2023-12-21 19:45:59
The green transition towards a more sustainable and environmentally friendly economy has become a necessity to combat climate change, resource scarcity and pollution. Companies have been forced to change their processes to replace the use of traditional fossil fuels with renewable energy sources. But how can this transformation affect the market and competition between companies?
A study has sought answers to this question and has shown the need for immediate action in environmental policies to promote a complete transition and thus avoid the existence of environmental risks, company monopolies or the absence of investment.
The study was conducted by António Osório, from the Rovira i Virgili University (URV) in Tarragona
During the study, a theoretical model of competition was developed in which three different scenarios that may occur during the green transition were proposed. In the first, no company would make investments in more sustainable processes and perpetuate the production of environmentally harmful products. The second scenario proposes a partial transition, in which half of the companies are committed to the green transition while the other half maintains conventional production processes. Finally, in the third scenario, all companies invest in green transition and emission-free production. The first two scenarios present risks of market concentration and reduced competition.
The study warns about the urgency of mitigating the environmental and economic risks associated with the balances of the first two scenarios. Taking the step towards more sustainable production systems implies accepting high costs for the industry, and this is the main reason that would explain why none or half of the companies opt for a change to sustainable processes, according to the theoretical model.
The use of clean energy will be increasingly common in the business environment. In the photograph, solar panels on the exterior of a commercial building. (Photo: Amazings/NCYT)
The study also confirms that during the green transition process a price increase is inevitable. This is due to the necessary changes in production practices and the costs associated with the implementation of more environmentally friendly technologies and materials. The research team points out that this scenario aggravates this price increase. The reason is vertical differentiation, which implies that the green leader, who has made the transition, enjoys a competitive advantage because he obtains a leadership position as the first to adopt environmentally beneficial practices. In the long term, furthermore, this green leader can perpetuate that advantage towards some type of monopoly or market power.
The study also highlights that, although prices are higher in the scenario that assumes that all companies carry out the green transition, this is the assumption that provides maximum overall benefit. “In this case, consumers are willing to pay a higher price for environmentally friendly products, reflecting their environmental concerns. Despite the higher cost, consumers’ environmental satisfaction increases their general benefit in this situation,” says António Osório, researcher at the Department of Economics at the URV, who led the research.
In summary, although price increases are inevitable during the green transition, the choice of business strategies and consumer response can significantly influence the overall benefit and therefore the final result of the transition to more sustainable practices.
The study is titled “Not everything is green in the green transition: Theoretical considerations on market structure, prices and competition”. And it has been published in the academic journal Journal of Cleaner Production. (Source: URV)
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