In this week’s NERI blog, NERI economist Paul Goldrick-Kelly summarises a recent seminar based on an upcoming paper. In this paper, Paul argues that insights from institutionalism and political economy can supplement existing tools to identify the factors locking us into continued GHG emissions and locking out alternatives.
In a recent NERI seminar (14th of June), I summarised an upcoming working paper titled “Carbon lock-in and institutions – outlines of a political economic approach to emissions reduction inertia”. While the title is a mouthful, the central questions I hope to investigate are relatively straightforward. If it is the case that we have ready made, and inexpensive low carbon technologies, why are we doing so poorly on emissions reductions? Why, despite ambitious climate legislation, do we seem so far off our goals?
A major strand of the literature answers that this is a product of so called “carbon lock-in”. The basic idea is that technology systems – like the electricity system for example – aren’t simply about their built components. They are the product of a process of coevolution between technologies, the behaviours and expectations of users and producers, and the institutional set up which supports it.
This co-evolution occurs in a path dependent manner. Small, chance events can, when accompanied by a feedback dynamic, generate distinct paths that are hard to shift. In technology terms, the costs of replacing them can escalate. Think of VHS versus Betamax - a small head start for VHS led others to adopt it, leading to bigger production runs and reduced costs in a feedback loop, eventually crowding out its competitor.
A perhaps more relevant example (since its still with us) is the QWERTY keyboard you’ve likely used today – its initial take up over a century ago has entrenched the layout and enabled it to resist superior challengers. Network effects as more actors adopted it, and the building of other systems around it, mean that it has become too costly to switch. We have maintained it not because it’s good, but because its pervasive, and because it has crowded out alternatives.
I hope to develop this story with a focus on the institutions that are involved in this process where carbon emissions are concerned. I use a well-developed framework within transitions research to begin my investigation. The Multi-level framework (MLP) sees transitions occuring at a number of levels, across several stages over time. At the smallest scale a niche looks at the level where a new innovation or technology develops, which often encompasses new entrants or ways of doing things. This could be a new renewable technology, firm or social movement which seeks a change. At the middle scale, the existing “socio-technical system” encompasses the elements which provide societal functions which are supported by entrenched rules and norms in a “socio-technical regime”. Think of the housing or transport systems, they are supported by current players within those systems (incumbent firms/organisations) and existing rules, regulations or standards which support that system. The road system incorporates specific regulations, infrastructures and the firms and users which build, develop or regulate the system to give one example. Finally, at the largest scale, we have the socio-technical landscape which incorporates wider factors like the broader national and international economy, wider social ideas etc. This could range from things like population dynamics, or ideas about how the world should work.
The MLP sees change as occuring from an interplay between these levels, with niche innovations gradually gaining momentum, and alongside pressure from wider changes at the landscape level puts the existing system under strain, which eventually leads to the disruption of the system. “Lock-in” from this perspective, can be seen as the processes which resist this change pattern.
I argue that we can develop this framework by supplementing it with work from other literatures including historical institutionalism and political economy. Historical institutionalism is concerned with how institutions are formed and evolve, and how people act within institutional constraints. The existing literature points to institutional features which may lead to better or worse performance in climate policy terms, including veto opportunities for incumbents and the nature of regulatory bodies. If, for example, a certain position within government can veto legislation, or if regulatory bodies in areas like electricity are independent of government with a wide scope to act as they see fit, we’ll likely see effects on things like climate policy.
This literature, and related strands of political economy also point to how institutions can interact and potentially dominate one another. In the first case, we can see the differing economic strategies of different states – their varieties of capitalism that make a place like Sweden look different to the United States or Ireland (for example) – are the product of varying combinations of institutions which work together and support one another. This mutual support dynamic could, itself, be a source of “lock-in” as they reinforce one another and resist change. Some institutions may be more significant than others within set ups, forming an institutional hierarchy that influences change.
As an illustration of this consider changes to the economic strategies pursued by states following the post-war period to the present day. Institutions around industrial relations (the wage labour nexus) were preeminent mid-century when many national economic strategies were built around wage led growth, which shaped the institutions around them. But, following the increased importance of globalised trade and the growth of finance, wage institutions among others, came to be shaped by the demands of their rules of the game. This may explain the path of environmental policy – to date, its been lower down the hierarchy compared to other concerns.
This wider political economy framework can explain how and why different countries have different economic models and offer a way of interpreting how these models change over time. From the perspective of carbon lock-in, this may point to particular economic models which have a greater or lesser success in climate policy terms.
In this way, insights from these fields can “fill in” the role of institutions at the middle and upper levels to find out how institutions shape the “socio-technical regime” and the wider “landscape” levels.
The MLP can keep things specific –allowing us to examine the specific challenges of the energy and transport systems in Ireland and comparable states – while these additional literatures can tell us more about how institutions came to shape lock-in at various scales. Specifically, they can point to how these outcomes are affected by politics and focus on the rules which frame action, rather than a breakthrough technology as is often the case in MLP analyses.
This framework could offer some explanation for the questions posed at the beginning of this blog. It could also offer some insight from other countries or inform whole new models for the future. This could aid efforts to change our societies into better places to live, and realise a Just Transition.