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Edited by Marta Villar Ezcurra, Janet E. Milne, Hope Ashiabor and Mikael Skou Andersen

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Jukka Mähönen

Lack of capital is one of the most important barriers to the adoption of sustainable and circular economy. Shifting from a linear to a circular business model requires novel innovations in distribution planning, inventory management, production planning and management of reverse logistics networks, with high upfront costs and long payback periods. As implementing a circular economy business model also demands continuous monitoring and improvement of the products’ lifecycle, resources must be allocated to keep all stakeholders in the life cycle value chain committed. The challenging finance gap between need of capital and cash flow generated is recognised one of the most important obstacles of circular economy. Due to its specific importance for circular economy and due to the intrinsic heterogeneity of corporate finance generally, it is crucial to analyse the drivers and obstacles different kind of investors have in creating sustainable value in sustainable and circular economy business models. Short-term legal and financial systems supporting ‘take, make and waste’ business models are not necessarily conducive to the new settings that circular economy requires. Private equity and venture capital is problematic for startups in circular economy as they lack the high growth and relatively fast payback (exit) horizons required by investors. Public listing of equity and bonds is challenging for circular economy business models as they require track record, size and maturity meeting the scale and requirements of capital markets and institutional investors. Albeit ‘near banks’ like Google, Apple and Amazon platforms provide new payment facilities and working capital solutions for circular economy enterprises, especially startups, the most promising vehicles for circular economy business model financing are owner-member-user-based crowdfunding and other forms of peer-to-peer financing and participation arrangements and platforms. They affect directly to the participants’ behaviour by strengthening an open, transparent and interactive lifecycle-based business model, engaging a high number of user participation and commitment, emphasising community and shared ownership aspects and limiting access of short-term profit and takeover-seeking investors. Crowdfunding is increasingly popular to create commitment-based funds for projects in which financial institutions and private equity investors are not investing. A cooperative is specific a peer-to-peer financing model for sustainable businesses especially in its multi-stakeholder form, opening the business to a heterogenous group of financier-member-owners, remaining however as hard to disrupt by takeovers. Cooperative form gives also the user-members a unique possibility to own sharing platforms and other market places themselves. In this chapter, crowdfunding and modern cooperative-based financing are discussed and compared to analyse what kind of dynamics are crucial for a successful financing of a sustainable circular economy business model. Specific attention is given to the drivers that increase the investors’ commitment for long-term circular economy-based behaviour.

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Edited by Ellen Eftestøl-Wilhelmsson, Suvi Sankari and Anu Bask

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Edited by Ellen Eftestøl-Wilhelmsson, Suvi Sankari and Anu Bask

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Edited by Marta Villar Ezcurra, Janet E. Milne, Hope Ashiabor and Mikael Skou Andersen

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Emilie Yliheljo

This chapter explores the suitability of and regulatory barriers to using the European emissions trading scheme (EU ETS) to regulate the growing greenhouse gas (GHG) emissions from the transport sector. The inclusion of aviation in the EU ETS and road transport in the Californian scheme demonstrates that it is possible to regulate the sector through emissions trading. Experiences with the inclusion of aviation and the subsequent exemption of international aviation pursuant to progress under the International Civil Aviation Organization (ICAO) also show that for international sectors the scope of the EU ETS and the outcomes of international climate negotiations have a dynamic and interdependent relationship. Shipping is technically suitable for inclusion, but inclusion will depend on progress under IMO, as the EU’s preference is also for an international solution for shipping. The requirements for accurate data on emissions, the principle of direct emissions, and policy congestion constitute major barriers for the inclusion of road transport in the EU ETS that are currently difficult to overcome. The electrification of vehicles and vessels could, however, lead to the indirect inclusion of, in particular, road transport into the EU ETS through electricity producers.

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Maria Carvalho

This chapter recognises how political-economy debates on green industrial policy are connected to domestic politicians’ and citizens’ expectations of green growth. Trade protectionist measures on ‘green’ technologies are instituted to ensure that any domestic policy used to support the development of green technologies – whether it is for niche policies or more comprehensive industrial policies – are appropriated within the domestic economy. The domestic political economy debate focuses on whether it is worth supporting green innovation and markets if other economies learn to manufacture and export these technologies. The literature on green growth recognises that global competition results in manufacturing shifting to countries where comparative advantage for manufacturing exists. However, these spatial dynamics contradict the domestic political economy expectations of economic spillovers between domestic innovation, manufacturing and markets. This chapter focuses on how this techno-nationalist perspective, and the resulting imposition of trade protectionist measures for domestic manufacturers, is problematic with regard to the objective of green growth and cost-effective decarbonisation efforts. In doing so, it develops a conceptual framework drawn from evolutionary economic geography to understand why manufacturing – but not necessarily innovation – shifts to lower cost economies as these technologies mature from breakthroughs in product and process innovation, to scaling through mass manufacturing that leads to commodity-like price competition. The consequence is changes in value-added to domestic economies from different industrial activities as technologies mature. Through this spatial framework, it demonstrates how different economies are exposed to global competition, and examines how innovation enables economies to become resilient to competition in manufacturing. Lastly this chapter illustrates how supply-side trade protectionism has opportunity costs to restricting the potential size of the domestic market through increasing the costs of green technologies. In doing so, it also has opportunity costs of associated growth, employment opportunities, and costs to decarbonisation through the market deployment of green technologies. Consequently, the chapter seeks to provide a balanced assessment of how domestic economies can achieve green growth from innovation, manufacturing and markets – an aspect that is underappreciated in the international political economy literature on industrial policy and trade disputes over technologies.

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Karen Turner and Antonios Katris

Energy efficiency improvements often lead to economic expansion, which in turn leads to increased energy use. As a result, energy efficiency policies are often met with scepticism as they do not deliver the full extent of the energy/environmental benefits that would be possible from an engineering standpoint. Recent work from the International Energy Agency has argued that energy efficiency can deliver a range of socio-economic benefits, wider than simply reductions in energy use and environmental impacts. This chapter argues that it is possible to achieve economic expansion and reductions in energy use simultaneously, essentially decoupling economic impacts of energy efficiency from the energy/environmental impacts. Our modelling work on a small-scale energy efficiency programme in Scotland provides empirical evidence that support this view, clearly demonstrating that it is possible to achieve economic expansion while reducing total energy use. However, the results are not guaranteed in every case. The characteristics of each energy efficiency improvement programme, e.g. timeframe and target (production or consumption side of the economy), have a key role to play in determining the outcomes of each programme. Therefore, a case-by-case analysis is necessary to estimate the potential impacts of an energy efficiency improvement programme.

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Antoine Dechezleprêtre, Ralf Martin and Samuela Bassi

Actions to stimulate low-carbon innovation – a global policy priority – are moving full speed ahead. This chapter provides evidence to inform these and other initiatives seeking to stimulate low-carbon innovation. A crucial challenge for climate change policies is ensuring that low-carbon innovation activity is either additional to current R & D expenditures, or at least will displace innovation in polluting technologies rather than other socially valuable innovation. Price-based instruments, such as carbon markets, and quantity-based instruments, such as renewable energy mandates, tend to favour innovation in technologies that are closest to the market. Thus, they need to be complemented by direct support to emerging technologies that will be essential to long-term emissions reduction targets through public funding of R & D and feed-in tariffs. Finally, increasing public support for low-carbon R & D may be politically attractive because low-carbon innovations have greater economic benefits than the carbon-intensive technologies they replace.

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Russell Bishop and Milan Brahmbhatt

Economic transformation will be critical to continue the ‘African growth miracle’ and overcome the region’s development challenges. The diversity of African economies, distinctive regional trends and upheavals in global economic conditions means the pattern of economic transformation is likely to be different from those observed in today’s developed countries and there is unlikely to be a single ‘African model’ that all countries can emulate and follow. One such difference highlighted by African regional institutions and within national economic strategies relates to ensuring ‘green’ growth, whereby the natural environment can continue to provide the services on which the welfare of both present and future generations depends. This chapter argues that the conditions and routes for economic transformation in Africa present many opportunities for green – or at least greener – growth in agriculture, energy, cities and the emergence of modern sectors, be they in industry or services. To exploit these opportunities policymakers will be challenged by the scale and pace of change and the requirement to provide jobs, infrastructure and public services for a young and increasingly urbanized population. Progress can also be accelerated through enhanced institutional capacity, and by managing the political economy of change.