Raimund Bleischwitz Wuppertal Institute, Germany College of Europe Bruges, Belgium

1. Raimund Bleischwitz Wuppertal Institute, Germany College of Europe Bruges, Belgium Contribution to the Workshop "Innovation and Path Dependency. Institutions for the management of diversity in innovation systems", Zürich April 16-17, 2007 VARIATION IN INNOVATION SYSTEMS THROUGH COMMUNITIES

2. 1 The Challenge

3. The “decoupling challenge”: How to enhance quality of life with less use of nature? IPCC Fourth Assessment Report, EU Climate Change Policy EU Thematic Strategy on Natural Resources Sustainable Production and Consumption Sustainable Society Qualityof life Sustainable Production Economicgrowth Use of nature

4. EU Strategy aims at accelerating resource productivity trends up to 3 % p.a. (WI: 4-5 % / p.a.) Source: EU Thematic Strategy 2005

5. System innovation ....needed to cope with the challenges ahead - but what is it about? • A product-related system (i.e. a value chain including development of new services), • A material flows related system (e.g. use of copper), • A functional system (e.g. energy supply), • A system providing basic services such as housing, nutrition etc., • An economic, social or a political system (institutional innovation such as the introduction of parliamentary democracy) => Significant eco-efficiency improvement, e.g. by a factor 2

6. System innovation, other types of innovation and sustainability • Sustainability certainly reqires system innovation, but other types of innovation can also lead to major improvements and, thus, are necessary too. => Variety of different IS

7. Scope: Communities • Research interest: the ability of communities to pursue system innovation via R&D activities, demonstration projects, networks etc. as well as variations that inevitably arise when those community efforts are compared • Community: variety of economic and/or technological activities within a limited regional scope conducted under a common legal frame • Use of EU NUTS classification • R2H: cities, islands, remote areas, regions (www.roads2hy.com ) • Hypothesis: Community involvement in other levels (both at the meso and at the macro level) is pivotal for the success of system innovation; intra-community institutions and participatory processes won't do it alone. Furhermore, variation in system innovation is enhanced if communities are actively involved because of the inherently pluralistic approaches that communities develop. Roads2 HyCOM

8. 2 Analysing Industries and Innovation Systems

9. Importance of Communities • The early steps of disseminating system innovation for SD often are done via demonstration projects that usually start at a community level => involve end users, test both feasibility and acceptance. • Some successful communities (as for H2: potentially NRW, London, Iceland) might develop as a first larger lead market for other communities to follow. • Clusters and networks often start off at the community level. There is good evidence from growth theories that communities (incl. regions) act as engines of economic development • Industry, SMEs and universities, however strong their relationships outside communities might be, usually are embedded in community ties – focussing on communities offers advantages especially for horizontal innovation.

10. Importance for H2 • Hydrogen distribution can be done economically if communities become larger and interconnected. Identifying suitable regions throughout Europe will lower the set-up costs for an H2 infrastructure (as for other energy carriers). • Hydrogen Lighthouses will need to have a community relation – at least for a considerable number of lighthouses. • Hydrogen/environmental technology communities seem to be mostly embedded in regions that are in general regarded as innovative

11. Variety • Variety results from the variety of communities throughout Europe because of • different types of demonstration projects and • different conditions within communities (both actors and institutions. • Communities (i.e. a variety of communities) thus can be seen as a laboratory necessary to test the feasibility of sustainability technologies towards system change. => Knowledge-creation through variety and competition

12. Selection • However a selection needs to be made for economies of scale and cost reduction, and communities will have to adapt. How can these selection processes work • given that competition still is in a very premature stage when system innovation starts and • other criteria (positive externalities, sustainability potential) are be needed too. • Assessment criteria => EE publication (Bleischwitz 2007) • Hypothesis: community involvement in other levels (both at the meso and at the macro level) is pivotal for the success of system innovation; intra-community institutions and participatory processes won't do it alone.

13. Sustainability Impact Assessment -> Policy integration and innovation assessment

14. Case study on networks e.g. “ProKlima”: Cooperative Climate Protection Funding on a local Level • Combines management interests (utility), consumer needs, & public local interests in the region of Hanover • Promotes energy efficiency & climate protection • Designed to a deregulated energy market through promotion of regional responsibility & innovation leadership • Implements the 1996 declaration of German corporate sector on global warming prevention on a regional level. => High involvement of energy utility, funding mechanism at low transaction costs

15. Evolutionary Competitive Market Processes • V. Hayek, W. Kerber: competition is viewed as a dynamic process of rivalry in which the interplay of creative (innovative) and adaptive (imitative) forces produces and reinforces permanent dynamics • Creation of knowledge as fundamental challenge, incomplete information, bounded rationality -> competition as source of learning and knowledge creation • Routine helps, but individuals and organisations alike need to adapt, i.e. to innovate (adaptation and diffusion are innovative too) • Evolutionary competition as a test of hypotheses, open-ended process of experimentation

16. ‘Systemic Competitiveness’ • Microlevel and Macrolevel analysis ought to be added by Meta- and Mesolevel: • ‘culture’, ‘why’ and ‘what for’ of competition and development, • institutions between state and market, pressure for performance. • Papers e.g. by K. Eßer / J. Meyer-Stahmer (1996), R. Nelson (1992), M. Porter (1990, 2004) • Recent efforts by e.g. World Economic Forum (2005) • EU policies in line (regional policy, subsidiarity, Kok-report on Lisbon Process)

17. Implications for the concept of transition management • Firms as agents: open boundaries, need to integrate knowledge and incentives from outside (see knowledge-based theory of the firm) <=> stakeholder dialogues a rational strategy! But decision-making on levels different to communities! • Diversity important: competition ought to select superior technologies, products. See e.g. wind energy! • Dynamic efficiency, adaptive efficiency more important than static allocation efficiency => legitimacy for long-term targets and RTD. => Refers not only to firms, but also to importance of communities, both as knowledge catalytic converter and as source of diversity.

18. Technology development, SD and Systems change STD needs clear and long-term targets, new instruments (information-based&network type) for early majorities, economic incentives and regulation for long-term diffusion costs Scenario „radical change“ Standards Scenario „intelligent STD policy“ time 2010 2020 2030

19. Communities matter most in stage I and II Source: Stake 2006

20. New governance approaches, multilevel governance and economic incentives • New Types of instruments in addition to MBIs: information-based & knowledge creating, flexible, analytically closer to innovation & industrial economics • Information (e.g. Triple bottom line reporting, accounting requirements, indicator & measurement harmonisation) • Networks (e.g. technology platforms, ‘EnergyPlus’, ‘EcoProfit’) • Agencies: qualification programmes, SME checks, dissemination of best practices, support implementation of eco-efficiency potentials • Market introduction programmes: demonstration and implementation, unlock systems, align responsibilities among various actors (‘eco town program’ Japan) • Minimimum tax requirements for energy use and resource use at EU level • Challenges: some regions are ahead, while others may be stucked => a role for EU regional policy, market integration and cohesion.

21. 3 The Hydrogen Economy

22. The future energy system? Combining large and small FCs (CHP) plus central H2-production and local H2-networks?

23. Results from a Survey on H2 Communities Roads2 HyCOM

24. Driving forces for H2 communities • Policy-driven: projects driven by the local authority/government: The main driver is job creation, followed by climate change and local air quality concerns. Increased use of renewable energy sources and introduction of new energy technologies within the community also appear to be important factors. These projects are thought to have strong potential to evolve into a larger scale hydrogen community. • Technology-driven: projects mainly driven by industry: The main drivers are development of hydrogen and/or fuel cell technologies and investigation of their feasibility (both through R&D and demonstration projects). Roads2 HyCOM

25. Barriers to H2 communities Roads2 HyCOM

26. Success factors • Existence of a highly prioritized environmental agenda at regional level • Active support to the regional industry • Active involvement from the regional authorities in promoting public acceptance of hydrogen and fuel cell technologies • Existence of some kind of financial support for hydrogen and fuel cell projects at regional level • Active involvement in project initiation and assistance to overcome non-technical barriers • Local authorities’ support is important to legitimize and increase confidence in demonstration projects within the community • Presence of technology/component suppliers within the region • Proximity of high quality universities and research institutes Roads2 HyCOM

27. Distribution of H2 - communities need to cooperate

28. Conclusions • Communities are important elements of innovation systems • Test feasibility and acceptance • Attract pioneers and early majority • Demonstrate a larger context for further development • Communities can also contribute to formulate targets, timetables and other forms of policy-making, thus acting as „facilitator of reflexive policies“. • On the other hand, communities • Can hardly replace policies for internalization of negative externalities • Can hardly overcome funding and business development deficits • Need a „kick in“ from others when large majorities and laggards have to be addressed. • To be complemented by national policies, EU and sectoral approaches.

29. Thanks for your attention www.wupperinst.org, www.coleurop.be www.roads2hy.com