Sustainability Policy Paradigms

SUSTAINABILITY:
Sustainability as a Public Policy
Paradigm
EMPA-EV1. Spring 2023
Aneeque Javaid
Slides and materials with
inputs from:
Nils aus dem Moore

Learning objectives
 Analyze different actor groups’ options and limitations in
their capacity to act on climate change
 Consider major policy paradigms in climate governance
 Learn about approaches to policy instrument design in
climate policy
 Acquire understanding of political economy challenges
Sustainability as a Public Policy Paradigm

Agenda
1. Debate
2. Governance approaches
3. Optimal climate policy instrument design
4. Political economy

Debate: Governance approaches for climate policy
What is the role of different actor groups in climate change mitigation?
• State, business, civil society/NGOs, individuals/families/local communities
Rules
• 4 groups argue why „their“ actor group alone is key for success
1) Prepare team position (20 min)
• What are key obstacles to successful sustainability governance?
• How does focusing on YOUR actor group address that obstacle?
2) One team member presents each position in ~3 min
3) Critique and response on each position (non-presenting team members respond)
4 Teams:
(1) State
(2) Business
(3) Civil Society
(4) Individuals

Agenda
1. Debate
2. Governance approaches
3. Optimal climate policy instrument design
4. Political Economy

Typology of goods
Cost of
exclusion
Rivalry
(subtractability)
Club Goods
Private Goods
Common Pool
Resources
Public Goods
High Low
Low
High

Tragedy of the Commons
Garrett Hardin, American biologist and ecologist
• A great pessimist
1968 article in Science entitled “The Tragedy of the Commons”
• One of the most influential and cited articles ever (43,000
citations on Google Scholar)
Environmental goods – such as a pasture
• Degrade if over-used
• No one can be excluded from use
• Result: free-riding by selfish individuals, over-use,
degradation
• Management: state or private property

Cooperation dilemma
Public good provision
• Individual incentive is to under-invest (free-ride)
• Group welfare is maximized when PG provision is maximized
Common pool resources
• Individual incentive is to extract as much as possible (free-ride)
• Group welfare is maximized when resource is extracted at the
sustainable level, so it keeps going

Elinor Ostrom: The Drama of the Commons
Elinor Ostrom (1933 – 2012),
Nobel Laureate 2009
A resource arrangement that works
in practice can work in theory

Elinor Ostrom: The Drama of the Commons
An alternative, more optimistic
narrative on commons
• Communities have struggled successfully against
threat of resource degradation of common-pool
resources
• By developing self-governing institutions
• Sometimes this works, sometimes not
The collective action problem of
maintaining a commons can be
overcome
• Such institution often work better at small scale at
the local level
• Many empirical studies, from field research to
laboratory experiments
• Ironically, the metaphor that Hardin uses (the
medieval commons) are actually a case where
governance was successful over centuries
Elinor Ostrom (1933 – 2012),
Nobel Laureate 2009

Design principles for Common Pool Resource (CPR) institution
1. Clearly defining the group boundaries (and effective exclusion of external un-entitled
parties) and the contents of the common pool resource;
2. The appropriation and provision of common resources that are adapted to local
conditions;
3. Collective-choice arrangements that allow most resource appropriators to participate in
the decision-making process;
4. Effective monitoring by monitors who are part of or accountable to the appropriators;
5. A scale of graduated sanctions for resource appropriators who violate community
rules;
6. Mechanisms of conflict resolution that are cheap and of easy access;
7. Self-determination of the community recognized by higher-level authorities; and
8. In the case of larger common-pool resources, organization in the form of multiple
layers of nested enterprises, with small local CPRs at the base level.

Examples
England´s common
Mongolian grasslands
Community forests in Nepal

PERSPECTIVES ON
CLIMATE GOVERNANCE
Dorsch & Flachsland 2017

TOP-DOWN
PROBLEM
 Global commons problem in need of a global solution
ACTORS
 Nation states under a central international authority
VISION
 Collective-action to solve the collective-action problem
 Legally binding international multilateral climate agreement
 Ideally backed by a powerful international monitoring and enforcement body
 Global emission trading system
GOVERNANCE FOCUS
 UNFCCC (i.e. COP, Kyoto Protocol Bodies, ADP, Technology Mechanisms, Financial
Mechanisms like GEF, GCF)
 Procedure: National deliberation and bargaining about national goals  multilateral
negotiations within the UNFCCC and its 196 parties  agreed outcome
 Direction: e.g. powerful World Environmental Organization

DECENTRALIZED
PROBLEM
 Cooperation dilemma of rational, self-interested (state) agents
 Free-riding
ACTORS
 Heterogeneous rational, self-interested agents (mainly nation states)
VISION
 Internalize global externality with international regime-design to counter strong free-
riding incentives
 Global carbon price as effective incentive
GOVERNANCE FOCUS
 on REGIME DESIGN
 Create incentives for cooperation: club goods, transfers, penalties, …

POLYCENTRIC
PROBLEM
 Self-organization, coordination and ongoing adaption
over time under limited knowledge
ACTORS
 Multiple nested self-governing authorities
(such as a family, a firm, a local government, a network of local governments, a state or province, a
region, a national government, a club or an international regime)
VISION
 Adaptive system of multiple self-governing units of different scales at different levels,
interacting and using their site-specific capabilities for a common goal (climate
mitigation, e.g. 2°-target)
GOVERNANCE FOCUS
 Multi-level, multi-actor, multi-interest lens
 Effective expression of preferences: exploitation of co-benefits, balancing costs
 Creating adaptive institutions for mutual coordination, learning & reinforcement

Multi-level climate governance
• International
• National
• Sub-national
• Individuals
• Communities
• Organizations
• Regional
UNFCCC
EU
G-20, …
Business

National Policymaking: the Policy Process
Agenda setting
Policy formulation
Decision making
Implementation
Evaluation
[Termination]
Societal problem

4 perspectives on the policy process
Rational
• Rational Actors consider a wide set of alternatives to determine the most
efficient means to achieve carefully societal ends
• A normative benchmark
Political
• Power politics determine policy processes and outcomes
Cultural
• The construction of problems and solutions is decisive
Institutional
• Institutions critically structure process and outcomes by constraining the
opportunity spaces of actors
 see Bekkers et al. 2017

Approaches to climate policy instrument design
Internalizing externalities
Direct externalities: GHG emissions, air and other pollution
...and indirect externalities: research and development policies
Overcoming barriers
Define goal (e.g. 2°C climate stabilization) and consider barriers in the way
In addition to externalities, consider political economy obstacles such as lack of
support or interest-group opposition and address them
Mission-oriented research & development (R&D)
Government directs technological change towards solutions to societal grand
challenges (climate change, aging populations, ...)
Entrepreneurial government with successful track record, often related to
military purposes (aviation, computers, communications, ...)

Welfare with Externality: Pigou tax to the rescue
PMC

Carbon Pricing
Example
Carbon tax, emissions trading system
Pros
• Internalizes GHG externality
• Incentivizes all abatement options, in principle
• By raising cost of fossil fuels and other GHG sources, renewables and other
low-carbon technology options become competitive
• Induces low-carbon technology innovation, if credible
• Government does not need to know private mitigation costs
• Enables targeted distributional outcomes via revenue recycling
Cons
• There are additional market failures – carbon pricing not a panacea
• Empirically, lot of political resistance to carbon pricing

Additional market failures in technological innovation
Generating and demonstrating feasibility of new ideas
• Ideas are often easily copied (e.g. reverse engineering)
• The innovator may thus not reap the full benefits of a new technology
• Patents generate temporal monopolies to address this problem
• Additional incentives might be needed: Basic research & development support
Also: rationale for state-funded research organizations
Scaling up: Deploying new technologies at scale
• Producing and deploying new technologies leads to cost reductions along the
value chaing via learning-by-doing processes
• Again, novel ideas are often easily copied
Rationale for deployment subsidies (e.g. feed-in tariffs)

Innovation spectrum: private vs. social rates
of return
Nemet
2013

Addressing technology-related externalities with policy
Network / Coordination Ext.
(e.g. building up supply chain)
RD&D Spillovers Learning Spillovers
Diffusion &
Integration
Niche
Markets
Demons-
tration
Applied
R&D
Basic
R&D
Technology Push Policies
(Public R&D, R&D tax credits,
technology prizes)
Market Pull Policies
(Patents, deployment subsidies,
technology standards, GHG pricing)

Total public energy R&D budget OECD countries
https://www.iea.org/reports/energy-technology-rdd-budgets-2020

Key political economy factors
Interests
• Material factors: Distribution of costs, benefits, jobs, profits
• Many dimensions: Income groups, business groups, workers, regions and
countries
• Creating new (green) interest groups as one avenue for change
Ideas
• What actors believe and care about: Conceptual frameworks, discursive framing
and narratives, perceptions of scientific facts, social norms, values, attitudes,
social identities
• Public opinion, policy subsystem policy coalitions (policy preferences)
• Deliberation and learning essential avenues for changing mindsets and policy
Institutions
• Aggregation of & responsiveness to societal interests
• Structuring interactions and resources of actor groups in the policy process –
institutional reform as an avenue for change

Political Economy: Olson vs. Stigler
• Long history and large literature of political economy of regulation (e.g.
Stigler 1971) and how to turn ‘Olsonian’ into ‘Stiglerian’ settings (Oye and
Maxwell 1994)
Costs
Benefits
Olsonian
Stiglerian
Concentrated Dispersed
Concentrated
Dispersed
• But: framework only reflects material interests and does not adequately
account for relevance of institutions (political mechanisms) and ideas

Jakob, Steckel, Urpelainen & Flachsland (2020):
A novel framework for climate policy political economy analysis
Motivation
• No comprehensive framework on political economy of climate policy available
Idea
• Develop broad framework enabling comparable country case studies
• Identify key actors, objectives, and context factors that matter
Project
• Theoretical framework paper
• Several country studies on political economy of coal use in the electricity
sector

Actors and objectives (examples)
Societal Objectives
Environmental
Climate change mitigation
Local air quality
Socio-economic
Economic costs and efficiency
Employment and wages
Diversifying the economy, structural change
Poverty alleviation
Social inclusion
Health
Distribution
Public revenues and investments
Profits
Strategic
Technology transfer
Energy security, energy sovereignty
Political Objectives
Reelection
Increasing influence and political power
International standing
Societal Actors
Voter groups
Unions
Energy-intensive industries
Utilities
Resource owners
Financial institutions
Industry associations
Researchers, academia
Multi-national corporations, investors
Civil society (e.g. NGOs, religious groups, local citizens)
International NGOs (e.g. WWF, Greenpeace)
Political Actors
Influential individuals (e.g. president)
Key ministries and agencies (across different governance
levels)
Political parties (e.g. via parliament)
Regulators, implementing agencies
Jakob,
Steckel,
Urpelainen
&
Flachsland
(2020)

Context factors (examples)
Context
Techno-Economic
Economic situation (GDP, business cycle, fiscal deficit, population density, inequality…)
Fossil fuel endowments, dependence on fossil imports/exports
(Global) market developments for fossil fuels and renewable technologies
RE potential
Grid infrastructure and existing generation capacities
Industrial structure (e.g. share of manufacturing and energy-intensive industries)
Institutional
Organization of the power sector
Representation of interest-groups
Political and judicial system (e.g. democracy, parliamentary vs. presidential, electoral system)
Government capacity
International agreements (climate, trade, investment, technology)
Discursive
Political events (champions for green policies, media attention, framing, socio-environmental conflicts, COP or similar event in
country under consideration)
Ideational factors (climate change knowledge, right-left polarization, international diffusion of ideas)
Trust in government
Environmental
Vulnerability to climate change
Focusing events (climate-related impacts, Smog episodes, power cuts)
Jakob,
Steckel,
Urpelainen
&
Flachsland
(2020)

Framework Overview
Jakob, Steckel, Urpelainen & Flachsland (2020)

Example: Vietnam
Objectives
• “Keeping the lights on” (energy security)
• Cheap electricity supply to maintain political stability & economic growth
• Personal enrichment & power
Societal actors
• State-owned enterprises benefit from coal use
• Environmental NGOs have little influence
• Some local resistance to coal plants in Mekong area
• International investors struggling with carbon-intensive system and corruption
 high investment risks
Political actors
• Communist Party controls government, has final say in all decisions
(might not always well-informed)
• Revolving door between state-owned utility EVN and ministry of industry and trade
Context
• Ruling Communist Party strives to stay in power
• Long-term central planning tradition makes private sector involvement difficult
• State-owned enterprises & self-interests dominate policies
• Investment uncertainty and wide-spread corruption result in high financing costs for RE vulnerability to CC
• green policies to please donors

Political Economy: Olson vs. Stigler
Long history and large literature of political economy of regulation (e.g.
Stigler 1971) and how to turn ‘Olsonian’ into ‘Stiglerian’ settings (Oye and Maxwell
1994)
Costs
Benefits
Olsonian
Stiglerian
Concentrated Dispersed
Concentrated
Dispersed
But: framework only reflects material interests and does not adequately
account for relevance of institutions (political mechanisms) and ideas

Example: Vietnam
• Objectives
• “Keeping the lights on” (energy security)
• Cheap electricity supply to maintain political stability & economic growth
• Personal enrichment & power
• Societal actors
• State-owned enterprises benefit from coal use
• Environmental NGOs have little influence
• Some local resistance to coal plants in Mekong area
• International investors struggling with carbon-intensive system and corruption
 high investment risks
• Political actors
• Communist Party controls government, has final say in all decisions
(might not always well-informed)
• Revolving door between state-owned utility EVN and ministry of industry and trade
• Context
• Ruling Communist Party strives to stay in power
• Long-term central planning tradition makes private sector involvement difficult
• State-owned enterprises & self-interests dominate policies
• Investment uncertainty and wide-spread corruption result in high financing costs for RE
• vulnerability to CC
• green policies to please donors

Different perspectives on climate policy & sustainability
Jakob et al. (2020)

Sustainability Policy Paradigms

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