The Limitations of New Environmental Technologies

The “rebound effect”  has been the subject of a long-standing debate in energy economics. The question is whether it can be expected that economically profitable improvements in the technical efficiency of energy consumption can proportionately reduce overall energy consumption. For example, does a 20% improvement in the thermal efficiency of a heating system lead to a corresponding reduction of 20% in energy consumption? Economic theory suggests a negative answer. Three separate mechanisms can help reduce the overall energy savings achieved:

  • Direct rebound effects. Improving energy efficiency for a given energy service will lower the price of this service and should therefore lead to an increase in the consumption of this service. This will tend to compensate for the reduction in energy consumption brought about by the improvement in efficiency.
  • Indirect effects. Falling energy prices can cause changes in the demand for other goods, services and inputs that also require energy for their supply. The savings from a more efficient central heating system can then be used to go on vacation abroad.
  • Overall effects on the economy. A fall in the price of energy services can reduce the price of intermediate and final goods across the economy, resulting in a series of price and quantity adjustments. The energy-consuming sectors would then benefit from the fall in the prices of raw materials from the less energy-consuming sectors.

Thus, the rebound effect results in part from an increased consumption of energy services following an improvement in the technical efficiency of the delivery of these services. The degree of rebound effect could even compromise the justification for political measures aimed at encouraging the introduction of new technologies for the benefit of the environment.

Economic performance and environmental performance

The relationship between economic performance and environmental performance on the scale of companies and nations is understood through two approaches.

Two opposite approaches

The first, neoclassical vision is that of a trade-off between environmental performance and competitiveness. In this model, environmental regulations must maximize social well-being, by correcting the market failure resulting from the negative environmental externality generated by polluting firms. Environmental policies will therefore have a negative impact on competitiveness, by imposing additional costs on these polluting firms.

The second conception of the link between economic performance and environmental performance stems from the so-called Porter hypothesis. This approach assigns a central role to innovation and technical change. From a dynamic perspective, the adoption of new technologies in the service of the environment can lead to a reduction in production costs, through an increase in efficiency, productivity and the emergence of new market opportunities.

According to this hypothesis, strict environmental regulations force polluting firms to seek new technologies intended to reduce the costs of depollution, and therefore of production. Thus, by improving their competitiveness, the result is a positive relationship between environmental performance and economic performance of firms and nations.

Competitive advantage and protectionism

For a nation, in addition to the environmental benefits, massively developing environmental technologies can lead to a situation of international competitive advantage. Countries that invest in green technologies can become “pilot markets”. These countries first produce a type of technology that will become a dominant standard on a global scale, notably through the export of technology.

In this logic, the policies aiming to promote the ecological transition within its territory can also be combined with the attempt to introduce diverted forms of protectionism, by prohibiting the importation on the national (or European) territory of products not responding not environmental criteria.

With the rise in environmental standards in developed countries, we note a dynamic of relocation of the most polluting activities in countries whose standards are less stringent and which practice a form of environmental dumping. It is the principle of ” pollution haven” , which certainly leads to a reduction in environmental impacts on the territory of the developed country, but no improvement on a global scale.

The role of new technologies in the service of the environment is therefore expressed in international relations and in the geopolitical logic of the major global players.

The most telling example is that of China’s transition to a developed economy. This goes hand in hand with a massive strategy for the development of new technologies in favor of the environment, linked in particular to renewable energies. China thus tends to “flood” the world market for its photovoltaic panels. It also has a virtual monopoly on the production of lithium batteries, essential for electric vehicles.

At the same time, since the election of Donald Trump, American environmental policy has evolved towards the implementation of protectionist practices (particularly towards photovoltaic panels from China) and the promotion of the exploitation of coal on American soil.

How can we not see that national strategies also depend on representations and beliefs relating to the link between economic and environmental performance, and therefore to the economic and social role of new technologies serving the environment?

Also Read – Environmental Science Sustainability Quizlet