Competitiveness and Climate Change Mitigation – Empirical Evidence on the Effects of Material Use and Material Productivity on Competitiveness and Greenhouse Gas Emissions in Europe

Abstract

Aligning competitiveness with climate change mitigation objectives lies at the heart of contemporary discourses on sustainable development, resource efficiency, green growth, and the circular economy. While numerous scholars and policymakers, particularly in Europe, follow the notion that decreasing material use and increasing material productivity can boost competitiveness and help to mitigate climate change, the empirical evidence underlying this assertion has put little emphasis on two important issues. First, many studies predominantly rely on case studies, often not considering dynamic effects and heterogeneity across firms, sectors, countries, material subgroups, and material indicators. Second, the majority of investigations do not address the potential problem of endogeneity in empirical models. This dissertation attempts to shift the focus on these and other issues having received relatively little scrutiny in the existing literature by four interrelated analyses on European economies and firms. First, the effect of material use on greenhouse gas (GHG) emissions is empirically assessed, finding a robust and positive link mostly driven by fossil fuel use. Second, it is investigated whether economic growth is a driver of material use, suggesting that economic growth causes an increase in material use for Western European countries. Third, the effects of material productivity on indicators of macroeconomic competitiveness and GHG emissions are investigated, finding little evidence for any statically significant link, except of increased average wages and improvements in the current account. Fourth, the effects of eco-innovation induced material productivity increases on microeconomic competitiveness and firm level GHG emissions are studied, providing evidence that material productivity increases microeconomic competitiveness and reduces GHG emissions. However, these effects are heterogeneously distributed across sectors and countries. Overall, this dissertation draws a nuanced picture by providing new evidence that material use and material productivity can support competitiveness and climate change mitigation objectives, but such benefits are likely to be unequally distributed across firms, sectors, and countries. To this end, the results provide important policy insights, including that weight-based material indicators are linked to GHG emissions, internalising externalities is essential, and eco-innovations can enable certain firms, sectors, and countries to grasp the benefits of material productivity improvements. Moreover, it is important to further investigate the implications of moving towards more material productive economies based on greater emphasis on heterogeneity, endogeneity, and improved data