Sustainability and Industrial Challenge: The Hindering Role of Complexity

Abstract

A transition to a low-carbon economy requires moving to the production of goods that are less energy- and material-intensive than current practices. This may prove difficult, as producer objectives may not align with reducing pollution, unless this is a consumer priority, or is imposed by regulations. It has been argued that changing lifestyles and consumer preferences can drive technological change towards sustainability. In this paper we use the model by Windrum et al. (2009b) to show that the interactions between the populations of consumers, producers and technologies, when product components are interdependent, generate complexity, as a result of which changing consumer preferences may be insufficient to achieve sustainability objectives. Complexity may influence negatively the rate and direction of innovations towards the production of greener goods, causing a vicious cycle. Firms tend to remain stuck in local optima of the existing technological landscape, if most consumers are satisfied with the non-green characteristics of goods. As a result, firms are less likely to explore innovation possibilities to improve environmental performance of their products, which in turn reduces consumer expectations with respect to the environmental quality of future goods. As pro-environment consumers also imitate the higher preferences for non-green characteristics, firms have even higher incentives to improve those characteristics in the current technological paradigm than to explore new greener paradigms. The toy model proposed in this paper can be applied to study diffusion of ‘green’ products in a number of industries and to study environmental policies that can reduce complexity. The paper also offers a selected review of micro and industry level models of sustainable transitions.