perspective. In theworld of energy infrastructures, there is a strong need to renew and innovate a’park’ plants in full maturity, adapting the offer to the ever increasing levelof energy demand in the world, mainly coming from a life expectancy in sharpgrowth in the coming decades. The energy infrastructure and sectors essentiallyneed massive amounts of liquidity moving towards them. Thus, finance plays acrucial role in speeding the transition to a decarbonized economy. Investmentscan profoundly influence climate change.
Throughout the process of transitionto a low-carbon economy, major investments are needed: an Accenture research1estimates a requirement of 2.9 trillion euros to finance development androll-out in five key sectors in Europe in the coming years..
Observing theVarieties of Capitalism framework and the structure of financing of LMEs andCMEs, the availability of investments and therefore access to credit shapes thetransition of the two models of capitalism. Historically, LMEs arecharacterized by a strong presence of private non-institutional investors whoinvest personal capital (Venture Capital) or specialized financialintermediaries. Venture capitals, in the strict sense, facilitate the capitalinjection in the early stage phase of innovation, helping its development.Indeed, the presence of Venture Capitals is known to establish a beneficialcircle which produces and spreads the innovation. In particular, the VentureCapital fund can contribute to specific managerial or sector knowledge and itcan also contribute with reputational capital, useful to attract managerial /scientific talents.Therefore, institutions suchas Venture Capital, which has seen its biggest diffusion in LMEs, and appearsto be much less developed in CMEs where instead there is a stronger traditionof banking financial instruments as a form of financing, are more helpful forthe development of low-carbon innovation. In fact, CMEs’ creditsystem characterized by large banking institutions that usually providelong-term investment financing for large industrial companies, drasticallyreduces the possibility of developing risky innovation, which instead have torely more on firms’ internal capital. However, in order to speed upthe development of low-carbon economy financial and economic sectors, clearpublic policies on the target to be achieved, are needed.
This lead us to thelast section of our analysis based on the political-institutional contextbehind countries. V) Political-institutionalcontext The prospects ofa potential low-carbon scenario can be finally deduced from the behavior of themost important players in the political-economic structures of the two models. In fact, thesuccess of such an economy, subject to the constraint of burdensome barriers,such as the global competitiveness on production costs, is also conditioned bythe need for major transformations, both in the political asset management andplanning of the common good and in the cultural models that guide individualcustoms. In these areas, efforts are being made to envisage the evolution ofthe economy, aimed at understanding the inhibitory feedbacks, induced byconsolidated individual behaviors, which hinder the action of technicaldecision-making apparatus.
Innovation anddevelopment of technologies are key elements of the transition towards alow-carbon economy and facilitate its progress, however, they need a solidsocio-political context to support them. Organizational capacity isfundamental.Indeed, the low-carbontransformation is not automatic. It’s a choice. The choices made by governmentsand those involved in development have a huge impact in the transition. Inorder to get to a low-carbon economy model, which could also be social andeconomic sustainable, policies must be inclusive. An integrated and long-termoriented approach is in fact needed for the low-carbon economy sustainabilityof the future.
That is why, in this last section, will be analyzed theimportance of a long-term perspective, planning and key economic-politicalactors. In order toensure the transition, the adopted policy measures will be more effective asthey will be integrated into a medium-long term vision, consistent with theobjectives set. Within a long-term vision, the policy maker will be able tobetter evaluate the opportunity to adopt ambitious measures to guide theevolution of the transition (for example incentive / disincentive plans orplans for the phasing out of certain technologies) capable of anticipating andamplifying the range of benefits that can be activated for the economy itselfand the community. At the same time, the coordination and homogeneity ofpolicies is necessary, not just sufficient. This would be possible by providingthe appropriate tools and coordinating different actors for the development andimplementation of policies that are innovative and consistent with the evolutionof the transition schemes.The political and socialalignment is also a very important condition for investors.
In fact, investorsare leaning towards a visibility on the future. They want to see countries’targets, how they can contribute and how they can benefit from investments in alow-carbon economy. Therefore, investors require stability of policies andclarity on the visibility of the final target. Drawing from theVoC framework, from a political-institutional organization point of view,Coordinated Market Economies seem to have a comparative advantage since theymeet the coordination requirements, necessary to implement a low-carboneconomy. Indeed, according to Soskice and Hall (2001), in coordinated marketcontext, companies rely more heavily on relationships that are not market-basedto coordinate their efforts with other socio-economic and political actors.
While, in liberal market economies, companies coordinate their activities onthe basis of hierarchies and factors architectures typical of a competitivemarket. Of course, the strong dependence on the market, of liberal economies,partly contrasts the vision of stability that guarantees the transition. However, drawing from the ‘Appreciativetheory’ (Geels, cf. Nelson), a structure with little hierarchy can beproblematic for policy makers who have set priorities on environmental issues. Indeed,hierarchies are useful for the pursuit of imminent political priorities. Furthermore,LMEs and CMEs also differ in terms of electoral politics.
Specifically, liberalmarket economies tend to depoliticize social policies, such as theenergy/climate policy, instead of seeking a clear political agreement. Thisrepresents a more sustainable process under transition pressures. While,coordinated market economies are mostly characterized by multi-party systemsaccompanied by institutions aimed at information exchange, behavior monitoringand bad behavior sanctioning, such as trade unions. This implies that in CMEs, wheretrade unions and associations have a certain influence on government’s choicesto protect interests of the heavy industry workers, on what these economiesusually rely on, the decision making process is longer and complex.Indeed, these coalitions couldobstacle such a shift towards this new economic paradigm, since at least at thebeginning of the transition, this would mean the loss of thousands of jobsrelated to an economy based on heavy industry, as for definition it is that ofCMEs. Therefore, the apparent point in favour of cooperation in coordinatedeconomies can actually turn in obstacle in this context. However, a low-carboneconomy could benefit from the absence of a fragmented context of interests andthe presence of hierarchies pushing for a shift, finding in LMEs a more favourableenvironment.1 Accenture,Carbon Capital – Financing the Low Carbon economy, in collaboration withBarclays