At this point, therefore, particularly interesting to have empirical evidence of the results achieved so far by the two countries that the literature takes examples of the two pure models of capitalism: the UK for liberal market economies and Germany for coordinated market economies.
Tab. 1 “Change in carbon intensity 2015-2016” Source: PwC UK
The graph shows the change in carbon intensity for the year 2015-2016 and it reveals that the UK is outperforming in reducing carbon intensity by 7.7%, compared to Germany that shows a rate of 6.6%1. This is directly related to major investments in low-carbon technologies and the stability of its services sectors. On the success of the UK, Jonathan Grant, Director of Climate Change and LCEI (Low Carbon Economy Index) co-author at PwC, observed: “A number of factors have contributed to the low carbon transition in the UK, including cross-party support for tackling climate change, support for energy efficiency in our homes and renewables projects”. This demonstrates the fact that cooperation can be achieved also in liberal economies and if it follows a comparative advantage in radical innovation, it’s guaranteed to boost ratings.
While, the German transition process remains in great difficulty. In Germany and many other European countries, they finance promising but not yet profitable technologies to which traditional investors are not interested. Yet, the closure of coal-fired power stations is hardly mentioned in the country, also considering the obstacle of trade unions in the sector that, between power plants and the mining sector, take care of thousand workers’ interests.
In fact, the reality is that a multitude of actors in the world economic system, consumers, producers and workers of many industries and above all politicians, have a very strong short-term interest in maintaining the energy status quo. In the case of politics, for example, just thinking about how current energy system guarantees a major amount of taxes for the State, and a constant flow of energy at a relatively low cost to voters.
For this reason, too, changing the system is very difficult: sometimes countries believe it is preferable to extend the life of the old system, than risking a change that will give only medium-long term perceptible benefits.
The idea of low-carbon economy arises from the awareness of the epochal scope and the global relevance of the climate crisis, of its close connection with an economic system based on fossil fuels; from the unsustainability of a model of polluting economic growth, linear and high consumption and waste of natural resources to the growth of expectations for a better welfare and the need to reduce income inequalities that have reached unacceptable levels in recent decades. Indeed, low-carbon economy is not just a vision of the future based on awareness of the challenge of our time, however, it is a path of change able to propose challenging but possible solutions to the main problems we face nowadays. This path, which many key actors, in different parts of the world have already begun to follow, outlines a transition, an epochal change in the ideas that have guided the economy and development until now. In this study, the three features of innovation, financing and the political-institutional context, have been analyzed in LMEs and CMEs, as main drivers of the low-carbon transition. According to the analysis, in order to move to a low-carbon economy radical innovations in products and processes, specific element of liberal economies, are needed. Consequently, since radical innovations usually present a high value of risk, they are better supported by private investors and the market, rather than public investments, which is instead a common practice in coordinated market economies. Lastly, although many studies argue that a coordination between actors involved in the transition is indispensable, the recent UK’s success in decarbonizing shows that coordination is important but not the focal point of transition. Actually, CMEs, that by definition present a great coordination between institutions, are usually defined by the powerful presence of trade unions which in the circumstance of a low-carbon transition may perform as an impediment, rather than a strength.
1 PwC research, September 12, 2017