Year of selection 2018
Institution London School of Economics and Political Science
Country United Kingdom
The latest Intergovernmental Panel on Climate Change’s report on global warming spells out the urgency of action. Without quick and radical structural changes in the sectors that affect the economy’s demand for energy, we could pass 1.5˚C of warming as early as 2030, and the consequences in terms of extreme weather and damage to the ecosystem would be catastrophic. A major drag on radical innovations and technological changes in these sectors is the firms’ reluctance, and even inability, to set off alone on a transformative energy transition adventure, that might leave them isolated from partner companies, and work against them. Dr Marion Dumas, a researcher who focuses on industrial barriers to radical green innovation at the Grantham Research Institute, in London (United-Kingdom), thus hypothesizes that major changes in products and processes require that firms in the same value chain make complementary and coordinated investments. To test this rationale, and to identify key levers of change, she aims to investigate the interactions and analyze the relationship between industrial network structure and patent production. "The project has a strong policy objective, she explains. It aims to understand which public policy interventions might change the incentives for energy-intensive firms to invest in more radical technological change."
"Before the 80s, industries were quite vertical in nature. They were making products from start to finish. Making radical changes in production was easier. Today, things are more complicated. A product depends on a whole network of firms, manufacturers, suppliers, with several actors involved, notions of competition, etc." Incentives are thus much more complicated to determine, and depend on various interactions and interdependencies. "I intend to put the spotlight on coordination dynamics. This way, I can determine 'leverage points', where intervention would impact the entire value chain. In other words, I intend to identify key players in the network whose actions can change the incentives of other players to invest in meaningful transitions, she explains, insisting that understanding coordination dynamics is key for a successful industrial policy for the energy transition. For a long time, people bet on price incentives, tax carbon, etc. It works but it simulates marginal innovation, not systemic innovations. Policy makers have funds, and we need to tell them where to allocate this money in order to make the biggest possible impact". This research approach is quite innovative in nature. Indeed, as she points out, researchers have not yet considered the constraints and risks faced by firms due to their interdependencies with other firms.
Tailoring policy interventions to trigger sector-wide energy transition
To provide this wealth of new insight, Dr. Dumas’s investigations will focus on two energy-intensive sectors in particular: the car industry and construction. More specifically, her case studies will focus on the development of electric cars in car manufacturing firms and on the introduction of green building technologies in the construction sector. "This choice is justified by the fact that transport and buildings comprise each about 30% of final energy consumption”, she reports. Furthermore, these two sectors vary in ways that are useful for this project. They display interesting variation both in terms of investments in technological change and industrial structure. Methodologically speaking, Dr. Dumas’s project will use a mixed approach that combines case studies, theoretical modeling and quantitative empirical analysis. In other words, she and her team will first engage in a detailed examination of both the car manufacturing and construction sectors, notably by conducting interviews with manufacturers and suppliers, especially the big ones like Bosch, Lafarge, Siemens, Dassault, as well as civil servants in the relevant ministries. In parallel, they will analyze the case material to extract generalizable causal mechanisms which will then be formalized into a model that explains investments in radical innovations. Finally, in the empirical analysis stage, they will develop an indicator to better measure radical technological change for the energy transition, and use it to run statistical models to test hypothesis about the role of industrial structure and public investment on the probability of patents with a high 'radical technological change' score. "These three methods strongly complement each other, she explains. The empirical analysis describes the variation to be explained by the model, the model highlights the causal structure in the case studies, the case studies help validate the measurements in the empirical analysis, etc." Her findings will then be translated into policy papers addressed to stakeholders, and business associations mainly in the United-Kingdom and Europe (her main impact targets) but also North America.
The project’s ultimate aim is to inform public policy interventions aimed at fostering change towards a more radical energy transition in both the car manufacturing and construction sectors. "Green products in these sectors are a niche, we need to make them mainstream, and to do that, we need to take into account the whole supply chain, understand who needs to be encouraged for everyone to get on board". Her policy papers on the challenges to electric vehicle innovation in the car manufacturing sector and to green building innovation in the construction sector will provide stakeholders with guidelines on how to design their industrial policies and break the deadlocks that inhibit radical structural change.