By Xiaolan Fu, University of Oxford, Rasmus Lema, University of Aalborg and Roberta Rabellotti, University of Pavia
There is increasing recognition that policies aimed at meeting environmental targets may open new economic development paths, especially for emerging economies, given the green transformation and related techno-economic paradigm changes across institutional, market and technological domains. Looking at China, a recent article highlights the importance of institutional transformation to create “green windows of opportunity” (GWOs) for economic structural change associated with the green economy. Green windows of opportunity represent a set of favourable, temporary conditions for “latecomers” to catch-up in the long run in sectors central to the green economy.
To investigate GWOs there needs to be a new framework for two main reasons. First, it is essential to deviate from the environmentally unfriendly development pathways undertaken in the past by advanced economies of North America and Western Europe. Emerging economies should ‘develop differently’ from the outset rather than catch-up along established pathways. Second, the green transformation, as a significant driver of current capitalist development, has features that sets it apart from earlier transformations. It is the first industrial and technological revolution with a deadline and it is steered explicitly by public policy, driven not just by economic motivations, but also by social value.
Green windows of opportunity
This new analytical framework is summarised in Figure 1, with green windows of opportunity at its core, driven by institution and policy changes rather than technological or market change. Empirical evidence on biomass, hydro, solar photovoltaic, concentrated solar power and wind shows that institutional changes are the central drivers of green windows of opportunity. Examples from China include both cross-cutting changes such as the implementation of the 2006 Renewable Energy Law and sector-focused missions such as the Golden Sun Demonstration Program in the solar photovoltaic sector and the Rind the Wind Program. While the drivers of the emergence of these green windows are essentially institutional and policy-driven in nature, they influence and interact with technological and market transformations.
Figure 1: The analytical framework: green windows of opportunity and catch-up trajectories.
Firms and other actors
The transformation of green windows of opportunity into upgrading and international competitiveness is neither a given nor automatic, and there is significant variability in catch-up trajectories at the sectoral level. The extent and nature of firms’, and other public and private actors’ actions in the sectoral system determine whether and how potential opportunities are translated into reality. Furthermore, technological maturity and tradability of green technologies also significantly affect sectoral trajectories. Catching-up is easier in technologically mature sectors that have tradable knowledge and standardised products. At firm level, the initial response is to acquire the basic production capabilities available globally to exploit the opportunity. In mature sectors, it is relatively easy to acquire world-class technologies. Moreover, market success depends on capital investments and organisational capabilities.
But different cases show that for upgrading and deepening technological capabilities there also needs to be a change of gear in relation to several components in the sectoral environment. For example, in the hydro energy industry, the increasing role of public R&D in repositioning Chinese universities from the periphery to the core of patent citation networks has been increasingly visible over the last ten years. This, in turn, has led to the ‘greening’ of the sector and to more reliable and efficient hydro generators. Deeper interaction among lead firms, suppliers, technology providers and financial institutions also reinforces sectoral innovation systems. Conversely, with technologies that are still evolving such as wind, the inability of the system to progress from technology absorption and domestic deployment to technological leadership in the global market has resulted in domestic firms failing to achieve market leadership.
Therefore, to successfully exploit green windows of opportunity, the sectoral innovation system has to be dynamic and continuously adapt to different sector specificities, and changing market and technological opportunities. Policies also need to be tailored to the stage of catch-up and account for sectoral specificities.
Green latecomer catch-up trajectories
Different catch-up trajectories can be observed as a result of a variety of sectoral, technological and policy factors, and differences in local capabilities. Market catch-up refers to the acquisition of increasing national and international market shares. In renewable energy sectors, this can be quantified as the share of energy generation capacity (in megawatts) sold in the domestic and global market. Technological catch-up, distinguishing between new-to-the-country technology and world class technology, is defined asthe strengthening of technological capability relative to that of competitors and can be measured with quantitative information (e.g. patent numbers and quality) or qualitative assessments of the ‘distance’ to the global knowledge frontier in a given sector. Distinguishing between the market and technology dimensions allows us to chart the trajectories of China’s green sectors, depicted in Figure 2 and detailed below:
From domestic imitation to global leadership: this is the path followed by the hydropower and biomass sectors, which have progressed fromnew-to-the-country to world-class technology.
Learning from exporting (over domestic strengthening) to global leadership: this is the trajectory of the solar photovoltaic sector,which started from exports of new-to-the-country technologies introduced to China by returnee entrepreneurs, to a focus on domestic market and technological upgrading, to achievement of world-class technology, going back to the global market.
World-class technology with limited global market progression: this applies to concentrated solar power, which after upgrading to world-class technology, experienced slow market development.
Domestic imitation with limited global progression: this pertains to wind upgrading to new-to-the-country technology in the domestic market, butwhich has remained limited in further development.
Figure 2: Latecomer catch-up in five green sectors in China
Policy implications
First, the evidence suggests international organisations’, governments’ and non-governmental organisations’ efforts across the world have been effective in promoting institutional change and mission oriented green windows of opportunity for many countries. The global community should continue its efforts to support the emergence of new global green innovation leaders.
GWO can be exploited by both developed and developing economies. Countries that take active measures to enhance their technological capabilities and build open national and sectoral innovation systems through trade and investment policies and internationalization of R&D, may achieve faster catch-up and, even, leadership. The emergence of latecomer countries in the green economy has an internationally beneficial effect by reducing the price of energy transition technologies. This facilitates mobilization of finance and technology for more affordable green energy systems in the global South.
Third, environmental and energy policies are critical for the emergence of green windows of opportunity, due to their domestic deployment and market creating effects. At the same time, industrial and innovation policies are also important to promote firm and system level capabilities to respond to opportunities.
Finally, our findings also have valuable policy implications for other sectors such as public health and digital infrastructure, which are critical for building an inclusive society. Policy coordination and the efforts of the global community in ensuring equal access and responsible provision of global public goods, could create ‘global challenge-led windows of opportunity’. The global community should ensure equal access to high quality, economically affordable and technologically adequate products and services in these sectors through engagement, collaboration and regulation-based supervision.
This blog is based on: Lema, R., Fu, X., & Rabellotti, R. (2020). Green windows of opportunity: latecomer development in the age of transformation toward sustainability. Industrial and Corporate Change, 29(5), 1193-1209.