Social Innovation as a Concept - Coursework Example

 Introduction Social innovation is a concept that shows paradigmatic rejection of the technology-based application of innovation as enshrined in the traditional focus. This kind of innovation has transcended beyond boundary limits to inform development, and political policies. This is a shift that enshrines the importance of societal assets and social relations reconfiguration. Social innovation is presented in literature as a powerful theme in both economic and social science developments and practice enshrining its focal role in socio-political research and practice (MacCallum, et al. 2008). As such, literature has defined it as the use of “new and creative ideas to generate environmental or societal needs” (Davila, et al. 2006) which point-out an emphatic need on social relations and focus on human needs (MacCallum, et al. 2008). Its success or performance indicators are measured against a broad range of societal and environmental outcomes. Informed by such a background, this paper will attempt to explore specific social innovations. It will entail a comparative analysis of two innovations seeking to explore the inherent similarities and differences. The resultant benefits and challenges will also be focused upon. The innovations will be presented as case studies. The innovations in this paper’s focus include: the emissions trading initiatives and other market based instruments such as the use of taxation and subsidies. Emissions can be regulated by use of absolute caps or allowable intensities (Stavins 2004). The emissions trading innovation is as much social innovation as it is environmental and sustainability issue, economic, political and scientific. From social economics and resources perspective, treating resources as commons shared by variety of users has a likelihood of overexploitation. This is so in the absence of regulations and rationing. As such, the environment, more so the atmosphere, has a likelihood of being excessively polluted prompting a need for a form of control. Emissions trading is an innovation of such a form of rationing. Contrasted to traditional and previously used environment sustainability regulations, emissions trading is an innovation in which the regulating body sets a specific allowable emissions level. As such, this innovation acknowledges that atmospheric emissions are an inevitable environmental issue of concern as long as there is production which uses energy. It is therefore a regulatory innovation that allows emitters of atmospheric pollutants considerable flexibility in planning and implementing how to do emissions regulations (Tietenberg 2006). This flexibility revolves around the alternatives of either making reductions from a combination various sources in a plant or having reductions from another facility (Tietenberg 2006). This presents a striking and cut-through contrast with traditional regulatory innovations in which the regulating agencies would set emissions limits and dictate the means of achieving them. Such innovations have been cited as being insufficiently protective of the environmental resources and/or being inefficient, economically. This innovation is taking root in countries at the global level, especially as economies endeavor to manager or react to global warming concerns. The EU, for instance has legislations and enabling policies that have improved over time since the 1970, when first steps were made, and have now become standards being reflected in other regions across the global scope. As such, a case study of the EU emissions trading innovations is perhaps a more appropriate presentation of the subject in this paper. The post-Kyoto EU innovations have improved a great length, maturing into the European Union Emissions Trading Scheme (EU ETS). It was adopted in 2003. This scheme is developed in an attempt to address CO2 emissions reduction. This is with a focus on enabling energy-intensive developments and industrial plants in EU member states to trade CO2 emissions rights and permits. The trade items or the CO2 emission units are referred to as the European Union Allowances (EUAs). Each EUA held empowers a holder to emit a metric ton of CO2 (Convery & Redmond 2007). On the basics, the operations of the EUA and the EU ETS are related to the Kyoto protocol. However, in implementation these operations are enshrined in the EU laws so that countries which are not signatories of the protocol are bound to implement. A perfect example in this category is Russia. The OECD hails EU ETS to be one of the most significant and important policy development and innovation with a focus on the reduction of GHG emissions under and post the Kyoto Protocol (Stavins 2003). In this innovation, the stakeholders in industrialized economies cooperate to reduce the emissions through a market. In this market, the scheme is important in all EU member states with reference to emissions scope considered in the scheme. As such, individual countries’ share of the allowance has wide variations characterized by the difference between Luxembourg and Finland which have approximately 22% and 78% respectively (Organization for Economic Co-operation and Development 2008). In implementation, literature indicates that the most impactful result of this scheme being ratified across nations is the scarcity it creates and distributes in the allowance allocation process amongst firms, countries, installations and sectors (CEPS Task Force 2005). This is a direct effect. Additionally, this scarcity is characterized by indirect impacts with reference to increases in power prices as a result of the carbon mark-up. Eventually, the gross effect is that the end-user covered by the EU ETS is affected by both the capping of emissions as well as high power prices. The Task Force reported that in the furtherance, business experience a two-stroke effect: relative prices changes and corresponding effects on investment decisions, and operational implications. The operational implications make reference to the legal obligation emissions reduction becomes. Legally, business and organization are obligated to monitor and report concerning allowances. On the other hand managers of such business also have an obligation to investors. From such a point, the scheme provides not only a conservational effort, but it also gives the managers an opportunity to balance the aforementioned obligations through emissions trading. The advantages of this policy innovation are multi-sectoral and multilevel affecting the EU region, individual member states, local industries and, eventually, the end-consumer (Gupta 2000). The economic perspective presents the scheme as being the most cost-effective means of meeting environmental conservation goals of the Kyoto Protocol. It ensures equivalence between that the market allowance and lowest marginal reduction cost for all controlled sources (CEPS Task Force 2005). This literature also posits there is increased business long-term predictability, greater management flexibility and focus as well as enhanced environmental certainty. However, the realization of the advantages depends on the market characteristics such as legislations and power brokerage. This innovation presents itself as having sharp contrasts with other market-based instruments previously used in the EU and other places in compliance with the Kyoto Protocol. These include the emissions charges and taxes, differentiations and subsidies of taxes and product charges. CGH emissions trading is superior to each of the aforementioned with regard to organization, effectiveness and economic efficiency. For quite period before the development of more innovative and efficient innovations such as emissions trading, carbon emissions reduction has been done in economies with reference to taxation and subsidies. For instance, a reflection on many OECD nations reveals that they modified their tax systems in a bid to cost emissions. However, literature faults these initiatives as being insufficiently protective and ineffective for price signals that are efficient and consistent (OECD 2005). Taxation is referred to as a pricing instrument. As such, it is intended to influence customer purchasing attitude and behavior against certain products by increasing prices. The taxation is imposed on production and consumption that is deemed as being environmentally harmful. The selective levying on good and services that are linked to pollution, directly or indirectly, is the tenet of differentiation (Coady, et al. 2010). As such, this is a market based-instrument whose implementation is expected to have ripple effects on other market factors through the market mechanism (Kosonen & Nicodeme 2009). On the other hand, subsidies are provided by economies through the taxation systems to promote production and consumption of products and services that do no harm or minimal to the environment. Kosonen and Nicodeme indicate that they are politically called ‘fiscal incentives’ and are run in tandem either directly, indirectly as well as using differentiated ways. Using the innovations, economies regulators of pollution have a control over polluters. The taxes induce the polluters and emitters to reduce their pollution to the level at which the pollution abatement marginal cost is equivalent to the tax imposed. As such, the imposition implies a static efficiency in which there is reduction target reaching cost (Kosonen & Nicodeme 2009). Similar to emissions trading, taxation differentiation entails a significant range of flexibility in which emitters can choose abatement methods at discretion. However, this flexibility is limited to the extent of the other market forces related to the tax. The cost-effectiveness may be reduced relative to fiscal interactions whose ripple effects spread to factor markets. Of particular interest is the labor market which is adversely affected. According to Kosonen & Nicodeme (2009), the tax carries with it a welfare cost relative to increases in consumer prices and reduced remunerations. However, there is literature that has indicated that the taxation can boost revenue which inturn can attenuate or recover the welfare cost (Deketelaere, et al. 2010). This is refered to as revenue recycling in which an economy can earn double dividends. Much as environmental taxes are intended purely for incentives purposes and not for revenue, they could also have a secondary role: revenue generation. In planning, the question revolves around the effectiveness of the recycling. In response to this Kosonen & Nicodeme (2009), doubt the ability of environmental taxation in being a win-win environmental conservation model. The taxation carries along an economic cost as it is a narrow-based tax and cannot replace broad-based policies. When compared with policy instruments such as the emissions trading, any similarity on consumer prices is reflected in tax-interaction similarity effect. If the permits and allowances are freely allocated there are adverse implications and positive revenue effect is not felt since there are no revenue. The rent from emissions capping is retained by the permit and allowances holders subject to restrictions of emissions (Deketelaere, et al. 2010). The revenue raising ability of an instrument is an important consideration in establishing what instument to use. This ability requires a balancing strategy between the revenue raising abiltiy, on one hand, and the effect of revenue recycling, on the other. With this regard, government and economies are torn apart between on how the revenues are used, since this has the balancing effect. They may channel the revenue to specific areas or into the general budget and thus make-up for welfare costs. Environmental tax revenues have been cited as having a falling tendency in the EU. This perhaps marks the impetus behind the paradigmatic shift to full implementation of the EU ETS for GHG emissions regulations. In delineating the tendency, indicates a need to analyse two factors which are components of environmental taxes: tax bases and tax rates (Deketelaere, et al. 2010). With reference to environmental taxes, tax bases refer to physical quantities whereas tax rates refer to the amount of charge that is fixed per unit of the base. While presenting a critique, Clò (2011) cites this organization as being a quantity-price trade-off. In this trade-off, the rate charged is known and relatively stable as effected by price predictability which informs long-term planning. The other side of the trade-off is marked with unknown and unpredictable quantities of emissions. In such a system, polluters have discretion for any levels of pollution so long as they can pay taxes. The environmental regulator cannot control the overall levels of emissions. Under the EU ETS, the permit in the hands of the polluters is the capping device limiting the limits of emissions allowable on an individual polluter. Deketelaere, et al. (2010) indicates that the EU has mainly adopted and implemented unit taxes in the form of pollution taxes which is an underlying reason why tax revenues post a falling trend. The fall revolves around energy taxes which are the largest category of environmental taxes (Clò 2011). In order to maintain cost effectiveness and efficiency of unit taxes, it is important that environmental economy policy makers plan and implement regular updates of tax rate or indexation. However, indexation has not been common in the EU given that it is only in Denmark and Sweden. Additionally, tax rates updating is politically difficult and requires a deliberate initiative. This is because of welfare cost related factors to which there is a tax revision has a direct impact making it politically unpopular. These factors include household and industrial goods and energy. As such, in spite of an EU requirement that member countries employ environmental taxes, it becomes almost impossible due to variations of situations and local economy politics (Andersen & Ekins 2009). The double dividend hypothesis of the green taxes has been met with extremes of debates in economic planning and literature. Whilst there is a possibility of revenue recycling, actual implementation has been cited as being unsuccessiful. Literature indicates a related likelihood of distortions of distorting tax systems. As such, it is important the the taxation innovations stick to the primary role of environmental conservation as per the Pigouvian traditional approach. In this approach an emission tax is set “equal to marginal social damage” (Deketelaere et al. 2010) which would enable economies internalize the cost of the external environment. As such the economies would realize socially optimal levels of pollution. This is made possible by a situation in which there are reforms on environmental taxes focusing on the double dividend aspect so that enough revenues are generated, enough to reduce the impact of distorting multiple effects. Finally, pollution is also problematic in view of what an economy may tax. Ideally, the tax and GHG amounts released should be proportionate. However, the GHG variable is difficult to measure and monitor indicating a need to link the tax to a more measurable variable that is proxy to the GHG amounts (Clò 2011). As such, one may indirectly tax the emissions by directly taxing the proxy such as energy or a input which stands-out as a major component. According to Clo, this move may result in technological incentives which enable the use of less amounts of the taxed input. The emissions may also indirectly decrease. Production technology advancements do not necessarily imply emissions reduction efficiency for the same input-output ratio. As such, the producer goes on facing the same tax burden in spite of the advancement. In conclusion, global warming requires a more focused, dynamic and cost-effective approches. Reduction of GHG emissions has been tackled using economic and non-economic interventions. This thesis explored such innovations in view of comparing them. The innovations explored: EU ETS and environmental taxation in the EU reveal sharp contrasts in planning and overall outcomes. The EU ETS is a shift from the traditional taxes and charges that allows produces to trade emissions allowances and use them to control their own activitie. Given its wide application in all EU members, is poses superiority on the basis of uniformity of rules. The producers are left at discretion to manage their emissions to the level of allowances permited by the regulator. They retain these allowances subject to their surpassing of the levels. On the other hand, environmental presents a workable emissions reduction in planning. However, implementation is problematic due to forces in other markets. the rate-base equation has often been a challenge to economies resulting in a falling trend. Reflexive commentary In my opinion, the EU ETS is by far an effective contemporary environmental sustainability innovation. Compared with other developments in the EU and beyond, it is outstanding given its characteristic flexibility. This flexibility reflects a fairer platform than in market-based interventions for the regulators and the regulated to cooperate in equal terms. As such, none has an oppressive upperhand. The ability of the innovation to enforce the Kyoto Protocol in countries that are non-signatories is cited as a strength. By being entrenched in the EU laws, it binds all members into ratification. Unlike the market-based innovations, EU ETs present more uniformity in application ensuring that there is competitive unfairness. However, there is need for improvements with respect to ensuring more uniformity. Additionally, this is not the ultimate innovation. Global warming still remains a lurking threat requiring a global action and so should be innovations such as emissions trading. Overall production and emissions reduction technology advancement requires that there is a commensurate emissions reduction approach. It should be dynamic for emitters and regulators as well. The emissions trading innovations presents such qualities which may be adapted and modified in other countries and regions. References Andersen, M., & Ekins, P. 2009. Carbon-energy taxation : lessons from Europe. Oxford: Oxford University press. CEPS Task Force. 2005. Business consequences of the emerging EU emissions trading scheme. Brussels : Centre for European Policy Studies. Clò, S. 2011. European emissions trading in practice : an economic analysis. Cheltenham: Edward Elgar. Coady, D., Gillingham, R., Ossowski, R., Piotrowski, J., Tareq, S., & Tyson, J. 2010. Petroleum Product Subsidies: Costly, Inequitable, and Rising. IMF. Convery, F., & Redmond, L. 2007. Market and price developments in the European Union Emissions Trading Scheme. Review of Environmental economics and policy , 1(1), 88-112. Davila, T., Epstein, M., & Shelton, R. 2006. The creative enterprise : managing innovative organizations and people. Westport: Praeger Publishers . Deketelaere, K., Soares, C., & Milne, J. 2010. Critical issues in environmental taxation : international and comparative perspectives. 8. Richmond: Richmond Law & Tax. Gupta, J. 2000. Climate change and European leadership : a sustainable role for Europe? Dordrecht: Kluwer Acad. Pub. Kosonen, K., & Nicodeme, G. 2009. The role of fiscal instruments in environemental policy. CESIFO. MacCallum, D., F, M., Hillier, J., & Haddock, S. 2008. Social Innovation and territorial development. Farnham: Ashgate. OECD. 2005. Sustainable Development in OECD Countries : Getting the Policies Right. Paris: OECD. Organization for Economic Co-operation and Development . 2008. OECD environment outlook outlook to 2030. Paris : OECD. Stavins, R. 2003. Market-based environmental policies: What can wed learn from U.S experience (and related research). Twenty Years of Market-Based Instruments for Environmental Protection: Has the Promise Been Realized? (pp. 1-26). Santa Barbara: University of California. Stavins, R. 2004. Environmental Economics . In The New Palgrave dictionary of Economics q. London: Palgrave . Tietenberg, T. 2006. Emissions trading : principles and practice (2nd ed.). Washington: Resources for the Future. Read More