Book Review
Evolutionary Economics and Environmental Policy: Survival of the Greenest
van den Bergh JCJM, Faber A, Idenburg AM and Oosterhuis FH
ISBN: 978-1-84542-955-3; 2007; 192 pages; Edward Elgar, Cheltenham UK;
Hagen Worch
Eawag - Swiss Federal Institute of Aquatic Science and Technology, Dübendorf, Switzerland
What are the policy implications that derive from an evolutionary economics approach? Evolutionary economists have discussed this question for a long time. Yet there is little understanding so far of how an evolutionary economics-inspired policy framework may look. This is in sharp contrast with more traditional approaches in economics that have developed a set of influential analytical tools to provide policy recommendations to address problems such as monopolies, externalities, and the provision of public goods. Traditional economic theory has primarily focused on identifying adequate incentive structures in equilibrium. That is, the models assume that the process of acquiring knowledge is largely unproblematic. Evolutionary economists, in contrast, are mainly interested in analyzing the creation and diffusion of new knowledge. They focus on the institutional preconditions, structural changes, industrial dynamics, and the implications for economic development and prosperity of new knowledge emerging. An adequate evolutionary economics approach on policy needs to derive an analytical framework explaining why, when and to what extent political intervention is required to influence the process of knowledge creation and diffusion.
In the book Evolutionary Economics and Environmental Policy: Survival of the Greenest, Jeroen CJM van den Bergh, Albert Faber, Annemarth M Idenburg and Frans H Oosterhuis make an important conceptual and empirical contribution to this discussion. One of their central theoretical arguments is that the creation of new knowledge, its diffusion, or both tend to be hampered as increasing returns to scale and self-reinforcing feedback mechanisms occur. These mechanisms give the existing knowledge in an economy an advantage. Lock-in situations emerge and the effect of technological path-dependencies can be substantial. Policy may then play a decisive role in unlocking and promoting the processes of knowledge creation and diffusion. More generally, the authors imply that an important policy objective, from an evolutionary economics perspective, is to prevent technological lock-ins by actively supporting the diversity of available knowledge. Based on this argument, the authors examine various aspects of environmental policy, with a specific focus on the Dutch energy and innovation policy.
The overall aim of the book is to assess the design of policies and institutions that may foster a transition to an environmentally sustainable economy. Chapter 2 gives a historical overview of the ideas and concepts within evolutionary economics. The authors highlight in particular the differences from traditional arguments in economics. They also provide a very brief introduction to evolutionary growth theory. Then, the authors derive from evolutionary economics six key conceptual categories that build the analytical framework, along which they analyze different policy issues. These concepts are diversity, innovation, the selection environment, bounded rationality, path dependence and lock-in, and co-evolution. Chapter 3 discusses the possible policy implications of these six concepts for environmental policy and specifically for managing the transition to a sustainable energy system. Chapter 4 introduces Dutch energy and innovation policy. Analyzing policy and advisory documents of different governmental institutions in the Netherlands, the authors reveal which elements of the Dutch energy and innovation policy follow an evolutionary policy framework. The analysis turns to energy technologies in chapter 5. Three case studies are discussed, namely fuel cells, nuclear fusion, and photovoltaic energy. The case studies examine whether the policies as applied regarding these technologies have been adequate from the viewpoint of the six evolutionary concepts presented in chapter 2. As a result, the authors point out the potential for further policy interventions to promote the transition to a sustainable energy system. They also analyze what role the three technologies could play in a future energy supply system. Chapter 6 summaries and concludes the book.
The book advances debate in two directions. First, deriving a set of conceptual categories is an important step in developing a policy framework in evolutionary economics. With the six concepts, the authors offer an inspiring approach for the analysis of policy issues. Second, applying this approach to analyze environmental policy adds a new perspective to the traditional assessment on environmental issues in economics. The book derives new insights on energy and innovation policy and contributes crucially on the discussion of how to manage the transition to a sustainable energy system.
Despite the advance of providing an evolutionary policy framework, the main problem in the book's argumentation is the lack of precision of this framework. The six concepts of the framework can be used to bring forward a broad range of arguments. Therefore, deriving consistent and stringent policy recommendation seems to be highly problematic. They may even be contradictory. Furthermore, some of the concepts seem to be well founded in the domain of biological evolution rather than evolutionary economics. For example, it is unclear why high diversity is a desirable objective, and why the creation of more diversity needs additional support through specific policies. Though this line of reasoning may be intuitively compelling, the argument that diversity is per se desirable does not directly emerge from the evolutionary economics approach. In sum, the authors proceed very quickly from presenting the six evolutionary concepts to suggesting policy implications. How exactly the inferred policy recommendations are developed from evolutionary economics is mainly left open in their argumentation. One reason for this problem is that there has been little work done so far on a normative theory within evolutionary approaches comparable to traditional welfare economics. This prevents evolutionary economists from applying a criterion with which policies could be assessed consistently. Yet developing a normative theory in evolutionary economics lies beyond the scope of this book. Such a development, nevertheless, is much-needed and would be crucial to further establish evolutionary thinking in economic policy.
The two following examples illustrate particular aspects of the issues mentioned above, namely the problem of explicitly including knowledge as a central element of evolutionary reasoning and the issue of contradictory policy implications. First, the book refers in several parts, but most extensively in chapter 3, to a trade-off between short-term effects of energy savings and the length of the time period before the transition to a sustainable energy system occurs. The authors argue that energy conservation tends to countervail the transition process. This is because energy conservation results in reduced CO2 emission and therefore lowers the pressure for a more general change. Consequently, the technological lock-in of the existing energy system is strengthened and the transition delayed. The authors' recommendation is to carefully consider the advantages of energy savings (eg direct reduction of emissions) and the disadvantages of a delayed transition to a sustainable energy system. Traditional economic approaches can possibly address this trade-off. An evolutionary perspective, in contrast, is able to explicitly consider the role of knowledge and therefore analyze the trade-off from a different viewpoint, which would be difficult for traditional theoretical approaches. Considering the role of perception and knowledge, it can be argued that most individuals and policy-makers understand energy conservation and the support of new technologies as complementary because they perceive both aspects as elements of a sustainable environmental policy. In fact, promoting an energy-conservation policy may prompt individuals to further think about environmental issues and therefore stimulate broader public support for a transition of the energy system. In their effort to save energy, individuals may also be supportive in substituting new technologies for existing ones. This, in turn, tends to increase the demand for new technological solutions and may therefore even accelerate the transition process. Then, the policy implication would no longer be to limit activities on energy-saving but in contrary to encourage energy conservation. Thus, following an evolutionary approach advances the understanding of structural change specifically because it considers the role of knowledge, knowledge accumulation and knowledge transfer as central elements in transition processes.
Second, the book repeatedly claims that environmental policy should stimulate the creation of networks and continuously bring individuals from different disciplinary contexts together to foster diversity. At the same time, the authors call for active support for creating niche markets. Policy should encourage the emergence of such niches for new alternatives to emerge. The book, however, does not address the question how policy can facilitate interactions between individuals and promote isolated niches at the same time. In fact, achieving the two aims simultaneously seems contradictory at a first glance, though the authors provide ample evidence for each aim being crucial in fostering diversity and the creation of new knowledge. Yet it remains unclear to what extent and with which instruments policy can implement a consistent framework to promote openness and interaction, and at the same time support the emergence of market niches.
Despite these problems, the book makes an important contribution to the development and application of an evolutionary informed policy framework. By applying this analytical framework in a specific policy context, the authors provide a fresh perspective in the discussion on environmental policy and transition management.
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