17. Responding to sustainability challenges

2 Responding to sustainability challenges

© Catalin Tibuleac, Sustainably Yours /EEA

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Summary

• Responding to the persistent • Public policies and institutions and emerging challenges facing can promote system innovation, Europe will require transitions in the including by supporting production‑consumption systems experimentation, correcting market driving impacts on the environment failures, facilitating the spread of new and health. ideas and approaches, and helping ensure a just transition. • Sustainability transitions are highly complex and uncertain processes. • Governments can accelerate Governments cannot simply plan and systemic change by helping cities to implement them. Yet, public policies innovate and network, by reorienting and institutions are essential to financial flows towards sustainable catalyse and orient systemic changes investments and by developing in cooperation with businesses and relevant knowledge systems and skills. civil society. • Achieving sustainability transitions • Transitions involve the emergence requires public engagement in and upscaling of diverse innovations. defining visions and pathways, There is a need for more emphasis on coherence across policy domains social innovation, behavioural change and scales, and use of foresight and and nature-based solutions. adaptive approaches to navigate risks. Ecosystem-based approaches can help manage cross-system interactions within environmental boundaries.

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17. Responding to sustainability challenges

17.1 to produce synergies or trade-offs with From challenges to responses other sustainability objectives.

During the last two decades, the Europe is not alone in needing to achieve concepts of ‘sustainability transitions’ systemic change. Indeed, Europe cannot and ‘transformations’ have become Systemic change is necessary achieve its sustainability objectives increasingly prominent in the academic for the EU to achieve in isolation. The interconnection of literature (Köhler et al., 2019). Since the world’s environmental, social and 2015, this trend has been matched its sustainability objectives. economic systems implies the need by a growing uptake of the language for concerted international efforts. and logic of sustainability transitions These are global problems, requiring in European policy frameworks. As global responses. noted in Chapter 15, the EU’s long‑term strategy for a climate-neutral Europe In responding to these challenges, and the European Commission’s societal actors and creating stakeholder the EU’s economic scale, diplomatic reflection paper on the 2030 agenda for platforms; and increasing adoption of and trade links, and leadership in sustainable development (EC, 2018b, system transitions approaches, including environmental governance confer 2019d) adopt the language of transitions particular emphasis on innovation. significant influence. Beyond systematically. Similarly, EU strategies intergovernmental processes, the such as the circular economy action As discussed in Chapter 16, the many globalisation of supply chains mean plan, the Energy Union strategy and interlinkages in societal systems create that European product standards and the ‘Europe on the move’ agenda a profoundly complex challenge for business practices can have effects well embrace a systemic rather than a governance. Lock-ins, barriers and beyond Europe’s borders. Similarly, the sectoral focus, emphasising economic feedbacks mean that interventions consumption choices of Europeans also transformation towards long-term may encounter resistance or produce have implications for environmental and targets (EC, 2015a, 2015b, 2017a). They unexpected outcomes, such as social outcomes across the world. are characterised by multidimensional shifting problems to other locations, goals, addressing themes such as jobs, rather than tackling them. These Nevertheless, there are clear competitiveness, fair access to resources interdependencies also mean that constraints on Europe’s ability to shape and sustainability; a focus on diverse pursuing environmental goals is likely environmental outcomes in other

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ecology, evolutionary economics, developments include long-term By embracing transitions, innovation theory and political economy megatrends (e.g. social, economic, each focus on different kinds of change environmental) as described in demonstrating solutions and processes and scales of activity. Yet, Chapter 1, or more sudden shocks seizing related opportunities this diversity is increasingly coalescing (e.g. a nuclear accident), which disrupt Europe can lead the global into a broadly shared understanding the regime. Cracks in existing regimes effort for change. of sustainability challenges, which may arise from internal problems, emphasises the barriers to transforming external landscape pressures or complex systems and the role of drivers bottom-up pressure from niche of change at the macro and micro levels innovations (Turnheim and Geels, 2012). in enabling the emergence of new Collectively, this implies that transitions regions. Decision-making processes ways of living, working and thinking occur through dynamic, multi-level at the global level are frequently slow (EEA, 2018). interactions between diverse actors, and produce disappointing outcomes, including businesses, users, researchers, and enforcement mechanisms are The ‘multi-level perspective’ on transitions policymakers, social movements and often lacking (EEA, 2015b). With this (Figure 17.1) is a useful model for interest groups. in mind, Europe’s greatest potential understanding how these interactions influence may come from global shape the dynamics of change in Figure 17.1 distinguishes three leadership in embracing the need for production-consumption systems phases within transitions processes: transformation — demonstrating that (Smith et al., 2010; Markard et al., 2012; the emergence of novel practices or there are solutions to the problems Geels et al., 2017). It describes transition technologies; their diffusion and uptake facing countries and regions across the processes as arising from the interplay across society; and the disruption and world and seizing associated social and of developments at three levels: regime, reconfiguration of established systems. economic opportunities. niche and landscape. At each phase, innovations face major barriers, including inadequate funding, The EU’s emerging strategic policy The regime comprises the diverse uncertainty about technical viability and frameworks provide an essential factors that structure existing modes consumer responses, incompatibility foundation but in practice they are just of producing and consuming. As with established regulations or cultural a start. Major questions remain to be discussed in Section 16.5, these norms, and active resistance from answered. How, for example, can the EU include technologies, regulations, incumbent businesses. and its Members States translate their infrastructures, behaviours and cultural long-term ambitions into coherent and norms, which have co-evolved in ways Transitions are thus fundamentally relevant actions? How can society‑wide that hinder the emergence of alternative uncertain processes, typified by systemic change be catalysed and technologies, business models and setbacks and accelerations, surprises steered towards long-term goals? social practices. In terms of price and unintended consequences. This And what role do public policies and and performance, for example, novel makes it impossible to know in advance institutions at different levels have in innovations are likely to struggle against precisely what innovations will emerge, such processes? This chapter begins to established approaches that have whether or how they will be integrated respond to those questions. benefited from decades of incremental into lifestyles, and how they will affect improvements and investments. sustainable outcomes.

17.2 For innovations to alter the dominant Figure 17.2 presents an application Understanding sustainability system, three things are needed: niches, of the multi-level perspective to the transitions landscape developments, and cracks food system, including illustrative in existing regimes (Kemp et al., 1998). examples of landscape trends and 17.2.1 Niches are protected spaces, such important technological, social and The multi-level perspective as R&D (research and development) organisational innovations. The on transitions labs or demonstration projects, where multi‑level perspective also provides a entrepreneurs can experiment and framework for integrating ideas from The growing body of research develop radical innovations without a range of transitions perspectives into sustainability transitions and direct exposure to market forces, (e.g. Smith, 2012; Göpel, 2016). transformations has its roots in diverse consumer preferences, and so on These include insights into how research fields. Disciplines such as (Smith and Raven, 2012). Landscape social practices change; the role of

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FIGURE 17.1 The multilevel perspective on sustainability transitions

Landscape

Landscape developments put pressure on existing regime

Consumer preferences Science Regime

Skills Culture

Policy Investments

The regime is initially stable Tensions occur in the regime, Multiple adjustments occur and evolves incrementally creating windows in the regime and a new configuration of opportunity becomes established

Niches

Small networks of actors support innovation based on expectations and visions. Experiments and learning take place

Time Emergence Diffusion Reconfiguration

Source: Based on Geels (2002).

the importance of practices, values, instruments to correct market Sustainability transitions worldviews and paradigms (EEA, 2018). failures and using intergovernmental agreements to address transboundary are non-linear, issues and global collective action society‑wide processes 17.2.2 problems such as climate change. built on innovation and Implications for governance While these tools remain essential, knowledge creation. they also face important constraints. The dynamics and interactions set For example, governments often face out in the multi-level perspective significant political barriers when point to the need for new governance seeking to introduce regulations and communities and cities in enabling approaches to support sustainability pricing instruments consistent with more polycentric forms of governance, transitions. Historically, societies have long-term sustainability goals. Equally, founded on bottom-up action by relied on governments to manage the deficiencies of global governance communities and other groups; the the risks and harms associated processes often mean that negotiated potential impacts of systemic change with economic growth — primarily targets lack the necessary ambition and on society and the environment; and employing regulations and pricing enforcement mechanisms.

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FIGURE 17.2 Applying the multi-level perspective to the food system

Climate change and Digitalisation/robotics Demographic Landscape trends land degradation developments

Composting/ fermentation

Food system Agricultural Food Food Food Food/organic production processing retailing consumption waste

Final deposition

Organic Precision In‑vitro Food Community Niche innovations supported farming farming meat councils agriculture

Such realities imply that a purely government towards the broader and ensures a fair sharing of costs and hierarchical, top-down approach concept of governance, which benefits. Urban authorities and city to achieving Europe’s sustainability emphasises the complementary role of networks have a key role. Public bodies objectives will not achieve systemic governments, markets and networks are also vital in stimulating needed change at the scale and pace needed. in organising society (Rhodes, 1997; investment, developing necessary As Hajer at al. (2015) argue: van Heffen et al., 2000; EEA, 2015b). Such knowledge, providing directionality and reasoning acknowledges the limitations coherence to activities across society, The SDGs [Sustainable Development of government power but also and creating mechanisms to anticipate Goals] … risk falling short of expectations recognises that public authorities have and adapt to new risks and emerging because of what we call ‘cockpit-ism’: unique capacities, resources and powers issues. These issues are explored in the illusion that top-down steering by to identify and agree society-wide goals; detail in the remainder of this chapter. governments and intergovernmental to correct the operation of markets; organisations alone can address and to stimulate and enable polycentric global problems. In view of the limited forms of governance, based on social 17.3 effectiveness of intergovernmental efforts interaction and information sharing. Catalysing innovation and and questions about the capacity of system change national governments to affect change, For example, stringent environmental the SDGs need to additionally mobilise regulations and pricing instruments Sustainability transitions are long‑term new agents of change such as businesses, remain important, but promoting system processes, often extending over cities and civil society. innovation also requires a policy mix that 25‑50 years or more (Grin et al., 2010) supports the emergence and diffusion and involving the emergence and These observations have been of new technologies and practices, upscaling of multiple innovations over associated with a shift in focus from helps phase out established systems shorter time scales. No single innovation

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TABLE 17.1 Examples of sustainability innovations in the mobility, food and energy domains

Mobility Food Energy

Incremental technical Fuel-efficient petrol or diesel cars Precision farming, food waste Insulation, energy-efficient innovation valorisation, integrated pest appliances, efficient gas or management coal‑fired power plants

Radical technical Battery electric vehicles, electric bikes, Permaculture, no-tillage farming, Renewable electricity, heat innovation alternative fuels, autonomous vehicles plant-based meat and dairy pumps, passive houses, products, genetic modification whole‑house retrofitting, smart meters

Social or behavioural Car sharing, modal shift, Alternative food networks, Decentralised energy innovation teleconferencing, teleworking, organic food, dietary change, production (‘prosumers’), internet retail urban farming, food councils community energy, energy cafes

Business model Mobility services, car sharing, Alternative food networks, Energy service companies, innovation remanufacturing vehicles, bike sharing organic food back-up capacity, vehicle‑to‑grid electricity provision

Infrastructural Intermodal transport systems, Reforms to distribution systems, District heating systems, innovation compact cities, integrated transport storage provision and better smart grids, bio-methane in and land use planning food waste management reconfigured gas grid

will hold the key to systemic change. reduce the need for mobility. Such innovations that can drive systemic Equally, the diversity of local contexts innovations will bring changes in social change. A diversity of ideas and and challenges means that there are no norms, values and lifestyles. approaches is important, because the single solutions applicable everywhere. viability and sustainability impacts While transitions involve changes of individual innovations are very The electric motor, for example, will across society, governments have a hard to anticipate in advance and will surely have a role in transforming the key role in stimulating and orienting often vary in different contexts. In the European mobility system, but it would the direction of change and in reducing energy, food and mobility domains, still imply substantial resource demands, the many barriers to transitions. This multiple innovations are emerging that pollution and congestion (Section 16.4). section explores how public policies deviate in one or more dimensions The fundamental issue is not how to and institutions can provide support at from current modes of consuming and create a more sustainable car but rather each of the three phases identified in producing (Table 17.1). Sometimes how to meet society’s need for point- Figure 17.1 — emergence of innovations, these involve reviving or adapting older to-point mobility and, perhaps more their diffusion and subsequent practices, for example initiatives that fundamentally, for social interaction and reconfiguration of established systems. facilitate the reuse or repair of products. access to goods and services. As such, In addition, different forms of innovation the transition to sustainable mobility often interact. Car sharing and bike will require numerous changes, ranging 17.3.1 sharing are not just about behavioural from car-sharing schemes, driverless Promoting sustainability innovation change, but they also represent new cars and a shift to alternative modes and experimentation business models and new technologies of transport (e.g. walking, cycling) to (e.g. electronic booking systems, improved spatial planning and novel Novel social practices, technologies GPS — or global positioning systems, communication technologies that can and business models are the core smart cars).

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TABLE 17.2 Changing innovation policy framings

Overarching Key features Era Policy rationale Policy approaches framing (examples)

Innovation for Science and technology Since the 1950s Responding to market failure: State financing of basic R&D, growth for growth, promoting public good character of incentives for business R&D production and innovation necessitates state (e.g. tax breaks, subsidies) consumption action

National system Importance of Since the 1980s Responding to system failure: Promoting science hubs; of innovation knowledge systems maintaining competitiviness, incentivising coordination; in development and coordinating system SMEs; education and uptake of innovations stakeholders training

Transformative Alignment of social Since the 2010s Promoting transformation: Social challenges (H2020), change and environmental pathways, coordination SDGs, mission-oriented challenges with domains, experimentation, approaches to innovation innovation objectives learning (FP9)

Note: FP9, Framework Programme 9; H2020, Horizon 2020; SMEs, small and medium-sized enterprises.

Source: Based on Schot and Steinmueller (2018).

The character, rationale and extent exemplified by the SDGs (Schot and experimentation and learning, using of government interventions to Steinmueller, 2018). pilots, demonstration projects and urban support innovation has developed labs. These provide a means of exploring over time (Table 17.2). From the This emphasis on the directionality of sustainability outcomes, identifying mid‑20th century, policy interventions innovation reflects a growing awareness barriers, facilitating social acceptance focused on addressing market that economic development approaches and building coalitions of actors. failures, using state investments in that promote all innovation and then Accepting and learning from failures is R&D to compensate for inadequate seek to tackle harmful consequences essential (Temmes et al., 2014). private investment. Since the 1980s, through regulation and economic governments have extended this instruments are unsustainable. In Making innovations work in the focus to include promoting learning practice, it implies the need not only to real world often requires input and knowledge circulation within stimulate particular types of innovation from a diverse range of actors with innovation systems, comprising (e.g. green technologies) but also different kinds of resources, including diverse actors including universities, for greater emphasis on real-world researchers, businesses, investors, businesses and government agencies. regulators and users. This point Both of these framings for innovation is integral to the EU’s concept of policy remain valid and important Responsible Research and Innovation today. Europe could certainly do (EC, 2014b). Its importance is also more to increase investments in basic expressed clearly in the EU’s ‘Lamy research (Section 17.4.2) and to use report’ on maximising the impact of education, science, business and tax EU research and innovation programmes policies to create an environment that (EC, 2017d): enables and promotes innovation across society. But recent transitions Making innovations work Fully mobilising and involving stakeholders, research also points to the emergence end-users and citizens in the post-2020 EU of a third generation of innovation in the real world R&I programme, for instance in defining its policy that focuses on enabling and requires inputs missions, will not only increase the degree promoting transformation towards from diverse actors. of co-creation, it will also maximise its long-term sustainability objectives, as impact and stimulate a stronger demand

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for innovative products and services as well of creativity and innovation. Indeed, as (AFNs) are food provisioning practices as a better grasp of social changes. This will Stirling (2015) notes, ‘It is remarkable how based on shorter supply chains and bring open science and open innovation many current major global industries direct producer-consumer interactions to the next level and turn Europe into a are building around once-marginal (e.g. farmers markets, direct farm sale, continental living innovation lab. technologies like wind turbines, ecological weekly box schemes). In addition to farming, super energy-efficient buildings, reducing transport-related pollution, In recent years, European innovation or green chemistry. All of these owe AFNs entail more direct interactions with policy has broadened its focus to key elements in their pioneering origins food producers, potentially fostering a RD&D (research, development and to early development by grassroots better understanding of environmental demonstration). It could continue social movements.’ As such, transitions and social impacts of food choices and further towards promoting real-world policy should build on the groundswell influencing consumer expectations and demonstrations and experiments, for of bottom-up sustainability initiatives food system norms (Forssell, 2017). example by providing additional financial and further mobilise the ‘energetic support for social and grassroots society’ of engaged citizens, professional There are now thousands of community innovations. In the EU context, the non‑governmental organisations (NGOs) energy initiatives across Europe establishment of an Innovation Fund, and motivated communities (Hajer, 2011). (Hossain, 2018), some benefiting directly to distribute financial resources from EU support. Such initiatives collected under the EU Emissions Social innovations and grassroots are decentralised, small-scale forms Trading System, is a useful step. The innovations tend to be more radical of energy production (often solar new fund will support, on a competitive than business-driven greening efforts, photovoltaic (PV) or wind turbines) that basis, the demonstration of innovative for example in questioning conventional are locally owned and operated, often technologies and breakthrough consumerism and advocating change engaging civil society groups, such as innovations in areas such as renewables, in user practices and lifestyles. They social enterprises, schools, businesses, carbon capture and utilisation (CCU) are often more oriented towards faith groups, local government or utility and energy storage (EC, 2018j). social justice or alternative economic companies (Seyfang et al., 2014). In rationales (e.g. community ownership, Germany, more than 700 community Public authorities can also assist self-sufficiency). They are also highly energy initiatives (mostly citizens in local projects by facilitating contextual and often developed in cooperatives) account for about 40 % of networking and knowledge exchange response to real local problems (Seyfang renewable energy capacity (DECC, 2014; through workshops, innovation or and Smith, 2007). de Vries et al., 2016). implementation agencies, or by establishing (digital) platforms. Another In recent years, many European Similarly, there are several hundred option is to provide exemptions from countries have experienced a surge ‘transition town’ initiatives in Europe. regulations that hinder particular of bottom-up social and grassroots Transition towns are community innovations or entrepreneurship. innovations. Several of the promising projects that aim to increase For example, emulating a government innovations highlighted in Table 17.1 self‑sufficiency to reduce the potential programme in the Netherlands, the EU’s started as grassroots initiatives. For effects of climate change and economic circular economy action plan applied example, alternative food networks instability. They do this by stimulating the concept of ‘innovation deals’, renewable energy production, which identify and address potential lifestyle change, community housing, regulatory obstacles for innovators alternative local currencies, repair (EC, 2018h). Such measures would align cafes and community cafes using food with the EU’s ambition to ‘stimulate a that would otherwise go to waste. culture of experimentation and risk There are many similar networking taking’ (EC, 2018d), while respecting initiatives at international and national environmental standards and the levels, for example Global Action Plan precautionary principle. Social innovations and and Switzerland’s ‘Les artisans de la grassroots innovations are transition’ (ADLT, 2019; GAP, 2019). often more radical than Engaging and mobilising society National and European monitoring business‑driven ‘greening’ of social and grassroots innovations Citizens, communities and civil society efforts. is difficult and underdeveloped, but groups represent important sources the total number of initiatives across

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Europe is likely to number in the tens of extreme events — while also providing BOX 17.1 thousands. Cumulatively they represent cultural benefits (Raymond et al., 2017). Climathon: transformative a substantial amount of societal energy approaches to flood risk adaptation that policymakers could engage with Compared with grey infrastructure, more strategically (e.g. Box 17.1). nature-based solutions can perform well o support transformative adaptation, Although social and grassroots in financial terms, as well as providing Tthe city of Vejle, Denmark, innovations sometimes receive some substantial non-market co-benefits co‑organised with Climate-KIC a 24-hour short-term seed money, they are rarely (Box 17.2). For example, restoring or Climathon event, to develop innovative the focus of dedicated policy attention creating wetlands on the banks of rivers ways to adapt to river and coastal flooding and sustained support. upstream can function as watersheds in Vejle. The event was open to those with that can concurrently mitigate flooding a desire to create new solutions, including Governments could offer more support downstream, filter contaminated water, engineers, designers, business people, for civil society innovations, for example increase biodiversity and enhance software developers, social scientists and by funding citizens’ groups and projects; recreation opportunities. Landscape legal or financial experts. The attendees providing privileged access to public conservation and restoration measures pitched their solution to a panel of infrastructure (e.g. vacant land or can function as natural water filtration experts, including city representatives. offices); facilitating the circulation of plants, replacing conventional water The winning idea addressed surface knowledge about grassroots projects; treatment technologies. Forests can flooding by replacing a standard stimulating experimental partnerships reduce or even prevent pollutants from pavement with a partly glass‑covered with public services (e.g. schools, entering streams that supply fresh water underground concrete stream: a hospitals); and more publicly displaying to downstream urban areas. Man-made ‘transparent urban waterway’. The support for citizen-led sustainability features such as green walls, green roofs winning team established the company projects and their positive contribution and sustainable urban drainage systems Climate Change Consulting DK, meaning to public life locally. This may require can mitigate the impacts of storm water that the event produced both innovative some institutional change to overcome by slowing the rate of run-off through solutions and entrepreneurial activity. ■ the potential mismatch between retention, as well as decreasing urban informal grassroots innovations and heat effects, improving insulation and Source: ETC/CCA et al. (2018). formal procedures for policy support providing habitat for a variety of species. (e.g. proposal writing, organisational structures, accountability, budgetary Green infrastructure can be implemented reporting). Intermediary organisations either standalone or in integrated that connect and support multiple solutions that combine both green and initiatives (Section 17.3.2) also play a grey infrastructure. Integrating green valuable role in this area. infrastructure into spatial planning can In addition to generating capitalise on the strengths of both grey financial returns, and green infrastructure to foster resilient nature-based solutions Nature-based solutions results (Browder et al., 2019). Green can deliver substantial infrastructure can also be applied on The EU’s Seventh Environment Action different scales — from green walls and non-market benefits. Programme, the biodiversity strategy to roofs on buildings, to green belts through 2020 and the EU’s Horizon 2020 research industrial complexes, to large-scale and innovation programme each watershed restoration and reforestation, promote the use of ‘green infrastructure’ in urban, peri-urban, rural and marine and ‘nature-based solutions’ as responses areas. The co-benefits are diverse. For to sustainability problems and as an example, evidence from 18 ‘urban labs’ alternative to ‘grey infrastructure’ across Europe shows that high-quality, (i.e. human-engineered solutions, often biodiversity-rich areas of urban green employing concrete and steel). Green infrastructure can help address air infrastructure and nature‑based solutions pollution, noise, climate change impacts, make use of the capacity of ecosystems heat waves, floods and public health to deliver highly valuable regulating problems (Maes et al., 2017). Investments services — such as capturing carbon, can also provide more direct economic regulating water flows or moderating benefits, such as increasing property

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values. In designing initiatives and policy mainstream. Economists often favour interventions, it is important to ensure the use of economy-wide instruments, BOX 17.2 that such benefits are distributed fairly, such as environmental taxes or cap- Non-market benefits of Lisbon’s street trees including across localities, regions and and-trade policies, which internalise income groups. the social and environmental costs of production in market prices. Models cost-benefit analysis of street The relative novelty of nature-based suggest that ‘technology-neutral’ A trees in Lisbon (Soares et al., 2011) solutions can mean that they are instruments of this sort are cost- showed that for every EUR 1 invested sometimes expensive in financial effective because they enable market annually by the municipality in tree terms when compared with grey forces to direct investments towards management, residents receive benefits infrastructure alternatives, which have the most efficient technologies, and valued at EUR 3.11. Each of Lisbon’s benefited from decades of investments avoid errors when public authorities trees is estimated to provide annual and efficiency improvements. As with seek to pick winners. benefits of EUR 4.27 in energy savings, other innovations, however, wider EUR 0.23 in reduced CO2 emissions, use of nature-based solutions is likely In addition to shaping the selection EUR 3.75 in reduced air pollutant to produce economies of scale and environment for new technologies deposition, EUR 33.18 in reduced learning, leading to cost reductions. For and supporting their diffusion, storm water run-off and as much as example, the cost of green roofs has broadly focused instruments such EUR 100.40 in increased real estate fallen substantially in several countries as taxes and regulations can also values. In total, Lisbon’s 41 247 street during recent years (Nurmi et al., 2013). stimulate innovation. Although it runs trees are calculated to provide counter to common perceptions, services valued at EUR 5.8 million there is much evidence to support annually, while EUR 1.3 million is spent 17.3.2 the ‘Porter hypothesis’ that strict maintaining them. Supporting diffusion of promising environmental policy can stimulate innovations innovation and job creation, rather Further city case studies can be found than hindering them (Rayment et al., at the Oppla platform: https://oppla.eu/ For many innovations, moving beyond 2009; OECD, 2010; EEA, 2014, 2016c). nbs/case-studies. ■ experimentation towards wider adoption The European countries with the occurs via market diffusion, as learning most stringent environmental policies and expanding production enable a new are generally characterised by high product or business model to become levels of eco-innovation and economic more competitive. In other cases, such competitiveness (Figure 17.3; EEA, 2016b). as local initiatives and social innovations, the diffusion process may occur through Economic instruments also have some Environmental policy replication or adaptation of an idea in a important limitations. First, efforts to new location. In either case, innovations tax activities in one location may not can often drive innovation often face major barriers to upscaling, have the desired effect if they cause and job creation, ranging from upfront costs of switching production to shift to other countries rather than hindering them. to a new technology and consumer or incentivise businesses to use uncertainties to the absence of necessary substitute resources (ETC/SCP et al., infrastructure or mechanisms for sharing 2015). Second, introducing general knowledge. Perhaps most fundamentally, economic instruments (e.g. a carbon incumbents often enjoy a competitive tax) faces major political obstacles advantage because the social and because the benefits are diffuse, hard environmental costs of production are to measure, and lie in the future, not fully represented in market prices. whereas the costs are concentrated and immediate (Hughes and Urpelainen, 2015). Powerful industries (oil, cars, ‘Levelling the playing field’ utilities, retail) tend to resist their by fixing market failures introduction and consumers may also raise opposition, particularly because Governments have a variety of tools the costs of environmental taxes may available to help innovations to become fall disproportionately on lower income

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FIGURE 17.3 Demanding environmental policy is associated with greater competitiveness and more eco-innovation

Denmark Netherlands

United Kingdom Finland

France Switzerland Norway

More stringent Sweden

Slovakia Germany Poland Austria

Italy Hungary

Belgium

Spain Greece

Portugal Ireland Stringencypoliciesofenvironmental

Global competitiveness ranking More competitive

Position in EU eco‑innovation rankings Countries ranked 1‑9 Countries ranked 10‑18 Countries ranked 19‑27 Not applicable

Notes: The figure includes all EEA member countries for which data are available on stringency of environmental policy. OECD, Organisation for Economic Co-operation and Development.

Source: EEA (2016b).

environmental harms, as well as their design and communicate environmental Environmental tax reforms administrative cost-effectiveness, taxes as part of broader packages of need to ensure environmental tax revenues in environmental fiscal reform that ensure the 28 EU Member States (EU-28) a socially fair distribution of costs and a socially fair distribution decreased from 2.6 % to 2.4 % of gross benefits. This can include offsetting new of costs and benefits. domestic product (GDP) between 1995 taxes with reduced taxation of other and 2017. Nevertheless, revenues from activities (e.g. labour or sustainable environmental taxes amounted to consumption), as well as direct support some EUR 370 billion in 2017 — funds for the groups or regions affected. that could be more clearly directed in support of sustainability transitions. A third concern with general economic groups (Chapter 16). This often leads instruments is that empirical studies to defeat or watering down of the These challenges also point to the suggest that purportedly neutral policy instrument. It is notable, for example, benefits of coordinating environmental tools inevitably involve an element of that, despite years of advocacy for a taxation across countries to limit burden selection, as they steer resources to shift towards increasing taxation of shifting. They also highlight the need to technologies that are currently cheapest

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but not necessarily those that are most of investments, skills, knowledge, promising or potentially disruptive. Knowledge sharing organisational structures and For this reason, technology-specific is particularly important revenue flows. In some instances, the instruments may also be needed to drive emergence of innovations may lead to the development and deployment of to enable the diffusion the collapse of incumbents; in others, radically new technologies (Bergek and of grassroots initiatives and established firms may hinder the Berggren, 2014). social innovations. diffusion of an innovation or shift their business model towards embracing it. Policies influence this process of Promoting specific innovations integration in the business environment both by stimulating consumer demand Diffusion of innovations often requires and by facilitating or mandating targeted measures that reduce the positive stories about renewable energy changes in production. Box 17.3 costs and uncertainties of switching to and green growth and jobs related to illustrates the broad range of measures new technologies and practices. For German manufacturers of wind turbines that are contributing to diffusion of example, financial instruments such as and solar panels (Geels et al., 2016). electric vehicles. purchase subsidies, low-interest loans This narrative was promoted by a green or feed‑in‑tariffs can help offset price advocacy coalition, which included not differentials with established products. just environmental groups, solar PV Upscaling local projects and Non-financial incentives (including and wind associations but also metal grassroots innovations removing legal barriers, e.g. for food and machine workers, farmer groups donations) can further increase the and church groups. Governments and The upscaling of sustainability appeal of initiatives. Public procurement other actors can shape narratives by innovations also depends critically can create a market for sustainable goods disseminating information (e.g. via on sharing knowledge and insights and services (e.g. Copenhagen’s public labelling or media campaigns) and gained from experimentation and sector canteens and food services served framing it in ways that positively affect demonstration projects. In practice, 88 % organic food in 2015 (KK, 2016)). attitudes, beliefs and norms (e.g. social lessons and insights are seldom Investments in necessary infrastructure marketing or ‘nudging’). Insights from shared widely, which often leads local are often essential for diffusion of behavioural sciences are increasingly innovators to ‘reinvent the wheel’. The technologies (e.g. distributed energy applied to policy initiatives across impact of Europe’s many bottom-up production). And safety regulations and Europe (EC, 2016a). initiatives will be less as long as they standardisation can generate trust and remain fragmented and short lived confidence in novel technologies. In view of the recent proliferation (Turnheim et al., 2018). of initiatives and labels related to Standards can also influence the environmental and sustainability Knowledge sharing is particularly diffusion of innovations, including information, it is essential to develop important for grassroots initiatives beyond Europe’s borders. Standards, standards to increase consumer trust. and social innovations, which rely less certification schemes and labels In 2013, the European Commission on market forces to drive diffusion. In often emerge through an interaction published a recommendation on the these cases, scaling can take the form of different stakeholders, with civil use of the product and organisation of ‘scaling out’ — replicating a social society organisations proposing new environmental footprint (PEF and innovation in a different location; ‘scaling benchmarks, and companies promoting OEF) methods (EC, 2013a). This was up’ — influencing laws and policies their harmonisation and enforcement in followed by collaboration with industry at higher levels; or ‘scaling deep’ — different regions as a means of reducing to develop and apply methods and developing narratives that resonate production costs or achieving a level develop approaches to verification and with cultural values (Moore et al., 2015). playing field with competitors. communication aimed at building a All types of scaling rely on knowledge single market for green products. transmission. Diffusion also involves changing user practices, norms and business Integration of innovations into the Governments can stimulate the processes. In part, this is about business environment often represents circulation of knowledge and lessons developing positive narratives. Uptake a challenge, as incumbent businesses learned between social innovation of renewable technologies in Germany, are often geared towards established projects and pilots, for example for example, was initially underpinned by technologies and practices — in terms by standardising information and

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BOX 17.3 Electric vehicle diffusion

lectric vehicles have started In all of the countries that are pioneering as well as the value of policy support for Ediffusing, and the total global stock the diffusion of electric vehicles, public electrifying public transport. passed 3 million in 2017 (Figure 17.4). policies at national and local levels are Annual sales in 2017 were 54 % higher playing a major role. The most prominent Measures used across Europe include than in 2016, surpassing 1 million units, are direct consumer incentives such financial support to the electric vehicle with more than half of those global as vehicle purchase subsidies or tax industry; public investments in charging sales in China (IEA, 2018b). Only a exemptions. There is a clear correlation infrastructure or subsidies for home few countries have fairly high market between the strength of financial chargers; public procurement of electric shares: Norway (39.2 %), Iceland (12 %) incentives and the speed of diffusion vehicles (e.g. for municipal vehicle fleets); and Sweden (6.3 %). The remainder (Wesseling, 2016). Even with grants, state aid for electric public transport; have shares under 3 %. In 2017, however, the up-front costs of electric indirect consumer incentives such members of the International Energy vehicles remain higher than those of other as preferential access to bus lanes, Agency’s Electric Vehicles Initiative (EVI) cars. Early adopters are often middle‑aged, free or preferential parking, access to set the aspirational goal of achieving a well-educated, affluent, urban men, who low‑emission zones, free charging at 30 % market share for electric vehicles are motivated by pro-environmental public stations and road toll exemptions; in each country by 2030. The EVI attitudes, a desire to save on fuel costs consumer outreach and education members comprise Canada, China, and an active interest in new technology policies; and regulatory incentives such Finland, France, Germany, India, Japan, (Nilsson and Nykvist, 2016). These factors as sales targets for electric vehicle Mexico, the Netherlands, Norway, point to the importance of complementary manufacturers or bans on sales of internal Sweden, the United Kingdom and the measures that can shift public perceptions combustion engine vehicles (EEA, 2016a; United States. and drive changes in business practice, CCC, 2018; EC, 2018i). ■

FIGURE 17.4 Cumulative global fleet of electric vehicles Million electric vehicles 3.5

3

2.5

2

1.5

1

0.5

0 2013 201 2015 2016 2017

China USA Europe Others

Source: IEA (2018a).

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BOX 17.4 Austrian biomass district heating systems

iomass district heating (BMDH) organisations, such as the Austrian environment by harmonising the Bsystems (which use pellets and waste Biomass Association, were created eligibility, application and payment wood from Austria’s forests) emerged in to compare experiences, formulate procedures for capital grants for BMDH the late 1970s in rural villages. They were lessons and share insights. Pioneering systems in 1995. In 2000, technical pioneered by new entrants to the market, provinces launched energy agencies that performance guidelines were introduced such as sawmill owners, carpenters and provided training, technical advice and and disseminated through seminars monasteries, who sold heating services financial support for BMDH developers. and training courses. Stable rules to nearby houses. From the mid-1980s, These activities substantially improved enabled more reliable calculation of these small- to medium-scale village technical and economic performance in cost-benefits, which in the early 2000s heat-only systems started to diffuse the 1980s and early 1990s. Collectively, stimulated the involvement of energy more widely. At this time, farmers, who these changes resulted in a 10-fold utilities and the National Forestry in Austria often own forests, started increase in the total number of BMDH Agency, which constructed large-scale building more local BMDH plants to systems in Austria between the BMDH systems to co-generate heat develop the market for wood products. mid‑1980s and the end of the 1990s. and power. This produced exponential growth in the period 2000-2010. By 2010, Recognising opportunities for rural At the national level, the federal Austria had approximately 3 100 BMDH revitalisation, public authorities began to Environmental Promotion Fund systems, of which about 2 500 were provide support. Dedicated intermediary streamlined the complex policy village heating systems. ■

Source: Based on Geels and Johnson (2018).

organising workshops. Implementation encompasses more than a thousand agencies (e.g. energy agencies or local transition initiatives in 43 countries Public institutions and social innovation agencies) can play a and has developed a guide that networks have key roles valuable role as intermediaries, articulates core values and operational because they engage with multiple principles for setting new initiatives in sharing knowledge projects, enabling them to compare (TN, 2018). Similarly, Community Power, and lessons learned. them and extract and codify a network established by Friends of the general lessons, so that these can Earth Europe to support community provide insights for new projects or energy, engages in knowledge sharing policymaking (Geels and Deuten, 2006; and political lobbying for legislative Kivimaa, 2014). Box 17.4 illustrates the change (EEA, 2018). values (Berkhout, 2006; von Oelreich role of intermediaries in knowledge and Milestad, 2017). circulation and aggregation in the Grassroots innovations can take diffusion of biomass district heating several decades to reach scale systems in Austria. (e.g. Box 17.5). They can be nurtured 17.3.3 through dedicated efforts such as Managing phase-out, disruption and Social and grassroots initiatives are providing local finance (e.g. public structural change often diverse in character and context banks), community building, political specific, which can make it difficult to lobbying, professionalisation, engaging Deliberate phase-out actions that target extract lessons and disseminate good with incumbent actors and providing the decline of existing technologies and practice. Nevertheless, intermediary policy support. Mainstreaming may also practices are necessary to accelerate organisations or social networks can involve a degree of co-option (e.g. by sustainability transitions. Such actions play a useful role (EEA, 2018). The big businesses) and divergence from are still quite rare, but they are gaining Transition Network, for instance, their initial grassroots visions and political salience and include bans

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BOX 17.5 Mainstreaming organic food

rganic food was pioneered in In the 1990s and early 2000s, market business. Organic farming moved Othe 1930s by activist farmers demand for organic food grew from niche to mainstream and, in the and scientists as a means of recycling (Figure 17.5), partly in response to process, diverged from some of its nutrients and organic matter and food scandals. Supermarkets became initial grassroots values such as local improving human and animal health. interested, encouraging farmers to production and broader sustainability Between 1970 and 1990, a more convert to organic production, and values (Smith, 2006). Although organic organised organic food movement policymakers introduced organic farming food has become a profitable and emerged, advocating small-scale policies and supported research and fast-growing market, it remains more production and localism. Gradually, technical training. expensive than mainstream food, associations were created that which means that wider diffusion developed organic standards to build As big farming businesses entered the beyond affluent consumers or those consumer trust and engaged in political market, greater pressure to standardise simply willing to pay extra may advocacy to gain policy support (Smith, production and provide predictable require continued policy support 2006; von Oelreich and Milestad, 2017). outputs drove small farmers out of (Aschemann‑Witzel and Zielke, 2017). ■

FIGURE 17.5 Organic agricultural land coverage in Europe, 1985-2015

Million of hectares of land

16

1

12

10

8

6

2

0

Sources: FIBL and IFOAM (2016); FIBL (2019).

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TABLE 17.3 Policy approaches for addressing the negative socio-economic consequences of transitions for workers, regions and firms

Compensation (defensive, reactive) Structural reorientation (active)

Workers Compensation for losses, e.g. redundancy payments, Skill upgrading and retraining programmes, early retirement benefits financial assistance to relocate, wage subsidies, assistance in finding new jobs

Regions, communities Compensation for losses (e.g. increased transfer of Regional assistance for economic diversification, resources to local policymakers or regions), relocating e.g. direct investments in public goods (e.g. public agencies to particular regions infrastructure), regional innovation policies, subsidies or tax incentives to new businesses in growth sectors, technical assistance

Firms Compensation for lost asset values or ‘grandfathering’ Grants or in-kind assistance to (1) upgrade of existing assets, state subsidy of company liabilities existing technologies or practices, (2) stimulate (e.g. pension or site remediation liabilities) reorientation towards new technologies and markets

Source: Adapted from Spencer et al. (2018).

or regulations, removal of implicit or the local economy and are closely tied and technological skills are at the heart explicit subsidies, and targeted financial to the local culture and identity. The of building such resilience.’ The most incentives, which make a technology less historical decline of the old industrial recent update of the EU Emissions attractive (Kivimaa and Kern, 2016). For regions, dependent on coal, steel or Trading System specifies that revenues example, the European Commission’s bulk chemicals (e.g. Lorraine in France, from auctioning allowances and from a 2009 phase-out of incandescent Limburg in Belgium and the Midlands in new Modernisation Fund should be used light‑bulbs accelerated the transition the United Kingdom), disrupted entire to support a just transition, for example towards compact fluorescent lights (CFLs) communities, creating unemployment through retraining and supporting new and light emitting diodes (LEDs). In 2015, and other social problems (Baeten et employment opportunities. Finland, the Netherlands and the United al., 1999; Campbell and Coenen, 2017). Kingdom decided to phase out coal use Coal and lignite extraction and support Governments can alleviate negative and in 2017 joined 16 other countries in services still account for more than consequences through compensation creating the Powering Past Coal Alliance. 5 % of employment in the Polish part measures or actions aimed at Bans on sales of internal combustion of Silesia (EC, 2018g). Rural economies reorientation, innovation and developing engine vehicles have been announced may likewise be strongly intertwined skills, as outlined in Table 17.3. The for 2025 (Norway), for 2030 (Ireland, with established systems of agricultural relatively successful reorientation of the Netherlands, Austria), and for 2040 production (Chapter 13). the German Ruhr region in the 1980s (France, United Kingdom) (CCC, 2018). and 1990s involved both kinds of And the EU’s Energy Union calls for the Such concerns are increasingly reflected policies (Box 17.6). removal of all environmentally harmful in policymaking. For example, the Paris subsidies (EC, 2015b). Agreement includes a call for a ‘just EU cohesion policy has already transition of the workforce and the moved from a focus on social welfare Governments have an essential role in creation of decent work and quality (transferring funds to less developed supporting the ‘losers’ from transition jobs’. The renewed EU industrial policy regions) to more active, restructuring processes and addressing inequities. strategy (EC, 2017c) likewise emphasises approaches. For example, the EU’s While the ‘creative destruction’ that ‘The benefits of industrial flagship regional innovation approach associated with structural economic transformation need to be widely spread ‘smart specialisation’ is increasingly change always creates hardship for and those who lose out must be able to supporting regions in industrial those in declining sectors, the impacts find opportunities and support to adapt. transition, which can face particular can be particularly acute in regions Lifelong learning, equal opportunities challenges in accessing regional where particular sectors dominate and fair access to education, training support mechanisms (EC, 2017b).

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The European Commission has 17.4.1 BOX 17.6 established a smart specialisation Leveraging the potential of cities Restructuring the German Ruhr pilot to help regions in acute crisis and city networks coal region or falling into decline to transform and diversify into new, sustainable Almost three quarters of the EU’s oal, steel and related industries in economic sectors. It also supports population live in cities, meaning that Cthe Ruhr region, which employed coal regions in transition, and it has much of the production-consumption more than half a million people, faced established thematic platforms on dynamics in European society also economic decline in the 1970s and industrial modernisation, energy and resides there. The density of urban 1980s because of cheaper imports. agri-food, enabling policymakers, populations also creates opportunities Initial efforts aimed to improve researchers, business and civil society for resource-efficient ways of living and competitiveness (e.g. subsidies, mergers) to pool experience. means that sustainability initiatives can but, when this proved insufficient, have considerable impact. The United controlled mine and plant closures Nations affirms the role of cities with provided compensation payments, early 17.4 its New Urban Agenda and through retirement packages and wage subsidies. Key enablers of change: cities, SDG 11 — ‘Make cities inclusive, safe, By the mid-1980s, the region was also finance and knowledge resilient and sustainable’. engaged in a proactive industrial policy, aiming to stimulate ‘sunrise technologies’ Three cross-cutting themes stand out In Europe, the EU’s 2016 Pact of such as environmental technologies as having particular importance in Amsterdam (establishing the EU urban (e.g. energy efficiency, renewable energy, enabling change: agenda) arguably marked the start of ‘a recycling and waste combustion), which new role-redefining phase for cities: one could build on the region’s existing • Cities are crucial for transitions. in which cities are no longer only the engineering capabilities. Regional They are hubs of creativity, object of EU policymaking, but now also diversification succeeded in making the innovation and learning, with the become part of policymaking itself. Since Ruhr a key centre for environmental capacity to effect systemic change then, cities got a ‘seat at the table’ of EU industry, technology and research. It also at local scales and to share ideas governance.’ (Potjer and Hajer, 2017). focused on its ‘industrial culture’, turning through city networks. Urban areas former mines and steel factories into also face particular vulnerabilities Transformative adaptation is particularly tourist destinations. that necessitate transformative urgent in cities. This is due to both adaptation. their physical characteristics (e.g. the In contrast to the traditional top-down heightened impacts of heat waves industrial policy, the reorientation • Finance has a key role in either and flooding) and their concentration strategy was implemented in impeding or enabling sustainability of population and economic/cultural partnership with municipalities, transitions. Today it tends to do more assets, which often intensifies economic universities and private actors. of the former. As the United Nations losses and vulnerabilities, especially for Although policymakers were important Environment Programme (UNEP, those residents with low incomes or for providing strategic direction, quality 2018) notes, ‘Clearly, some capital is poor health. The dependence of cities control and funding, their role was also flowing to the new economy that we on their hinterlands and wider areas for to facilitate ‘dialogue and collaboration need. But far more is continuing to food, water, energy and other essential between stakeholders that led to the support the old economy.’ supplies means that they are vulnerable inception of ‘regional development to climate-related impacts both within coalitions’, i.e. bottom-up co-operation • Knowledge is essential for the city borders and beyond. between different actors in a local or understanding challenges and regional setting based on a socially designing responses. The EU has broad mobilisation and participation’ developed an unrivalled knowledge Supporting urban innovation (Campbell and Coenen, 2017). ■ system to support the design and implementation of established Cities also provide good settings for environmental policies, but the engaging citizens, businesses and emergence of systemic and local governments in innovating and transformative policy frameworks co‑creating knowledge and in enabling creates the need for new knowledge experimentation and learning. For and competencies. example, local authorities can trial

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solutions on a relatively small scale promote ‘stakeholder partnerships to before rolling them out more widely, maximise the learning and economies or they can experiment with different of scale that arise from a focused, options in various districts (Heiskanen concentrated approach’ (Climate and Matchoss, 2018). Cities can support KIC, 2015). Some large cities are actively social innovation and grassroots Public policies are essential reconfiguring local transport systems initiatives by providing institutional to offset inequities and (tram, bus, cycling, car sharing), district support and resources (e.g. facilitation, facilitate structural change. heating or housing, or developing access to unused urban space). experimental neighbourhoods and Stakeholder engagement is often easy urban living labs. Pioneering cities to achieve because of the proximity are also setting new targets that of public authorities, businesses sometimes exceed national targets. and users. For instance, deploying at least 40 % by 2030 and increasing Table 17.4 shows European city targets modern tramways in French cities resilience to climate change. for renewable energy. Similar urban involved stakeholder consultations and targets have been set for heat supply learning processes, leading to ways of (e.g. renewable heat, district heating or handling grievances about disruptions Transitions at city scale solar thermal heating) and transport during construction (e.g. through (e.g. bans on petrol and diesel cars in compensation, dialogue, re-routing) Cities themselves also represent distinct Athens, Madrid or Paris) (IRENA, 2018). (Turnheim and Geels, 2019). systems that can be transformed. Urban authorities have strategic agency, At the same time, other cities, towns and European and national authorities dedicated budgets and responsibilities regions are trailing behind for a variety can reinforce urban experimentation for providing local services such as of reasons. Larger cities tend to benefit by providing additional resources, water and sanitation, mobility, energy from scale and special institutional and increasing local powers, and developing and waste disposal, particularly in regulatory powers compared with smaller criteria and standards for urban countries benefitting from political cities. Some may be reluctant to promote sustainability. Maximising the impact decentralisation (e.g. Sweden) or transitions because of the economic of individual initiatives requires federalism with municipal autonomy importance of local (polluting) industries, sequences of urban projects to build (e.g. Germany) (Ehnert et al., while others may face challenges in on each other’s experience. This can 2018). These characteristics create accessing city networks (e.g. because involve intra-city learning — sharing opportunities to stimulate transitions of language barriers). Perhaps most knowledge among initiatives within in close interaction with citizens and fundamentally, urban authorities may a city or region, for example through other actors. lack the competency, resources or workshops or working groups. It can responsibility to pursue transformational also take the form of inter-city learning, Cities such as Birmingham, Castellón, approaches. European and national with flows of knowledge between Frankfurt, Valencia and Wrocław have policymakers can help address these cities mediated by national, regional begun to implement comprehensive disparities by offering financial, technical or global networks (e.g. Box 17.7). For urban transition programmes that and administrative support, for example example, the C40 Climate Leadership through the EU’s URBACT programme. Group is a network of global megacities that increasingly sees itself as a key global actor on climate change rather 17.4.2 than just a collection of pilot projects. Financing innovation and investment The International Council for Local Environmental Initiatives (ICLEI) 75 % Ensuring that public and private increasingly engages with systemic investments support sustainability goals local sustainability transformations of Europeans live in cities — is arguably the single most important (ICLEI, 2015). And the Global Covenant of meaning that much of the challenge. Barriers exist at each stage of Mayors for Energy and Climate Change innovation — from invention through to production-consumption facilitates monitoring and sharing of best broad diffusion of technologies, practices practices among more than 7 000 cities dynamics in European society and business models. In the earliest worldwide (primarily European) that also reside there. stages, the public good characteristics commit to reducing CO2 emissions by of basic research and uncertainty about

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BOX 17.7 HINKU: towards carbon-neutral municipalities

n Finland, municipalities are HINKU municipalities have already Communication and sharing information Icollaborating to curb their greenhouse reduced greenhouse gas emissions by and ideas through a common gas emissions beyond the requirements 30 %, while creating jobs and improving platform are central to the HINKU of EU targets and schedules. The energy self‑sufficiency. Finland’s process. A network for frontrunners project ‘HINKU: towards carbon-neutral climate and energy legislation, based — the HINKU forum — helps create municipalities’ brings together local on international and EU laws, has innovative solutions and distribute authorities, businesses, experts and provided a key driver for the HINKU data, experiences and good practices citizens to find cost-effective ways of process. The programme also enjoys to other localities and stakeholders. reducing emissions, especially in the support from across the political Experimentation in municipalities is transport, housing and food sectors. spectrum and at different levels of helping to identify ways of engaging By 2030, the participants hope to have government. At the national level, the residents and overcoming barriers reduced emissions by 80 % compared Finnish Environment Institute (SYKE) to the uptake of new technologies. with 2007 levels. coordinates and facilitates the HINKU For example, joint procurement of process, for example by calculating solar panels enables municipalities HINKU started in 2008 as a network of annual greenhouse gas emission and households to combine their five small municipalities with 36 000 inventories for each HINKU municipality, purchasing power and secure lower inhabitants. By 2018, it had expanded supporting public relations and helping costs. First carried out in 2014, joint to 42 municipalities totalling more municipalities to access external procurement is now expanding than 750 000. The results are positive. research funding. in Finland. ■

Sources: FIBL and IFOAM (2016); FIBL (2019).

TABLE 17.4 Selected European city-wide renewable energy targets

Target Year City (country)

100 % renewable energy in total energy mix 2029 Sønderborg (DK)

2030 Frederikshavn (DK), Malmö (SE), Växjö (SE)

2040 The Hague (NL)

2050 Copenhagen (DK), Frankfurt (DE), Hamburg (DE)

100 % renewable energy in electricity mix 2020 Skellefteå (SE)

2025 Munich (DE)

2030 Osnabrück (DE)

2035 Groningen (NL)

Source: IRENA (2018).

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returns can deter private firms from Beyond research, there are concerns investing in R&D, implying an important about the availability of finance in role for public spending. As innovations Europe to support progress towards move towards commercialisation they commercialisation and bridge the may struggle to cross the ‘valley of ‘valley of death’. A variety of private death’ — the funding gap that arises as Achieving sustainability sources of finance can support the public grants decline, the need for private transitions will require much commercialisation of innovations, finance increases, and commercial returns including venture capital, business remain low. Finally, the sheer scale of more ambitious public angels (wealthy entrepreneurs or financial resources needed to effect broad investment in innovation. philanthropists), crowdfunding and diffusion of innovations — in particular, blockchain funding. Yet, it is doubtful the costs of necessary investments in that these sources alone will ensure infrastructure (e.g. housing retrofits, the large-scale, long-term and targeted electricity grids, transport systems) — are investments needed to address the especially daunting. At each stage, market urgent sustainability challenges facing failures (e.g. environmental externalities) Europe today (EEA, 2019). This implies a and policy failures (e.g. erratic shifts in Similar trends are apparent in other key role for governments in stimulating, incentive structures) deter investment in important sustainability-related orienting and complementing private sustainability innovations and perpetuate domains. Government spending on investments (Saha and Muro, 2017; the flow of financial resources towards R&D in the agriculture, environment Sopher, 2017). unsustainable modes of production and and transport areas has increased consumption. significantly since the early 2000s Such a role is not without controversy, in EU countries, with transport in as it runs counter to prevailing Like other regions, Europe faces particular receiving a boost after the reasoning, which promotes markets problems in each of these areas. In the financial crisis. However, investment as the primary engine of innovation research domain, in its Europe 2020 has declined in all three areas during and recommends that public policy strategy (EC, 2010) the EU committed recent years (Eurostat, 2019; OECD, focus on correcting market failures. to raise R&D spending to 3 % of GDP by 2019), potentially weakening European Yet, ambitious public investments 2020. Despite improving from 1.76 % competitiveness and opportunities for played foundational roles in many of since 2008, total R&D investment a broad transition. the most transformative innovations stood well below the target at 2.03 % during the 20th century (Auerswald and in 2016. This was substantially below At the same time, there appears to Branscomb, 2003; Mazzucato, 2015). investment in the United States (2.79 %), be growing recognition of the need Achieving sustainability transitions is Japan (3.29 %) and South Korea (4.23 %). for much greater public investment likely to require even greater levels of In 2015, China also surpassed the EU’s in sustainability-oriented R&D. For ambition, engagement and risk-taking investment in R&D (Eurostat, 2018). example, the EU and 24 countries from the state, accompanied by a (including some EU Member States), willingness to accept failures alongside R&D investments in sustainability‑related which together account for 80 % of successes (Mazzucato and Perez, 2015). domains have fluctuated. Energy R&D global investment in clean energy R&D, more than doubled between 2001 have pledged to double that spending and 2010 (Figure 17.6), benefiting to approximately USD 30 billion Financing diffusion significantly from the stimulus package annually by 2021 as part of the Mission and fixed capital formation expenditure in 2009, which aimed to Innovation initiative. This increase is prevent economic collapse after the intended to accelerate significantly the Broader diffusion of innovations and financial crisis (Grubb et al., 2014). availability of affordable clean energy development of related infrastructure Spending has also diversified (Mission Innovation, 2018). There is will require huge investments. For significantly, shifting from a heavy a strong case for extending this level example, the United Nations Conference (and arguably wasteful) focus on of ambition beyond a narrow focus on Trade and Development (UNCTAD, nuclear energy in the 1980s towards a on clean energy technologies towards 2014) estimates that achieving the much broader portfolio of low‑carbon supporting diverse forms of innovation SDGs will require global investments technologies. Overall, however, spending in other domains such as sustainable of USD 5-7 trillion annually. Simply has not recovered to its peak in the food and mobility and non-toxic meeting Europe’s 2030 climate change 1980s, and since 2010 it has declined. chemicals. targets will require additional funding

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FIGURE 17.6 Trends in energy R&D spending in Europe by technology (based on IEA estimates)

Million USD (2017 prices, PPP)

9 000

8 000

7 000

6 000

5 000

000

3 000

2 000

1 000

0

197 1976 1978 1980 1982 198 1986 1988 1990 1992 199 1996 1998 2000 2002 200 2006 2008 2010 2012 201 2016

Nuclear Unallocated Hydrogen and fuel cells Other power and storage Other cross‑cutting

Renewables Energy efficiency Fossil fuels (CCS) Fossil fuels (coal, oil, gas)

Note: CCS, carbon capture and storage; PPP, purchasing power parity.

Source: IEA (2018c).

of EUR 180 billion annually (EC, 2018e). companies and pension funds are the Diffusion of clean These vast sums appear broadly main source of external finance for the technologies and the attainable when seen in the context European economy and … could provide of total investment (gross capital the critical mass of investments needed transformation of whole formation) in the global economy to close the gap for the transition to a production‑consumption (USD 20.0 trillion in 2017) and in Europe more sustainable economy’ (EC, 2018f). systems will require huge (USD 3.5 trillion) (World Bank, 2018). But At present, however, financial resources investments. they will evidently entail a significant primarily consolidate established modes reorientation of public and private of production and consumption. For spending across society. example, pension funds and insurance companies allocate just 1-2 % of their Financing socio-technical transitions will assets to ‘green sectors’ compared with necessarily draw on a diverse array of the 5-10 % distributed to ‘brown’ sectors, interacting funding sources, including such as oil, gas and coal, and the 20‑25 % institutional investors. As noted in the put into other high-carbon sectors, such European Commission’s sustainable as metals, chemicals, transport and finance action plan, ‘Banks, insurance automobiles (Rademaekers et al., 2017).

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Public authorities, households and end- signals are robust and stable. Sudden a global issuance of USD 3.4 billion users (e.g. vehicle owners) also have shifts in policy represent an important in 2012 to USD 161 billion in 2017, in part a central role in financing transitions, source of risk that can significantly because of the availability of secondary reflecting the investments needed in undermine investor confidence. markets for investments. However, demand-side sectors, notably buildings optimism about the rapid growth of and transport. Rademaekers et al. (2017) Combining investment sources through green bonds needs to be tempered. estimate, for example, that achieving ‘blended finance’ mechanisms can First, increased transparency is needed the EU’s 2030 climate and energy targets also increase financial flows (OECD, to ensure that they are not used for will require more than EUR 1 trillion of 2018b). For example, investments by ‘greenwashing’ (Aldersgate Group, investments in transport and buildings in development banks or government 2018). Second, despite rapid growth, the period 2021-2030 compared with less agencies that cover the high-risk tranches green bonds account for less than 1 % than EUR 80 billion for power generation of investments can stimulate private of the global bond market. The flow of and the electricity grid. investment. This is the logic behind investment into fossil fuel exploitation the EU’s European Fund for Strategic continues to dwarf global investments Collectively, these different public Investments, which aims to catalyse in renewables (OECD, 2018a). and private actors arguably have the investment of at least EUR 0.5 trillion, resources to finance transitions, yet a with 40 % targeting innovation and Additional measures could seek to variety of barriers and market failures infrastructure projects that contribute reformulate institutional rules and deter such investments. For example, to climate action. formal expectations of financial actors. many sustainability innovations have For instance, pursuant to its action plan unattractive risk/return profiles. Another important barrier to investment on financing sustainable growth, the Concerns about stranded assets may by banks and institutional investors is a European Commission plans to develop encourage investors to lobby against reported shortage of high-quality and a unified classification system (to better policies promoting systemic change. sizeable projects that promise stable define what counts as sustainable Public investments are constrained by investment returns (Rademaekers et al., finance); develop standards and labels weak economic growth and a continued 2017). Energy efficiency investments, for for sustainable financial products focus on fiscal consolidation. Many example, are often small and distributed (including green bonds); better integrate end‑users are prevented from investing across numerous households and sustainability in ratings and research in cost‑saving efficiency improvements businesses, implying high transaction by credit-rating agencies; change the by often daunting upfront costs. costs. Responding to this challenge is fiduciary duties of institutional investors likely to involve developing technical and and asset managers, so that they more Public policy tools can help create knowledge capacity — for example at systematically consider sustainability markets for sustainability innovations city level — to help ensure a steady flow factors and risks in investment processes; by clearly signalling the intended of good-quality projects (OECD, 2018a). strengthen disclosure responsibilities development pathways, thereby reducing Another useful approach involves and accounting rules, so that companies risks and stimulating investment. For aggregating small projects into a larger are required to inform investors about example, the EU is broadly on track pool to attract investment, for example sustainability performance and risks; to achieve its target of allocating 20 % by securitising green mortgages used and assess the possible negative impact of its budget to climate action under to finance residential retrofits. As of the Basel III regulatory framework the Multiannual Financial Framework households will need to provide a on European bank lending, investment 2014-2020. The European Commission substantial proportion of the investment and other activities, which are critical for proposes to increase this to 25 % in to achieve Europe’s climate targets, sustainable finance. the 2021-2027 time frame (EC, 2018c). it will be particularly important to find Furthermore, public procurement of ways to help them meet these costs goods and services amounts to 16 % of (e.g. Box 17.8). Elaborating government GDP in the EU (EC, 2017e), implying that guidelines on green securitisation could it can also provide a major stimulus for support the development of this market innovation and diffusion. Other tools (Aldersgate Group, 2018). By signalling intended include taxes and subsidies, feed-in development pathways, tariffs, tradable permits and obligations Green bonds provide another mechanism to use energy from renewable sources. to increase large-scale institutional public policies can reduce For such interventions to be effective, investments. The green bond market risks and stimulate investment. however, it is essential that the policy has expanded very rapidly, rising from

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BOX 17.8 Energiesprong

hifting to energy-efficient buildings in perspective. Dutch households spend as a whole also stand to gain from Sis a huge challenge. The EU requires about EUR 13 billion on energy each these big investments, and households all new houses to be ‘zero energy’ year. If, instead, they were to use the benefit from better insulated homes, by 2021, meaning that they produce as same money to repay a long-term loan, higher property values and more much energy as they use on heating, then it would effectively free up about spending power once loans are repaid. lighting, and so on. However, new EUR 225 million today to invest in the houses represent only a tiny proportion housing stock, which is equivalent to Experimentation and learning of the continent’s total housing stock. between EUR 30 000 and EUR 40 000 have played an important role in

As about 40 % of Europe’s CO2 emissions per household. upscaling the programme. A focus come from heating and lighting in on reducing costs in the initial phase buildings, retrofitting existing buildings Energiesprong succeeds by resulted in a 30 % improvement in is crucial for climate change mitigation. coordinating relevant sectors and the price‑performance ratio, greatly Unfortunately, this requires a substantial identifying ‘win-win’ solutions. Banks improving the initiative’s financial investment from homeowners. were persuaded to finance energy viability. Reducing the renovation time to refurbishments because Energiesprong 1 week per dwelling likewise made the Launched in 2010, the Dutch initiative secured a 30-year energy performance process more appealing to homeowners. Energiesprong — later expanded warranty on refurbished homes As the programme extends into other to France, the United Kingdom, and brokered a deal to refurbish countries, economies of scale and Germany and North America — tackles 111 000 housing association properties. continued innovation should drive this financial obstacle with a clever shift The building sector and the economy further improvements in performance.■

Sources: FIBL and IFOAM (2016); FIBL (2019).

Investing in natural capital local investment in education and As private actors often have weak improved livelihoods. Moreover, the incentives to invest, there is often Investments in green infrastructure value of these benefits is, on average, a significant role for the public and nature-based solutions enhance 10 times the cost. sector (UN, 2018; Figure 17.7), ecological resilience and society’s either as the sole source of finance capacity to transform and adapt, often Nevertheless such investments or in motivating private spending delivering benefits that far exceed their often face major barriers. These (e.g. through co‑financing or planning costs. In its landmark study on land include a lack of awareness about requirements). The European degradation, the Intergovernmental potential benefits, limited design Investment Bank’s Natural Capital Science-Policy Platform on Biodiversity and implementation capacities, and Financing Facility exemplifies this and Ecosystem Services (IPBES, 2018) strong vested interests in developing approach, providing funding to found that timely action to avoid, grey infrastructure. Whereas grey projects that promote conservation, reduce and reverse land degradation is infrastructure investments often restoration, management and essential for achieving the majority of deliver immediate returns, benefits enhancement of natural capital, the SDGs and would deliver co-benefits from green solutions can take including ecosystem‑based solutions for nearly all of them. In addition to 10-15 years to realise. Perhaps (EIB, 2019). enhancing biodiversity and ecosystem most importantly, the benefits of services, the benefits of restoration investments in nature often have Bottom-up innovations in finance include increased employment, public good characteristics, meaning provide another potential source of increased business spending, that they accrue to society generally funding for green infrastructure and improved gender equity, increased rather than to private actors. nature-based solutions (Toxopeus

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FIGURE 17.7 The continuum of public and private finance in achieving the SDGs

Financing source Ecosystems ater and Energy Telecom sanitation

Public/private balance

Enabling environment Policy, regulatory and institutional frameworks for finance Technological and systemic issues

Source: UN (2018).

and Polzin, 2017). For example, regulations and economic instruments but it is increasingly clear that they are crowdfunding provides a mechanism underpinned the widespread use of not sufficient. for spreading the costs of investments rational analytical approaches, such as across a large group of people, which modelling, grounded in assumptions Integrated assessment modelling, corresponds well with the dispersed of mainstream economics about for example, provides many valuable benefits arising from environmental how people respond to incentives, insights — helping to set agendas and public goods (see also Box 17.9). individually and collectively. These long-term targets; identify lowest cost analytical approaches remain essential, pathways and optimal configurations of technologies; communicate urgency 17.4.3 and costs of delay; and map out Knowledge and skills to support trade-offs and distributional impacts transformative policy associated with systemic change (van Vuuren and Hof, 2018). Like all The knowledge systems that analytical perspectives, however, it developed to support environmental has important limitations and blind governance during the 20th spots, which can lead to it providing century were well adapted to the misleading guidance if used in isolation. Investing in natural capital challenges and thinking of that In particular, it neglects many of time. Confidence in the capacities often delivers benefits the fundamental characteristics of of governments to plan and that far exceed costs. transitions, such as the role of shocks, steer societal development using non-linearities, resistance, radical

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innovation, actors and institutions, BOX 17.9 social practices and behavioural shifts. Enabling sustainability Crowdfunding bottom-up initiatives in Ghent transitions will require The inherently uncertain, exploratory and open-ended character of a transformation o moderate climate change impacts, transitions creates the need for a much of the knowledge system TGhent is seeking to create more broader range of knowledge to support supporting governance. green areas in the city. In keeping with governance. This includes a need for the city’s reputation for being social much better understanding about and creative, local authorities are complex societal systems, including the seeking to actively engage citizens in interactions, lock-ins and feedbacks that and with diverse actors across society, developing bottom-up initiatives. Since influence sustainability outcomes, social making only a limited contribution to many of these small-scale projects face acceptance and political feasibility. policy and governance. As stated in difficulties securing finance, Ghent has Identifying the opportunities and risks the Amsterdam Declaration on global developed a crowdfunding platform associated with systemic change also change (IGBP et al., 2001), ‘A new that allows citizens to propose and requires better information about system of global environmental science finance their ideas for the city. Two the impacts of drivers of change and is required. ... It will draw strongly on projects addressing climate adaptation cross‑system interactions. the existing and expanding disciplinary have been successfully realised with base of global change science; integrate the support of the crowdfunding. Ecosystem-based management requires across disciplines, environment and gent platform. Both promote creating accounting systems that monitor development issues and the natural green spaces and food production in and assess the cumulative impacts of and social sciences; collaborate across the city, one by creating mini-gardens environmental pressures from multiple national boundaries on the basis of on balconies in social housing and the sectors. This can support assessment of shared and secure infrastructure.’ other by transforming stone facades the economic and social risks and costs into vertical gardens. In addition that arise from continued degradation Supporting sustainability transitions to providing food, these initiatives of ecosystems. The globalised character will therefore require actions such as support biodiversity, mitigate extreme of modern production‑consumption pluralising evaluations — combining temperatures and reduce greenhouse systems implies a need for a multiple analytical approaches and gas emissions. The projects are small better understanding of Europe’s engaging with different research compared with global climate change environmental and social footprint communities; engaging with societal challenges. However, the crowdfunding to help inform the governance concerns — recognising different platform has proved to be an excellent of transitions. viewpoints and preferences through instrument for realising small drops interactions with diverse social of climate mitigation and adaptation The importance of innovation for actors and stakeholders; attending measures that have the opportunity to transitions necessitates a knowledge to real-world complexities — tracking generate larger ripple effects. ■ system that enables society to learn developments in existing systems from successes and failures, replicate and abstracting lessons from (local) and upscale promising initiatives, initiatives; and co‑creating knowledge identify unexpected consequences, — ensuring that the knowledge is and avoid lock-ins to unsustainable relevant, actionable and understandable innovation pathways. Identifying goals by engaging decision‑makers and and pathways requires information other stakeholders in knowledge about the interests and preferences of co‑production. The last point especially different groups and their visions for the is much easier said than done. future. And the viability and credibility of polycentric governance hinges on Developing and using new forms the presence of robust monitoring and of knowledge often requires that reporting systems that meet user needs. policymakers and other actors have access to relevant concepts, To the extent that it is currently competencies and institutional available, knowledge about these mechanisms. These include, for themes resides in multiple disciplines example, the need to develop

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an understanding of system and have a powerful influence on both state transitions concepts; the need to Developing shared visions and non-state actors. For example, many develop skills in participatory foresight EU Member States have responded to for long-term development techniques that enable different actors the EU circular economy strategy by to explore possible futures; the need can inspire and guide action voluntarily preparing national circular for stakeholder engagement skills and at different scales economy plans (see Chapter 9). At the platforms that enable policymakers to of governance. sub-national level, regional governments engage with business, NGOs, citizens, and cities are committing to reductions researchers and others; and the need in greenhouse gas emissions that often for a governance culture that promotes exceed national targets (Averchenkova experimentation and acknowledges the governance to manage nature-society et al., 2017; see also Chapter 7). In the need to accept and learn from failures. interactions within environmental United States, withdrawal from the Paris limits. Agreement has prompted more than More broadly, there is a need to create 2 000 American businesses, 280 cities networks that can tap into, organise and counties, and 340 colleges and and communicate the knowledge 17.5.1 universities to announce that they are dispersed across society. Intermediary Setting the direction for transitions still in the Agreement and determined to organisations that bridge between achieve the United States’ commitment science, policy and society will have Unlike most past transformations of on emissions (Watts, 2017). an important role. Similarly, the production-consumption systems, emergence of ‘platforms of action’ sustainability transitions are purposeful Visions and associated pathways are (e.g. under the Paris Agreement and and directional. Although the future of inherently normative, as they involve the EU’s circular economy action plan) society cannot be known in advance, choices, trade-offs and prioritisation of provide a novel means of collating and the desired outcomes are reasonably certain goals and values over others. sharing practice‑based evidence among clearly defined — most prominently Societal actors are likely to have very non-state and public actors. Making in the SDGs but also in the growing different perspectives on how to move the most of their potential will require body of long‑term visions and targets forwards, even if they agree on the developing new methods to categorise in instruments such as the Paris overarching sustainability goals. This and use this kind of knowledge Agreement and the EU’s long-term underlines the need to develop visions (Steward, 2018). framework policies addressing themes through collaborative processes that such as climate, energy, mobility and involve state, business and civil society biodiversity. actors. Achieving this is often difficult 17.5 because stakeholders vary greatly in Governance of innovation, Developing ambitious macro-level their priorities, resources, values and innovations in governance visions and goals is an important discourses. first step in guiding transitions in In combining state actions across desirable directions. Visions can help in Visioning and other foresight multiple policy domains with bottom‑up identifying possible alternative ways to approaches can help actors to explore innovation and experimentation, meet social needs, tackle the problems alternative futures systematically sustainability transitions involve that need to be solved and define the and collectively. As noted in the EU’s difficult governance challenges. How, roles of different actors. Perhaps most better regulation toolbox (EC, 2018a), for example, can such complex, importantly, they provide a shared ‘Foresight and other forward‑looking dispersed and emergent processes be narrative for actors across society, tools complement quantitative steered towards multiple, long-term extending beyond electoral cycles and modelling with a system thinking and sustainability goals? How can societies short-term objectives. This can help long-term approach. … They facilitate achieve coherence across policy in coordinating activities and steering thinking out-of-the-box. The objective domains and levels of governance? innovation, learning processes and is to engage with different possible How can the inevitable risks and investments (Smith et al., 2005; Hekkert futures (e.g. providing alternative uncertainties associated with systemic et al., 2007). futures) and challenge present change be managed? This section assumptions thereby broadening the explores these questions. It concludes In an increasingly complex and policy horizon.’ Such approaches are with reflections on how regions can fragmented governance context, such not only about cognitive outcomes combine different approaches to visions and associated narratives can (based on expert judgements), but also

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about using creative and participatory FIGURE 17.8 Backcasting analysis processes to foster communication, learning, agreement and commitment. Sustainable

rm imp Visions count for little if they are not rt‑te licat ho ion translated into actions. It is therefore S s important to involve political actors (or those with political influence) in developing them. There is also a need Goals to translate visions and goals into T concrete policies and projects, backed ra n s f up by specific targets, implementing o r History m agencies and monitoring frameworks. a t i v Backcasting is often used to translate e

a

Challenge c

t

future goals into a range of transition i o

pathways, which can then be used n to develop policy strategies and programmes (Figure 17.8). Expected trend

Within Europe, the process of translating visions into targets is well advanced in some policy areas. For Time example, the EU’s 2011 Roadmap for

moving to a competitive low carbon Source: van Vuuren and Hof (2018). economy in 2050 (EC, 2011) used modelling and scenario analysis to map out milestones and sectoral reductions needed to achieve the EU’s 2050 target of reducing greenhouse gas emissions by 80-95 %. Subsequent frameworks common purpose, thereby stimulating 17.5.2 have elaborated much more detailed innovation and investments. As Coherence across policy domains targets and measures to achieve the outlined by Mazzucato (2018), and levels of governance long-term goal. targeted missions provide a means of bridging between macro-level goals or Systemic changes necessarily link Similarly, the EU’s circular economy challenges and micro-level projects and to a broad range of policy domains, action plan (EC, 2015a) articulates a experimentation (Figure 17.9). extending well beyond environment and vision and breaks it down into more sectoral policies, such as energy and concrete sub-goals and focus areas Like broader visions, missions are agriculture, to embrace cross‑cutting addressing topics such as plastics, waste intended to be motivational and foster areas such as innovation, competition, and critical raw materials. In contrast, bottom-up activity, as well as creating a tax, industry, education and welfare the food domain lacks an overarching frame for target setting and monitoring. (Figure 17.10). Actions in each of these sustainability vision and long-term However, by shifting the focus from areas contribute to stimulating, orienting goals, making it hard to develop policies broad challenges to more specific and and facilitating systemic change. In and targets to support food system ambitious but achievable problems practice, however, the fact that policies transitions. The SDGs and existing EU (e.g. achieving 100 carbon-neutral cities — at all levels of governance — are often strategies can provide a foundation for in Europe by 2030) they provide a more developed in departmental silos with engaging stakeholders and developing a specific focus for research, investment contrasting objectives and expertise shared vision for the food system. and economic growth. In this way, they means that misalignments and conflicts aim to promote collaboration between are inevitable (Section 16.6). This Another mechanism for translating all actors in the innovation ecosystem, incoherence can slow down transition broad visions into concrete actions including corporations and disruptive processes, creating contradictory comes in the form of missions that start-ups, public institutions and users signals about the direction of travel and convey a sense of urgency and (RISE, 2018). deterring investments (OECD, 2015).

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FIGURE 17.9 From challenges to missions At the EU level, the European Commission has identified a variety of barriers that hinder the emergence Political agenda setting and diffusion of innovation, including and civic engagement product market regulation, competition rules, market fragmentation, risk aversion and access to seed and GRAND CHALLENGES start‑up capital (EC, 2016b, 2017d, 2018d). As a result, ‘Disruptive and breakthrough innovations are still too rare in Europe’ (EC, 2018d). More MISSION MISSION Clear targeted missions generally, existing policies and rules are often geared towards established ways of meeting needs and may actively support them through subsidies or Mission Mission projects projects public procurement. As such, mapping and reducing barriers — temporarily or permanently — is an important step in Mission Portfolio of projects and creating niches for innovation. projects bottom‑up experimentation

Coordination can be further enhanced by organisational innovations, such as super-ministries that combine

Source: Mazzucato (2018). policy domains, political advisers with cross‑departmental remits, inter‑ministerial committees or independent units (OECD, 2015), such as a transitions unit in the prime minister’s office. Many examples of Actions to improve coherence are to transition processes. It is therefore such innovations exist in relation therefore important. important to achieve effective multi‑level to climate and energy policy, and and multi‑actor governance, with policy new initiatives are also emerging At the EU level, measures to enhance actions at each level reinforcing each in some areas, for example Spain’s coordination include the better other, exploiting opportunities and Circular Economy Inter‑ministerial regulation agenda and the European overcoming barriers. Committee. There would be benefits Semester process (EC, 2019a, in developing such mechanisms to 2019c). Both contribute to improved Misalignments can take a variety of address sustainability transitions, environmental governance, for forms. At the broadest level, policymakers building on the experience of national example through fitness checks of may be pursuing inherently inconsistent sustainable development committees environmental legislation and the policy goals (Rogge and Reichardt, 2016; and ministries. greening of the European Semester Kern et al., 2017). For example, policies (EC, 2019b). that subsidise renewables to make them City networks represent another useful more competitive may coexist with institutional mechanism to coordinate While EU policies can provide an subsidies to fossil fuel-based industries actions across levels of governance. important impetus for sustainability that aim to support employment. In other For example, the Eurocities network transitions across Europe, transitions instances, incoherent instruments can specifically aims to reinforce the role are reliant to a very large degree create barriers to change. In Finland, of local governments in multi-level on policy decisions and activities at for example, operators of some new governance by helping enable cities to Member State, regional or local levels. transport services found it extremely deliver on the EU’s strategic priorities. These different governance levels vary difficult to get the necessary permits to As well as connecting cities directly not only in their capacities but also in operate, as they could not be classified to EU-level policymaking, it provides the barriers that they face, implying that as taxis or goods transport (Temmes a platform for knowledge sharing they each contribute in different ways et al., 2014). among the local governments of more

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FIGURE 17.10 Policy mixes for sustainability transitions

Emergence Diffusion Reconfiguration

E.g. innovation policies: E.g. environmental, sectoral, E.g. welfare, education, industrial, fiscal policies: employment, regional policies:

‑ Research, development ‑ Carbon pricing ‑ Phase‑out measures and demonstration ‑ Strict regulation ‑ Compensating losers ‑ Promoting experiments ‑ Removing harmful subsidies - Offsetting inequities ‑ New entrant support ‑ Market creation ‑ Retraining ‑ Missions ‑ Adoption subsidies ‑ Regional assistance ‑ Network building ‑ Backing winners

Directionality: visions, pathways, long-term targets

Coordination: across policy areas and levels of governance

Source: Adapted from Geels (2006).

2015a, 2018b). As the European 17.5.3 Systemic changes link to Commission has noted in its reflection Avoiding potential harms in a broad range of policies paper on the 2030 sustainability agenda transition processes (EC, 2019d), ‘If we are to succeed, we including energy, agriculture, must pull in the same direction at all From a risk management perspective, innovation, competition, levels. It is therefore of the utmost it is essential that societies promote tax, industry, education importance that all actors in the EU innovations that contribute to and welfare. prioritise the sustainability transition. sustainability goals and constrain those They must further develop the cross- that are harmful. In practice, however, cutting policy agendas that have been the impacts of new technologies and adopted at the EU level in recent years.’ ideas are very hard to anticipate because they depend to a large degree on how While developing more cross-cutting innovations are used and integrated than 140 of Europe’s largest cities, frameworks would certainly be valuable, into ways of living and how they interact accounting for 130 million citizens. it is important to stress that such with other complex systems and drivers frameworks are likely to be misaligned. of change. The EU’s strategic policies relating to As emphasised in Section 16.6, this the circular economy, the low-carbon underlines the need for careful Novel chemicals, for example, can economy and the bioeconomy represent assessment of synergies and trade- present direct threats to human key frameworks for coordinating the offs, including those resulting from and environmental health, and the diverse actions needed to achieve shared reliance on a limited natural accumulation and interaction of economic transformation (EC, 2011, resource base. such substances in the environment

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or within organisms can amplify the precautionary principle as a source uncertainties. Similarly, the interplay Promoting diversity of guidance in situations in which risk of innovations and social responses in innovation is vital assessment tools are inadequate. Rather may produce counter-productive than automatically requiring bans on outcomes, for example if car-sharing to increase creativity, mitigate potentially harmful innovation, it opens schemes cause people to cycle or lock-ins, hedge against up a range of response strategies walk less (Rademaekers et al., 2018). surprises and enable learning. centred on acknowledging ignorance Interdependencies between systems can and uncertainty. These include the produce unexpected harms, such as the need to need to ‘consider alternatives, deforestation and food price increases explore uncertainties, maximise learning that accompanied expanded biofuel and promote adaptability in careful, production in the early 2000s. Structural reversible, step-by-step implementation’ economic change is sure to create techniques include horizon scanning (Stirling, 2015). winners and losers, potentially affecting to identify and interpret weak signals whole regions. of potentially important developments Promoting diversity in innovation (Box 17.10); developing scenarios for is essential because it nurtures These realities create difficult possible future changes in systems as creativity, mitigates lock-ins, hedges dilemmas. In many cases, the social a means of identifying potential risks against surprises, enables learning and environmental consequences of or windows or opportunity; modelling and increases tolerance of failure of innovations cannot be anticipated; by of pathways to explore impacts and individual innovations. It provides the the time they do become apparent, trade‑offs, or using agent-based or foundation for shifting to alternative widespread diffusion and associated system dynamics models to explore innovation pathways in the event of lock-ins may make the innovation potential changes in systems (EEA, 2018). surprises or unexpected consequences. very difficult to remove (Collingridge, But achieving this goal requires 1980). Yet, Europe cannot afford not Although potential hazards must be that diversity be complemented to innovate. Inaction greatly increases identified as early and accurately as with real-world pilots and trialling, environmental risks and has severe possible, the non-linear and open-ended monitoring and evaluation, learning human and financial consequences. nature of systemic change (as well as and communication. the pace and scale of technological Research and practice point to a innovation) mean that assessing These themes come together in variety of strategies for responding to and mitigating all risks in advance is adaptive governance approaches such these dilemmas. First, governments impossible. Societies do not know what as ‘transitions management’, which and other actors can certainly do innovations will emerge, how they will addresses change in socio-technical better at exploring and identifying influence and co-evolve with social systems such as energy and mobility, and potential risks ex ante, building on practices, and what environmental ‘adaptive management’, which focuses existing impact assessment approaches and social impacts will emerge. These on nature-society interactions. Both and employing a variety of tools are ‘unknown unknowns’ — issues of acknowledge the risks and uncertainties and analytical approaches. Such fundamental uncertainty, rather than inherent in transforming complex systems approaches must go well beyond risks that can be assessed and balanced. and seek to navigate these processes simple forecasting exercises, based on In such situations, the precautionary through iterative cycles of vision setting, historical data. Instead, the International principle provides a useful tool to experimentation, monitoring and Risk Governance Council (IRGC, 2018) support decision-making. evaluation. They put particular emphasis recommends combining foresight on the importance of social learning approaches (which employ participatory The precautionary principle stipulates and stakeholder participation, reflecting approaches to map out possible futures, that, where there are threats of the uncertain and pluralistic nature of risks and opportunities) with ‘broadsight’ serious or irreversible damage, lack knowledge (Foxon et al., 2008). approaches that explore outcomes in of full scientific certainty shall not horizontally interconnected systems. be used as a reason for postponing Applying a precautionary approach cost-effective measures to prevent ultimately raises questions about the The ‘resource nexus’ perspective environmental degradation. Although purpose and direction of innovation employed to explore cross-system this is sometimes interpreted as a — questions that fall outside the interactions in Chapter 16 exemplifies barrier to technological progress, a focus of narrow forms of risk the latter approach. Other valuable more nuanced understanding casts assessment and are often brushed

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BOX 17.10 Identifying emerging risks and opportunities for Europe’s environment and policies

ven when successful in its original biology, artificial meat), the changing EU foresight system for the systematic Eintended use, innovation can context in which they operate identification of emerging environmental result in unexpected and harmful (e.g. climate change) or systemic effects issues (FORENV) ‘to identify, characterise consequences for the environment and related to radical transformations and assess emerging issues that may human health. As numerous historical (e.g. energy systems). Another kind of represent risks or opportunities to examples illustrate, mitigating harmful challenge is associated with the public’s Europe’s environment’. FORENV adopts impacts requires identifying potential risk perception, as some technological a systematic and participatory approach hazards as early and accurately as innovations can be met with more to risk management, building on possible (EEA, 2001, 2013). In addition to societal protest or controversy than methodologies such as horizon scanning, enabling interventions to limit impacts, expected (e.g. first-generation biofuels, text mining or media monitoring early warning can help stimulate the wind turbines, nanotechnologies, (EC, 2017f) and on relevant expertise. development of substitutes, hence genetically modified organisms), In particular, it links with the Scientific contributing to sustainable innovation. especially in times of decreasing trust in Committee on Health, Environmental institutions and experts. and Emerging Risks (SCHEER) and the The increasing rate and complexity Eionet Forward-Looking Information of technological and societal change Against this backdrop, the Seventh and Services (FLIS) representatives (Chapters 1 and 15) means that early Environment Action Programme calls from EEA member countries. The first warning systems need to anticipate for improvements in ‘the understanding 2018-2019 annual cycle is focusing risks and opportunities that are not yet of, and the ability to evaluate and on identifying key emerging issues at observable (Science for Environment manage, emerging environmental the environment‑social interface and Policy, 2016). Emerging risks can result and climate risks’ (EC, 2013b). In communicating them to policymakers from the introduction of radically new 2017, the Environment Knowledge and the public at large, encouraging products or technologies (e.g. synthetic Community (EKC) (1) established the appropriate and timely action. ■

aside by popular discourses about and very much at the heart of depend on governance approaches the value of innovation. For example, the shift to mission‑oriented and that reflect these interactions and help Genus and Stirling (2018) argue that transformative innovation policy. ensure that systems operate together ‘Taken as a whole, EU initiatives within environmental limits. and policies tend to characterise innovation in an undifferentiated 17.5.4 Ecosystem-based management way — as a self‑evidently generally Managing system interactions has emerged as a key governance ‘good thing’ irrespective of the within environmental limits approach for addressing the many specific kind of innovation involved interactions within and between or the alternatives that might As discussed in Section 16.5, society and nature. Ecosystem-based thereby be foreclosed.’ A more production‑consumption systems management aims to coordinate the precautionary approach — including interact in many ways — both with interactions between multiple actors open, participatory approaches to each other and with ecosystems, and sustainability outcomes in ways define directionality — is in tune for example through the resource that preserve ecosystem services and with the EU’s concept of Responsible nexus. Achieving Europe’s long-term ensure that society operates within Research and Innovation (EC, 2014a), sustainability goals will therefore environmental limits.

(1) The Environment Knowledge Community is an informal platform of five Commission Directorates-General (for Environment, Climate Action and Research and Innovation, the Joint Research Centre, Eurostat) and the EEA that was set up in 2015 with the objective of improving the generation and sharing of environmental knowledge for EU policies.

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In practice, ecosystem-based simple, because it challenges established management brings together many of knowledge, skills, decision making the features of innovative governance processes and structures (Voulvoulis already highlighted in this section. et al., 2017). Perhaps, partly for these In addition to being a distinctively reasons, Europe still has a long way ‘place-based’ governance approach, Ecosystem-based approaches to go to achieve good status in its ecosystem‑based management involves help in understanding freshwater and marine ecosystems (McLeod and Leslie, 2009; NOAA, 2018): environmental trends and (as discussed in Part 2 of this report). Nevertheless, adopting ecosystem- • Engaging multiple actors: Rather coordinating collective action based approaches provides an essential than addressing individual sectors, to preserve natural capital. starting point for understanding the ecosystem-based management links between ecological status and highlights the importance of the diverse pressures imposed by interactions between stakeholders society and for coordinating collective in a socio-ecological system and action in ways that preserve Europe’s their cumulative impacts on the natural capital. As such, there could be environment. This includes engaging grounded in flexible and innovative significant value in strengthening the actors at different levels — from local institutions that are highly responsive to implementation of ecosystem-based to global — in coordinating actions and new information and experiences. management and extending its use in EU sharing data. environmental policy. • Multidisciplinarity: • Actions towards shared Understanding the interactions of Overall, ecosystem-based management targets: Engaging sectors, public multiple societal and ecological systems provides a natural complement to the authorities and other actors is achieved requires broad knowledge, including transitions frameworks described in by defining shared targets linked to ‘synthesizing and applying knowledge this chapter. Whereas the multi-level ecosystem functioning. For example, from across social and natural sciences, perspective is much stronger than the Water Framework Directive as well as the humanities’ (Leslie and ecosystem-based management in requires that water bodies achieve McLeod, 2007). explaining the dynamics of change good ecological status across a variety in production-consumption systems, of biological, hydromorphological and Within EU governance, ecosystem- it gives limited consideration to physico‑chemical characteristics. based management underpins some cross‑system interactions and of the key environmental policies that environmental impacts and thresholds. • Focusing on diverse sustainability together contribute to implementing In contrast, ecosystem-based outcomes: Ecosystem-based the EU biodiversity strategy, notably management addresses precisely these management captures the full range of the Water Framework Directive and kinds of interlinkages and effects, using benefits associated with maintaining the Marine Strategy Framework ecological criteria, and exploring them ecosystem service flows, as well as the Directive. Since their introduction, at the spatial scales most appropriate trade-offs inherent in reconciling the these tools have enabled a shift in for managing nature-society activities of multiple sectors and other governance, bringing together sectors interactions, such as a river catchment actors at a particular spatial scale. and Member States to consider and area or a regional sea spanning multiple balance their collective interests and administrative boundaries. Considering • Monitoring and adaptive assess the cumulative pressures that the multi-level perspective and governance: Recognising that complex they are placing on particular regions ecosystem-based management together systems are constantly changing in ways (EEA, 2015a). in future policy design could help that cannot be predicted or controlled, accelerate sustainability transitions in ecosystem-based management The shift to a systems approach in line with the 2050 vision of the Seventh embraces an adaptive governance style, EU environmental governance is not Environment Action Programme.

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