The choice between technologyspecific and generic policies

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System innovation requires special support. In appraising innovations eligible for support, one has to ask: does the innovation that produces benefits for climate protection improve the existing regime or offer possibilities for inducing a 'system innovation'? Is there a need for support, and if so how should it be organized? In defining policies, the following elements should be considered:

1. the improvement in environmental performance of an innovation, e.g. strict CO2 reduction potential;

2. the contribution of the innovation to system innovation. In what respect does the innovation deviate from existing regimes?

In answering these questions one should consider four aspects:

- to what extent does an innovation physically fit into an existing technological system? Does it replace or complement the existing technological system? Can it be used in both systems?

- does the innovation have a large or small effect on other dominant rules / performance characteristics in the regime? What is the dominant rule in the regime? Is this rule undermined?

- does the innovation offer possibilities for further improvement, for achieving learning economies? Does it have negative effects? Are there ways to deal with them? Is there a need for the innovation or not?

- does the innovation only affect specific firms or entire product chains and/or industrial sectors?

3. are there developments in the economic, social and technological landscape that sustain the innovation? What are these developments and what are their prospects?

4. who is actually involved in developing the innovation? Why? Who will benefit from the innovation? Is there a need for support?

5. which actors can government approach (whom can they influence?) to actually engage in technological change? What government intervention strategy best fits the existing network of actors involved?

Such an assessment of the incremental or radical nature of an innovation's potential can only be tentative. It needs clear understanding of the existing regime as a point of reference. Such an analysis leads to insight into the extent of the changes that are needed to get an innovation introduced; such an analysis goes beyond a static analysis of the costs and performance of a specific innovation. It needs a comprehensive analysis of the regime and of the feasibility of altering regimes. The first type of analysis consists of mapping the roles, outlook and basic assumptions of regime actors; the second type of analysis involves the identification of alternative futures and visions that are attractive from the perspective of climate protection and related societal points of view. Actors in the existing regime may have long-term visions that are interesting from a climate-protection perspective. Within the car industry, for instance, there is a converging view that in the future people will be using vehicles that run on alternative fuels, and that car use will probably no longer imply individual car ownership but instead car rental. Bill Ford, chairman of Ford, the world's second-largest car maker, has said that fuel cells will end the 100-year reign of the internal combustion engine and that we may witness an end to car ownership as the preferred method of personal transportation. In this vision, Ford and other car makers could own vehicles and make them available to fee-paying motorists when they need access to transportation (Wall Street Journal Europe, 6 October 2000). Government policies for climate protection could build on such ideas, because the emergence of this kind of system innovation will need governmental support. In the example given, the innovation relates not only to new technology but also to structural changes in the car-based mobility system. One of the major challenges would be to develop a car-rental system that meets the same standards of flexibility and quality as private ownership of cars.

The actual design of government policies for climate protection is no simple matter. Policies may be disruptive, or even unnecessary. An example might illustrate this. If government wants to stimulate energy-efficiency improvements in the paper industry it should take into account the concentration of R&D capacity in the relevant machine-supply industry. There are only two major European companies that supply machinery for the paper industry. The two companies almost totally control the core of the existing production technology for paper production. These industries can therefore contribute to energy-efficiency improvements from the 'inside out'. One should also bear in mind that because of their reputation and credibility, these two well-established actors are best positioned to push the traditionally conservative paper manufacturers towards innovation. Governments that want to encourage technological change in the core of the components used in paper manufacturing have to address these suppliers. These actors should not necessarily be stimulated with R&D support since a number of innovative technologies currently being developed have other (more important) advantages than energy saving. The risk of free-rider behaviour (getting money for doing things they would have done anyway) is considerable. Furthermore, it is even questionable whether they are interested in government support to fund the core of their R&D activities. An alternative might be a sort of voluntary agreement on technology development at European level. In this way, governments can try to establish energy efficiency as a higher priority on these firms' research agendas. This is just an example of how government can fine-tune intervention strategies in the existing regime. A more detailed look at the current regime of paper production also makes it clear that the slow rate of technology component replacement at a paper plant is ultimately a major obstacle to exploiting the energy-efficiency potential of 'innovative' technologies.

For these and other kinds of intervention strategies there is already a rich variety of policy instruments. Table 4.1 presents a possible classification of governmental intervention strategies and instruments.

Table 4.1 Policy approaches and strategies

Supporting

Actor interaction

Forcing

+ learning

Technology variation

Coupling of variation

Market selection

and selection

generic

- Subsidies for R&D

- Education policy

- CO2 taxes

- Innovation centres

- tradeable permits,

- covenants about energy

saving

specific

- Research programmes for

- Societal discussions

- Goals for renewable energy

climate-friendly innovation

about sustainable

- Fuel economy standards

- Subsidies for adoption of

transport, energy etc.

climate-friendly technologies

- Development of strategic

- Government procurement of

visions and technology

green innovation

road maps

- Strategic niche management

For the purpose of this book, the question is of course whether the strategies and instruments presented in Table 4.1 can initiate the transitional changes needed to achieve a low-CO2 economy. The section on long term technological change showed that technological transitions are associated with structural change at different levels - companies, production chains, consumers and governmental policies - and are linked to new ideas, beliefs and sometimes even new norms and values. Many of the elements involved in transitions, such as lifestyle changes, rising income levels and changes in beliefs and values, cannot be managed. This raises the question: can a transition towards a low-CO2 economy really be managed? The simple answer to this question is of course 'no, transitions defy control'; a more qualified answer is that although transitions cannot strictly speaking be managed, it is possible to work towards a transition, to give leverage to processes of change, and to modulate ongoing dynamics.

Basically there are two ways to accomplish this. Firstly, through generic policies, for example by judiciously applying economic and/or social incentives and disincentives to make some possible paths more interesting and feasible than others and vice versa. Secondly, through technology-specific policies, for example the promotion of electric vehicles through research programmes, tax credits (investment subsidies) and the use of local experiments. Technology-specific policies interfere directly in the dynamics of technical change, rather than indirectly as generic policies do. Examples of generic and specific policies are given in Table 4.1. They are arranged into three categories that are derived from an evolutionary perspective of processes of socio-technical change: policies that stimulate technology variation, those that work through the selection process and those that couple variation and selection.

For a transition to a climate-friendly economy, both types of policy approaches are needed. Generic policies such as carbon taxes are needed, especially for the uptake of climate-friendly technologies. They are in line with the economic dictum that 'prices should speak the environmental truth'. Products should be penalized according to their economic cost to society. Prices should reflect social costs. Positive externalities should be rewarded. This is an argument for the use of subsidies for technologies whose social benefits exceed the benefits for the innovator, as is often the case with climate-friendly technologies whose environmental benefits have no value in the market place.

Generic policies that change the economic frame conditions for technical change are important for transition processes towards a low-carbon economy. However, it is questionable whether they alone are able to promote the development of radical solutions that have not benefited from dynamic and scale and learning effects and adaptation of society (Kemp and Soete, 1992; Kemp, 1994). Radical solutions are often rejected and opposed by regime actors who favour incremental change (system optimization) because it is less disruptive. Therefore, the promotion of radical solutions and system innovation also requires technology-specific policies. So both types of policies are needed, and the pros and cons of each of them will differ from case to case.5

5 A discussion of instruments is offered in Kemp (1997) and Kemp (2000).

Even then, we do not feel the combined approach of generic and specific policies is enough to produce the transitional changes required for the climate-neutral economy of 2050. System inertia can be strong, as our analysis in the previous sections of this chapter showed, and fossil fuels are still considered extremely significant for industrialized society and its development. What is lacking are clear notions of alternatives for the fossil-based development paths in industrialized society and clear perspectives on alternative technological routes. These kinds of future climate-neutral perspectives could provide a meaningful context for the development and implementation of short-term technology policies, either generic or specific. In combination with short-term policies they can fuel transitional change. What is needed, therefore, is a comprehensive new perspective on climate-oriented technology policies to align short-term policies to longer-term goals. Transition management provides such a comprehensive, integrative perspective.

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