The low-carbon technologies are the best response to this

The process of innovation needs the involvement of many subjects. In order
to achieve the transition to a low-carbon economic system, scientific and
technological research play a crucial role. That is why the previous analysis
allows us a connection to the need of financing for R&D and training. The
low-carbon economy requires technological innovations that are guaranteed not
only by ambitious policies but also by investments, which have a key function
to accelerate the development of technologies, reduce costs and facilitate the
implementation on a large scale. Moreover, the new technologies are those that
will have to challenge the old economic system; a transformation of this
magnitude cannot consider to be obtained without a constant search for
development and innovation by both public and private entities. Indeed, financing
for R&D offers a very important contribution that is not only of vital
importance in this sector, but it also offers a chance for an action plan
focused on long-term objectives. The development of low-carbon technologies is
also clearly connected to the lack of infrastructure, a key problem in the
energy sector. It can be argued that low-carbon technologies are the best
response to this deficit, especially from a sustainability and equity
perspective. In the world 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 level of energy demand in the world, mainly coming from a life
expectancy in sharp growth in the coming decades. The energy infrastructures
and sectors essentially need massive amounts of liquidity moving towards them. Hence,
investments can profoundly influence climate change. Throughout the process of
transition to a low-carbon economy, major investments are needed: an Accenture
research1
estimates a requirement of 2.9 trillion euros to finance development and
roll-out in five key sectors in Europe in the coming years.

Various studies
have highlighted the existence of positive correlations between the amount of
resources that Venture Capital (VC) funds have to support innovation projects
and the growth of the innovation technology rate in a given country (Helmann
and Puri 2002; Kortum and Lerner 1998; Kaplan and Stromberg 2000). The VC is
seen as an instrument particularly suited to the financing of the innovation,
since it is an instrument that, due to its characteristics, has a high
adaptability. . Indeed, the presence of Venture Capitals is known to establish
a beneficial circle which produces and spreads the innovation. In particular,
the Venture Capital funds can contribute to specific managerial or sector
knowledge and can also provide for reputational capital, useful to attract
managerial/scientific talents.

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Observing the Varieties of Capitalism framework (2001) and the structure of
funding of LMEs and CMEs’ financing, the availability of investments and
therefore access to credit shapes the transition of the two models of
capitalism.

Historically, in LMEs financing needs are mainly met through the raising of
capital on the stock market. Indeed, these economies are characterized by a
strong presence of private non-institutional investors who invest personal
capital (Venture Capital) or specialized financial intermediaries. While, CMEs’
credit system characterized by a much less developed stock market and the
long-term financing needs mainly met by banks, drastically reduces the
possibility of developing risky innovation, which instead have to rely more on
firms’ internal capital.

Therefore,
institutions such as Venture Capitals, which are more helpful for the
advancement of low-carbon innovation, have their biggest diffusion in LMEs than
in CMEs, making liberal market economies more predisposed to the financing of
radical innovation which are risky by their nature.

However, in order to speed up the development of low-carbon economy
financial and economic sectors, clear public policies on the target to be
achieved, are needed. This leads us to the last section of our analysis based
on the political-institutional context behind countries.

 

 

I)             
Political-institutional
context

 

The prospect of a potential low-carbon scenario can be finally deduced from
the behavior of the most important players in the political-institutional
structures of the two models.

 

In fact, the success of such an economy, subject to the constraint of
burdensome barriers, such as the global competitiveness on production costs, is
also conditioned by the need for major transformations, both in the political
asset management and planning of the common good and in the cultural models
that guide individual customs. In these areas, efforts are being made to
envisage the evolution of the economy, aimed at understanding the inhibitory
feedbacks, induced by consolidated individual behaviors, which hinder the
action of technical decision-making apparatus.

 

Innovation and development of technologies are key elements of the
transition towards a low-carbon economy and further its progress, but they need
a solid socio-political context which will support them.

Indeed, the
low-carbon transformation is not automatic. It’s a choice. The choices made by
governments and those involved in the development have a huge impact on the
transition. In order to get to a low-carbon economy model, which could also be
social and economic sustainable, policies must be inclusive. An integrated and
long-term oriented approach is in fact needed for the low-carbon economy
sustainability of the future. That is why, in this last section, will be
analyzed the importance of a long-term perspective, planning and key
economic-political actors.

 

In order to ensure the transition, the adopted policy measures will be more
effective as they will be integrated into a medium-long term vision, consistent
with the objectives set. Within a long-term vision, the policy maker will be
able to better evaluate the opportunity to adopt ambitious measures to guide
the evolution of the transition (for example incentive / disincentive plans or
plans for the phasing out of certain technologies) capable of anticipating and
amplifying the range of benefits that can be activated for the economy itself
and the society. At the same time, the coordination and homogeneity of policies
is necessary, not just sufficient. This would be possible by providing the
appropriate tools and coordinating different actors for the development and
implementation of policies that are innovative and consistent with the
evolution of the transition schemes.

The political
and social alignment is also a very important condition for investors. In fact,
investors are leaning towards a visibility on the future. They want to identify
countries’ targets, how they can contribute and how they can benefit from
investments in a low-carbon economy. Therefore, investors require stability of
policies and clarity on the visibility of the final target.

 

Drawing from the VoC framework, from a political-institutional organization
point of view, Coordinated Market Economies seem to have a comparative
advantage since they meet the coordination requirements, necessary to implement
a low-carbon economy. Indeed, according to Soskice and Hall (2001), in
coordinated market contexts, companies rely heavily on relationships that are
not market-based to coordinate their efforts with other socio-economic and
political actors. While, in liberal market economies, companies coordinate
their activities on the basis of hierarchies and factors architectures typical
of a competitive market. Of course, the strong dependence on the market, of
liberal economies, partly contrasts the vision of stability that guarantees the
transition. However, according to Geels (2002), drawing from the ‘Appreciative
theory’ of transition, (Nelson and Winter, 1982), a structure with little
hierarchy can be problematic for policymakers 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, liberal market economies tend to depoliticize social policies,
such as the energy/climate policy, instead of seeking a clear political
agreement. This represents a more sustainable process under transition
pressures. While, coordinated market economies are mostly characterized by
multi-party systems accompanied by institutions aimed at information exchange,
behavior monitoring and bad behavior sanctioning, such as trade unions. This
implies that in CMEs, where trade unions and coalitions have a remarkable
influence on government’s choices, in order to protect interests of the heavy
industry workers, the decision-making process is longer and complex.

Indeed, these
coalitions could obstacle such a shift towards this new economic paradigm,
since at least at the beginning of the transition, this would mean the loss of thousands
of jobs related to economies based on heavy industry, as for definition it is
that of CMEs. Therefore, the apparent strength of cooperation in coordinated
economies can actually turn in an obstacle in this context. However, a
low-carbon economy could benefit from the absence of a fragmented context of
interests and the presence of hierarchies pushing for a shift, encountering in
LMEs a more favourable environment.

1 Accenture,
Carbon Capital – Financing the Low Carbon economy, in collaboration with
Barclays