An in-depth summary of all the reading material for the course. The document spans over 62 pages and would provide a good understanding of the central themes of the course.
The Effectiveness of Policy Instruments ................................................................................ 3
Chapter 2 – A Framework for Analysing the Adoption of Energy-Efficient Technologies . 3
Chapter 7 – Instrument Choice & Energy-Efficiency Improvement by Firms .................. 10
Integrative Stakeholder Engagement: Stakeholder-Oriented Partnership Between TCCC and
WWF (Brownlee, Dmytriyev, & Elias, 2017) ...................................................................... 16
The Primordial Stakeholder (Driscoll & Starik, 2004) ......................................................... 24
Unleashing Sustainability Transformations through Robust Action (Etzion et al., 2017)...... 32
A Stakeholder Theory of the Modern Corporation (Freeman, 2001) .................................... 35
The Social Responsibility of Business (Friedman, 1970) ..................................................... 38
Sustainability through Partnerships – Chapter 2 (Gray & Sites, 2013) ................................. 40
Toward a Theory of SH Identification & Salience (Michelle et al., 1997) ............................ 45
Energy, The Environment, & Technological Change (Popp et. al., 2010) ............................ 53
The Shareholder v/s Stakeholder Debate (Smith, 2003) ....................................................... 59
,The Effectiveness of Policy Instruments
Chapter 2 – A Framework for Analysing the Adoption of Energy-Efficient
Technologies
• Changes in total emissions can basically be decomposed into three components –
o Macroeconomic growth that, ceteris paribus, results in increased emissions.
o Structural Change. As economies develop, their sector composition changes.
Sectors are characterised by their own intensity and development of emissions
over time. Changes in sector composition, therefore, imply changes in
macroeconomic emissions.
o Technological Change. Technological improvements tend to result in reduced
emission-output ratios and thus, ceteris paribus, decrease macroeconomic
emissions.
• The rise in emissions worldwide in the past decade has resulted in the policy goals being
outlined in the Kyoto protocol.
• Empirical studies on adoption rates and diffusion patterns convincingly show that very
high implicit discount rates are needed to explain the slow diffusion of technologies.
• The framework provided is a starting point from which the effectiveness and efficiency
of policy instruments aimed at stimulating the adoption of energy-efficient technologies
and the same will be assessed.
The NPV Framework
• The NPV analysis can be used to assess the profitability of technologies. The
assumption is that firms are aware of all (relevant) energy-efficient technologies and
their characteristics in terms of costs and benefits, that there are sufficient internal
and/or external financial resources to finance investment in these technologies, that
there is no uncertainty regarding the performance and costs of the technology and,
finally, that firms behave rationally. In such a world, firms will adopt a technology as
long as it adds to their profits.
𝑁
𝑆𝑖𝑡 − 𝐶𝑖𝑡
𝑁𝑃𝑉𝑖 = −𝐼𝑖 + ∑
(1 + 𝑟)𝑡
𝑡=1
Where, “𝐼𝑖 ” is the initial investment cost of technology “i” at t=0, “N” is the economic
lifetime of the installed capital, “𝑆𝑖𝑡 ” are the energy savings to be achieved by adopting
technology “i” during period “t” (in monetary values) and “𝐶𝑖𝑡 ” are operating and
maintenance costs during period “t” (in monetary values).
• Any technology with a positive NPV (NPV>0) should be adopted (as per the
framework).
• The discount rate is equal to the discount rate for which the NPV would be equal to
zero. Rational firms will invest in a particular technology as long as the internal
discount rate (rt) exceeds the critical discount rate imposed by the firm. The internal
rate is a preferable measure to determine the profitability of a technology, as it has the
characteristic of being insensitive to the size of the investment and thus can be used to
rank and compare the profitability of technologies with different investment costs.
, • Market-based policy incorporation into the framework. Market-based instruments are
those instruments that foster the adoption through market signals. The best-known
examples are pollution changes, subsidies, tax deduction, &c.
o These instruments directly affect the costs of investment and/or the benefits and
maintenance costs of new technologies and therefore affect the NPV and hence
the decision whether or not to adopt the technology.
o Command-and-control regulations such as standards are less straightforward to
incorporate.
o Technology-based standards are characterised by a limited flexibility for firms
in choosing the means of achieving goals and they tend to force firms to adopt
a particular behaviour.
o Performance standards are very difficult to incorporate as they yield firms some
freedom in how to meet the target that is imposed.
• The model cannot quite explain the S-shaped diffusion of technology over time. There
are two broad approaches that try to explain the gradual diffusion of technologies.
o The first combines a gradual improvement of technologies (in terms of lower
costs or better performance) over time with heterogeneity among the potential
adopters. When the technology under consideration is still in an early phase of
development only those firms that gain relatively much from adoption will
invest. As technology, gradually improves, more and more firms will find the
adoption profitable. The technology will thus diffuse gradually throughout the
economy. These are known as probit or rank models.
o The second approach emphasises the relevance of information. It rests on the
assumption that at low rates of penetration, the knowledge about the existence
of a technology is also limited. Therefore, the technology is only considered by
a limited number of firms. As penetration increases, more firms will realise the
potential of the technology and subsequently adopt the technology. The class of
models employing this approach is known as epidemic models.
• Costs.
o Hidden Initial Investment Costs. Apart from the “direct” costs of technology,
costs of information gathering, research, negotiations on contract terms and of
decision-making should also be considered as initial investment costs, which
are, however, often difficult to obtain empirically. Therefore, the standard NPV
model underestimates the costs for SMEs given their limited possibilities for
exploiting economies of scale and scope in gathering information.
Underestimation of costs tends to result in the overestimation of the degree of
adoption. These costs are relevant when considering a switch from a technology
that is currently being used to a completely new technology on which no
knowledge exists in the firm.
▪ When comparing the adoption of different technologies, it is the
difference in hidden costs that matters for explaining adoption behaviour
and not the presence of hidden costs.
o Hidden Annual Costs. Capital costs including costs of raising funds tend to
differ between firms. For example, it is known that SMEs generally face higher
business risk. This tends to result in higher interest rates being charged in firm-
specific contracts. The level of discount rate is larger for SMEs than for larger
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