European policy approaches to promote servicizing

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European policy approaches to promote servicizing Andrius Plepys Oksana Mont Eva Heiskanen Contents 1 

Introduction ............................................................................................................................................... 1 

2 

What is servicizing? .................................................................................................................................. 2 

3 

Supporting environmentally beneficial servicizing: A policy assessment framework .............................. 4 

4 

Direct and indirect policies to promote resource efficiency ...................................................................... 5  4.1 

EU level: direct policy initiatives ...................................................................................................... 5 

4.2 

EU level: indirect policies instruments .............................................................................................. 6 

4.3 

National level: direct and indirect policies ........................................................................................ 6 

4.4 

Local level: policy examples ............................................................................................................. 8 

5 

Discussion and conclusions ....................................................................................................................... 9 

6 

References ............................................................................................................................................... 11 

1 Introduction Servicizing is a business model that holds the potential to support a shift toward more sustainable production and consumption by selling to the consumer the product’s function, rather than the material product itself. This can offer direct environmental benefits by reducing the material and energy intensity of market transactions. For example, shared use of a single product reduces the number of products needed to provide a certain function (Mont et al. 2006). More interestingly, however, servicizing also offers the prospects for decoupling the economy from high levels of natural resource use by changing the incentives of producers. Ideally, if producers gain more money by minimizing chemicals use than by selling chemicals, they are likely to apply their innovativeness in ways that benefits the environment (Hawken 1993). In the very best case, servicizing might be part of the solution to the conundrum of green growth. Servicizing combines a functional orientation with an economic logic in which revenues are decoupled from material throughput (Heiskanen and Jalas 2003). This is likely to be the reason why the concept has persisted in the research, practitioner and policy debates in spite of only small breakthroughs in very specific industries and markets. It is particularly attractive at the present moment, when concerns about the global competitiveness of Europe are forcing policy makers to find new alignments between economic and environmental policy. The present paper draws on the experiences from a review (Plepys and Mont 2013) of the state of the art in the field and of relevant European initiatives addressing servicizing conducted within the

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framework of SPREE project (Servicizing Policies for Resource Efficient Economy). It aims to explore where and how public policy supports or steers markets toward servicizing solutions. On the basis of published research and policy documents, we first examine the development of the servicizing concept in recent years. This analysis serves to identify where and when policy support for servicizing is merited, necessary and helpful. Secondly, existing policy instruments to support servicizing are reviewed. We focus, in particular, on three levels where policy directly or indirectly supports servicizing. The first is on the European policy level, where there is some R&D support, but the most concrete direct set of measures relate to energy efficiency obligation schemes, whereas chemicals and waste policies offer indirect incentives for servicizing concepts. The second is on the national level, where chemicals policies focusing on pesticide use have created markets for integrated pest control services in the agriculture sector. The third level is local, where municipal policies are actively promoting servicizing in the transport sector. Our review focuses on the possibilities and limits of public policy support and promotion of servicizing. We suspect that until now, European and national policies have mainly worked in indirect ways to promote servicizing, whereas local policies may have shown visible results in terms of the promotion of car sharing and other innovative transport solutions. 2 What is servicizing? Servicizing (sometimes “servitization” is also used in the literature (Park, Geuma et al., 2012)) as a concept represents a variety of business approaches that are focused more on selling a (product’s) function rather than a product’s ownership (Mont and Plepys, 2008). Similar or identical meaning is also expressed by terms “product service systems”, “eco-efficient services”, or “functional sales”. In this appear, we use “servicizing” which is about satisfying customer needs by selling the function of the product rather than product itself, which in turn can be provided by a combination of products and services. Any business model that adds services to create value beyond business-as-usual can be considered a “servicizing model”. Our special interest is in servicizing that reduces environmental impacts both within product service systems and within the economic system as a whole. In many cases consumer needs and wants could be satisfied by a service arrangement with a service provider rather than by a transfer of ownership of a physical product which is then used by consumers to extract the desired functions or utilities. Servicizing solutions are not green by default, but when function or efficiency is sold, chances are higher for the outcome to have lower environmental impact (Mont and Plepys, 2008; Stahel, 2000; White, Stoughton et al., 1999). The concept of servicizing is based on the notion that “what we want from products is not ownership per se, but the service the products provide” (Hawken 1993). The underlying assumption of the concept is the idea that the customer value of a product lies in its utilization and its benefits to the customer: the very notion of economic value is changing from ‘exchange value’ to ‘utilization value’ (Stahel 1994). This means that the provider of servicizing solutions may get paid per unit of function delivered, not per unit of product sold. In these circumstances, customers become more interested in having a continuous fulfilment of their needs rather than in owning the product, which is supposed to provide the function (transportation rather than owning a car, cold beer rather than a refrigerator etc.). Furthermore, the service provider, together with keeping the ownership of the product, keeps the responsibility for maintaining the product, and has incentive to eventually repair or remanufacture the product because the goal is to provide the function and agreed service level by any existing means (either by newly produced, old or re-used/refurbished products). The shift in focus from products to service solutions (Mont and Plepys, 2008) creates incentive to: 2   

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1. 2. 3. 4.

Optimize material products for function provision, if it is present in transaction; Develop or adapt business models to include services, which is often a missing element in the design efforts; Expand the emergence of networks of actors; often new types of actors need to be involved when function and not products are sold, and Facilitate the development of supporting infrastructure, which often needs to be changed and/or optimized, including ICT software solutions and hardware solutions.

In the climate of increasing global competition, reduced power of industrialized countries, concerns over resilience of local economies and society in general, instability of financial markets, increasing depletion of resources, shifting environmental burden among countries, inequality in access to resources, and growing environmental impacts, servicizing solutions hold promise of creating strategic competitive advantage by: 1. 2. 3.

Decreasing production costs through optimized resource use; Better satisfying fast changes in consumer needs in real time and creating a long term engagement with the consumer; Potentially reducing environmental impacts associated with linear production-consumption systems based on product sales, ownership, and disposal models and thereby enabling businesses to compete in a relatively regulated market.

Besides reducing direct environmental impacts, servicizing also aims to address some of the potential rebound effects associated with improvements of energy or resource efficiency. These rebound effects can occur when efficiency improvements lead to reduced revenues (e.g. for an energy provider) and thus create incentive to increase the volume of products sold, thereby undermining the efficiency gains. The main premise and the promise in environmental terms of servicizing contracts is the alignment of incentives of service providers and consumers via the type of contract. Servicizing solutions are based on transactions where payment is made not for the product per se, but for the service (package) sold to consumer and/or for the utilization value provided to her and often includes payper-use offers where services are utilized simultaneously (car-pooling) or consequentially (carsharing). The nature of contracts between the actors in supply chains is important in determining the complexity, transaction costs and the overall attractiveness of value exchanges between supply and demand. Different types of contracts are used in different sectors. The most advanced types of contracts with a range of different pricing mechanisms can be found in chemical management services (CMS). The foundation of CMS is the financial model laid out in a contract in which payments are based on the service delivered rather than the volume of chemicals sold. There are several types of contracts (Mont, Singhal et al. 2006): 1.

2.

The first type of contracts specifies a cost baseline depending either on how chemicals are used in relation to production volumes or on the number of products for which chemicals are used. In this contract the procurement cost of chemicals to be used at the customer’s site is limited and it is also typical that a cost reduction for chemical management is guaranteed by the chemical supplier (usually target savings of 3-5% of cost in 3-5 years). In the second type of contract, a fixed fee is paid by the customer after the scope of work has been defined for the service provider. This makes procurement of chemicals and their management a cost rather then a source of revenue. In this way a direct incentive is created for the service provider to decrease these costs by reducing the amount of chemicals bought

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3.

and used for fulfilling the work and the cost of chemical management without compromising the quality. The third type of contract entails sharing of savings between the provider and the customer since there is a limit to how much the provider can lower the costs specified in the second type of contract. In order to identify further possibilities for improvement and cost reduction the customer and the provider need to collaborate and need to have appropriate incentives.

Similar to the first type of contract in which cost reduction for chemicals management is guaranteed by the provider, some contracts also set targets for environmental improvements, which can take the form of reduced volume of chemical waste, or decreased environmental emissions or substitution of hazardous chemical for less harmful alternatives. Sometimes, there is a need for a mixed contract (service and volume) to make sure that the incentives of both the supplier and the consumers are aligned. As seen above, there has been significant development in contracts that align the incentives for producers and consumers of services, especially in the field of chemicals management services. Carefully designed contracts hold the potential for a reversal of the wasteful logic of a ‘throughput economy’. However, it is not self-evident that the best concepts are taken up in practice and in different sectors, and individual market players may find it difficult to change the logic of established markets. Hence, there is likely to be a role for policy makers in supporting servicizing, which is explored in the following section. 3 Supporting environmentally beneficial servicizing: A policy assessment framework The notion of servicizing is based on logical principles. It is an attractive notion that makes sense in many ways, both on a micro level of environmental product development in companies, and on a macro level of environmental, societal and industrial policy. In the following, we first present some criteria for environmentally beneficial servicizing. Secondly, we discuss how and why policy measures are needed to support such positive market developments, and in what cases policy support is likely to be helpful. Thirdly, we address how public policy could support servicising. Servicizing, as stated above, is a real market development that is driven, especially in business-tobusiness markets, by an increased tendency by companies to focus on ‘core competencies’ and outsource support functions to specialist companies (Heiskanen and Jalas 2003; Mont, Singhal et al. 2006). The motives are not necessarily environmental. Hence, it is necessary to distinguish between environmentally beneficial servicizing, where materials and energy throughputs are reduced, and other forms of outsourcing, contracting, rental or leasing, which do not necessarily bring about environmental benefits (e.g. leasing of company cars). One way to make such a distinction is to conduct life cycle assessments of such services in order to establish when and where servicizing leads to reductions in environmental loads. For example, Heiskanen and Jalas (2003) have compiled several such studies in the field of laundry services. Another approach is to consider the alignment of incentives via suitable contracts, as Mont et al. (2006) have done. The environmental merits of servicizing models would in this case be defined in terms of the extent to which producers are incentivized to sell less energy or materials per product function. In this case, it is not the actual environmental burden of a servicizing business model that is at stake, but the potential that it holds for more sustainable business. Another related approach might be to work with companies interested in service-based models and attempt to align the economic and environmental motives and aspects of the service offering (see e.g. Mont et al. 2006). The second issue is the extent to which the process of servicizing needs policy support. If servicizing is occurring in the market on its own momentum, why do we need public policy efforts to promote environmentally beneficial variants of servicizing? Firstly, the prices of energy and raw 4   

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materials are still relatively low – albeit rapidly rising – and the costs of labour in comparison are relatively high. Even though the signs of change are in the air, the current market is biased against forward-looking business models that do not bring immediate benefits. In fact, due to various kinds of path dependencies, even currently profitable business models may struggle to enter the mainstream market (see Heiskanen et al. 2011) because individual players are not in the position to change such broad logics as those of mass production and consumption (Plepys and Mont 2013). Secondly, powerful players in the market may oppose servicizing solutions because their particular competitive advantage lies in mass production (see e.g., Hockerts and Wuestenhagen 2010), while several studies have shown that customers have a need for services that they cannot find in the market (Mont, Sinhal et al. 2006; Anttonen et al. 2011). Thirdly, several authors in design for environment (DFE) or design for sustainability (e.g., UNEP 2010) identify servicizing as a missing link in product development that is genuinely and radically less energy and material intensive than current business models. Hence, public policy support is necessary to bring together business models and environmental concerns that are mutually supportive. A third issue is how public policy could support servicizing. Policy instruments are conventionally classified in terms of administrative/regulatory, economic, informative (and also sometimes procedural) instruments (e.g. Vedung 1997; Mont and Dalhammar 2005; Wolff and Schönherr 2011). They can also be classified in terms of being voluntary or mandatory (Mont and Dalhammar 2005). However, from the perspective of servicizing, an even more relevant distinction might be whether instruments influence or aim to influence the emergence of servicizing solutions directly or indirectly (Fischer et al. 2012; Plepys and Mont 2013). Direct instruments are likely to focus on suppliers and oblige them or support them in providing services, whereas indirect instruments are more likely to influence the demand for services by putting pressure on customers in the product chain. Some indirect instruments may benefit both the demand and the supply sides by providing non-discriminatory incentives, such as e.g. investments into infrastructure benefiting the supply and the use of servicizing solutions. Instruments that have or aim to have a direct influence on servicizing can be identified via their stated intentions, whereas instruments that have an indirect effect can only be identified via their impacts. Another dimension in the classification of policy instruments is the geographical scope of government on which they are applied. Product policy issues in Europe are currently regulated at the transnational level of European directives or even regulations. However, several policy measures are still within the mandate of national policies. Moreover, the local government level is often neglected in analyses of products and markets, and e.g. climate policies (Bulkley 2005). However, as will be shown in the following, local governments can have significant influence on urban infrastructures and via them on business models. Since local governments are close to the context where services are delivered, they can also tailor policies to offer quite detailed support and ‘nudges’, i.e., rearrangements of the market infrastructure and default options, (see Thaler and Sunstein 2008) to both service providers and consumers. 4

Direct and indirect policies to promote resource efficiency

4.1 EU level: direct policy initiatives On the European level, resource efficiency and industrial competitiveness present a very topical combination, as evidenced, for example, in the Roadmap to a Resource Efficient Europe (COM 2011). In addition to environmental concerns, issues of industrial policy and the security of materials and energy supply are at the forefront of European policies. However, the practical tools to directly steer this development are, as of yet, fairly limited (Fischer et al. 2012). There is no special and explicit policy focus on supporting servicizing solutions per se. Instead, current EU strategies are targeting the broad area of sustainable consumption and production, and resource and 5   

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energy efficiency. Here, servicizing is occasionally mentioned as a means to achieve resource conservation by illustrating examples from certain sectors, such as mobility, energy services, chemical management or greening consumer goods (Plepys and Mont 2013). Energy efficiency policy, however, is an area where service business models are fairly concretely visible in recent European directives. The Energy Services Directive (2006/32/EC), for example, called on member states to “promote energy end‑use efficiency and to ensure the continued growth and viability of the market for energy services” and proposed several measures to support energy service companies (ESCOs). More recently, the new Energy Efficiency Directive (2012/27/EU) obliges member states to set up energy efficiency obligation (or comparable) schemes, i.e., to require energy companies to save a certain percentage of the customers energy end-use. In countries where such schemes have operated for several years, energy suppliers invest in e.g. thermal insulation or more efficient boilers for their customers – in some cases, as in the UK Green New Deal, also with the opportunity to bill customers for the cost of the investment over the course of several years in connection with their energy bills. In some countries, the schemes have been explicitly targeted so as to offer ESCOs growth opportunities as practical providers of energy efficiency services to consumers. 4.2 EU level: indirect policies instruments If we turn to indirect policy instruments, the broad EU policy on waste management in general may have a strong impetus for servicizing consumer goods. For instance, the European product policies based on the principle of extended producer responsibility (EPR), such as the Packaging Directive or the Directive on Waste Electric and Electronic Equipment (WEEE),1 are forcing product manufacturers (or basically anyone who places an EPR product on the market) to assume a physical or a financial responsibility of post-consumer waste management. The directives, when transposed to national levels, sometimes result in EPR programs with take-back schemes or deposit-return systems which have servicizing elements since the product ownership is to some degree and indirectly linked to manufacturers though their responsibility schemes. Ideally, the EPR legislation should (and in some cases does) influence the ways in which products are designed, distributed, used and managed at the end of their useful lives. As of yet, the evidence for which types of policies are more effective is still not yet available. The direct policies to promote energy efficiency obligation schemes have been fairly successful in terms of amounts of energy saved; especially in countries with several years of experience in setting up such schemes (see section 3). However, the extent to which new business models and genuine market incentives are created to transform large energy suppliers into agile service providers is still unclear. On the other hand, indirect policies such as WEEE or chemicals policy can in fact be quite successful in changing the incentives structures for companies, as some companies have been quite eager to maintain control of the entire life cycle of their products – not primarily for environmental, but for more risk and reputation reasons. 4.3 National level: direct and indirect policies On the national level there is a more explicit focus in general on servicizing. Some countries (e.g. Sweden, Denmark, the Netherlands) have governmental actions directly supporting the development of a better understanding about the potential of servicizing and have concrete measures for gaining more knowledge through pilot projects. The governmental support is mainly expressed in form of funding for academic research and supporting stakeholder forums for joint discussions. However, there is one area in which government (and more recently European) policy is actively promoting servicizing. This is energy efficiency obligation placed on energy suppliers.                                                              1

 URL: http://eur‐lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32002L0096:EN:NOT  

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Energy efficiency obligation schemes were mentioned above as one area in which the EU is directly attempting to promote a shift toward a service business model by requiring member states to set up such (or comparable) schemes. In the UK, Denmark, France, Italy and the Flemish region of Belgium, energy efficiency obligation schemes have already been in place for several years (Bertoldi et al. 2010; Moser 2012). Experiences from these countries provide some first evidence of how successfully national policies can directly promote servicizing – although it is worth keeping in mind that the energy efficiency obligations schemes prioritize other targets, such as energy saving/CO2 emission reductions accomplished and cost-effectiveness. Most of the evaluations of energy efficiency obligations schemes have indeed focused on the direct environmental impacts, i.e. energy and CO2 savings. These have been found to be quite satisfactory. However, most of the schemes have explicit or implicit aims to change business models in energy supply. According to Bertoldi et al. (2010), there are some signs of this in France and in the UK: energy companies are trying to position themselves as energy efficiency providers vis-à-vis their clients. According to Berlodi et al. (2010) and Eyre et al. (2009) obliged companies in the UK have formed partnerships with energy efficiency providers and introduced new activities in their portfolios ”without significantly modifying their core business of selling energy”. In France, the energy suppliers have developed new services in the household energy market, such as advice, individual audits and financial instruments, as well as partnerships with retailers, installers, manufacturers and banks. According to Moser (2012) the impacts on energy suppliers’ revenue models are quite different in different countries. In most countries, most energy companies (or parts of energy companies) have opposed the schemes, but for example, in Denmark, the obliged electricity distribution service operators (DSOs) are quite positive about the scheme as they can make larger profits from energy efficiency services than from (profit margin capped) distribution services. The extent to which energy suppliers or distributors take charge of offering services themselves or contract them to ESCOs also varies from one country to another, according to Moser (2012). Hence, the picture is still mixed in different European countries. The extent to which these ‘seeds’ of servicizing in the energy sector will actually change the entire business logic is still far from clear, especially now that the EU aims to spread the system throughout Europe. A more indirect national-scale policy measure that supports servicizing can be found in the field of pesticides regulation in Sweden and Denmark. Here, consistent and long-term policies to reduce pesticides and introduce alternative pest-control measures have stimulated the emergence of new servicizing-based business models. Sweden has a fairly long history of working with the goal of reducing the use of pesticides by different policy measures. It introduced a tax on pesticides in 1985, which was initially designed as a levy of 0.4 €/kg and was subsequently raised to the recent 3.3 €/kg of active substance in 2004. There were also additional charges introduced in form of a registration fee and an annual charge based on sales. Recently the Swedish Chemicals Agency instead of measuring the total quantity of pesticides sold has started using a hectare dose approach similar to the Treatment Frequency Index in Denmark. In addition, programs for farmer education were launched. As the result, the pesticide use in terms of active substance has been reduced by more than 60% and human health risks have been reduced by more than 70% from 1986 levels (ECORYS, 2011). The taxation policy was effective not only in reducing the direct purchase of pesticides, but also stimulated the emergence of different plant protection services and chemicals management servicizing offers. Similar servicizing effects have been achieved by the Danish pesticide taxation (UNEP, 2011a). The Danish sales tax on pesticides was levied since 1985 on the size of the container at the initial rate of 3%. This levy achieved a 50% reduction in pesticide-use within 10 years. In 1995 a 7   

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differentiated tax was introduced at 6% and the levy organized differentiated by different groups of pesticides and their treatment intensities. The most recent upgrade of the tax reached 25% and included other chemical deterrents. The total tax revenue in 2008 was US$ 80 million – all of which was funnelled back into the agriculture sector as research funding for public institutes, organic agriculture subsidy schemes and support for farmers’ chemical management services. 4.4 Local level: policy examples More concrete policy initiatives promoting servicizing can be found on a local (municipal or county) level. The self-governance power of the local authorities varies among different countries. In some countries, like e.g. Sweden, local municipal governments have more responsibilities, relatively high decision-making authority, as well as financial resources less dependent on the centralized state institutions. These are important factors determining the possibilities for the local authorities to support different sustainability oriented initiatives customized to local needs. Some policy actions have been directed to support servicing of alternative mobility solutions on the local level. Examples exist among car sharing organizations (CSOs) in different countries. In Denmark almost all CSOs are non-profit organizations often founded on ideological roots with the purpose of addressing urban congestion and gaining environmental advantages. The first Danish CSOs emerged in the 1990’s and since then they have grown to involve thousands of members. Last available statistics show that in 2012, the Danish umbrella organization the Danish Car-sharing (Danske Delebiler)2 had over 300 cars and ca. 7,000 members.  In 2012, the organisation included about 13 associations and commercial organisations with three largest CSOs located in Copenhagen. The municipalities of Copenhagen and Frederiksberg are actively supporting them by allotted parking spots and cheap parking permits to the shared cars. The CSO is very attractive from the perspective of total car ownership costs. The typical fixed annual costs for a privately owned medium-sized car is about €5,300-6,600 compared to CSO membership cost of €260-520. The variable costs are €0.12-0.14 and €0.4-0.55 respectively. Similar arrangements exist in other cities and for other means of transport and with the involvement of private commercial interests. For instance, Paris’ Vélib Programme3 is a city initiative involving the company JCDecaux, which provides bicycle share scheme for locals and tourists by subscription and in return has an exclusive control over all billboards in the city. Since its introduction, Paris has seen a 70% increase in bicycle use and a 5% reduction in congestion. A good stimulus for CSOs is cooperation with public transportation companies. The best example of this is in Switzerland where over 1% of the population is a member of the largest CSO scheme called Mobility. Many of the privately owned CSOs in Switzerland collaborate with 17 different public transport operators among which the most comprehensive cooperation is with the Swiss Federal Railways (SBB). The scheme works in a way that e.g. train passengers have easy access to a car at all railway stations and car-sharers to trains and CSOs and SBB mutually advertise for the counterpart's products. In Switzerland CSOs are the single largest renters of parking lots from SBB with ca. 900 parking lots at 320 railway stations. However, different from Denmark, there has been only little policy support to CSOs from municipalities, with no public parking lots reserved for carsharing (EC, 2008). In Sweden too the Swedish National Road Administration (SNRA) has had a multifaceted input in supporting car sharing schemes. Since 2000’s, SNRA financed a few feasibility studies, conferences and stakeholder dialogues to raise the understanding about the needs and possibilities of car sharing                                                              2 Danske Delebiler website. URL: http://www.danskedelebiler.dk/about.html. Accessed 2013‐08‐22. 3

 Paris Velíb website. URL: http://en.velib.paris.fr . Accessed 2013‐01‐18. 

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on the national level. SNRA also had a stake in direct financing of an Internet booking system for Majorna car sharing co-operative. At the same time SNRA sees the municipalities having a greater power to affect growth of car sharing (Jakobsson, 2002). Overall, it could be said that generally public policy maker support in Sweden is not given to stronger and more commercial oriented CSOs (e.g. Sunfleet, Statoil, Motala Platen, Sydkraft, OK/Q8), while the non-profit and more grassroot like organizations receive some support either directly via financing, exemptions from some rules and special permissions (parking, road lanes) or indirectly via research, information, marketing, discussion platforms and networking. In the Netherlands local policy makers also have played a role in supporting CSOs. The Dutch government has identified this area as a strategically important innovation and the Ministry for Transport and Public Works was active in building an actor network for promoting car sharing and stimulating synergies with public transport systems. In 2002 the government allocated 1 million Euro for that purpose. An organization Autodate was founded and fully financed from public funds to work as a service centre for the promotion of car sharing in the Netherlands. So far it has been acknowledged that Autodate has been successful in raising awareness about car sharing in the Netherlands (Jakobsson, 2002). Moreover, in some cities dedicated traffic lines on road are sometimes allocated for car sharing schemes (e.g. in Amsterdam). It seems that a strong facilitating factor for CSOs is the level of development of public transport systems. From Jakobsson’s (2002) survey it appears that densely populated cities with very well developed systems (e.g. in Switzerland, Netherlands, Germany, Denmark, Sweden) are more receptive to car sharing. In cases where the public transport systems are generally very good also on the national level, the success of CSO is even more certain. 5 Discussion and conclusions Policy initiatives that may support a wider supply and demand of servicizing solutions can be seen on different levels – from international, such as the European Union, to local - member states and municipal. The degree to which the initiatives relate to servicizing and the nature of policy instruments vary greatly. Generally, policy actions on the local level are more directly targeting and supporting the roll out of servicizing solutions into society than those on the national or international levels. However, we have identified some instruments at different geographical scopes that either aim to directly support servicizing or that have actually done so in an indirect fashion by creating demand for integrated and life-cycle focused services. At the national (and quite recently, European) level, energy efficiency obligation schemes require that energy companies offer energy efficiency services to their customers (either themselves, or via service providers). They are however implemented (or will be implemented) in different ways in different member states. The immediate environmental aspects of these schemes (such as the amount of energy saved) have been quite closely evaluated. Yet there is limited research until now on how these schemes actually change the incentive and revenue structure for energy companies. As these schemes mature, they will offer an interesting test case of whether servicizing can be mandated by law. An important observation is that servicizing solutions are often an unintended outcome of policy interventions targeting the reduction of consumption of harmful products, substances or priority emissions (i.e., indirect policy support). Such policy actions are relevant to both European and national levels. For instance some countries (Denmark, Norway) target the use of pesticides by imposing product taxes based on quantities, toxicity or other properties. Among market responses are examples of chemical management services or integrated pest control solutions. In general, many examples can be found in the chemicals sector where a more stringent control or legal 9   

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restrictions result in businesses shifting to chemicals outsourcing and it is here where servicizing examples could be found. In this area, the emergence of new business models and incentives for manufacturers is well documented (e.g. Mont et al. 2006; Anttonen 2009), whereas the immediate environmental impacts and the influence of various policy settings has gained less attention in research. Analogous observations are probably relevant for explaining the emergence of servicizing-like solutions in the area of consumer goods. The European product policies based on the EPR principle make product manufacturers responsible for post-consumer waste management. National implementations of EPR directives may include servicizing elements (e.g. take-back and depositreturn schemes), where product ownership is to some degree and indirectly is still retained by the manufacturers. If proper incentives are created, the EPR legislation could (and in some cases does) influence product design, distribution and use and thus creates a space for servicizing solutions. However, there is still limited research on what combinations of policy designs and market conditions create such space and what is the certainty level of the attributability to policy actions. On the local level of policy making the situation is rather different with significantly more interest and more policy interventions from municipal or regional authorities. Servicizing solutions receiving policy support are often those that provide clear economic, environmental or social (employment) benefits on the local level. Moreover, local authorities are uniquely positioned to identify local needs and appropriate support schemes. Examples of other policy instruments that could be applied more widely at the local level via public procurement are energy performance contracting (e.g. energy services, lighting utilities), direct or indirect subsidies for certain actors in servicizing schemes (e.g. parking discounts, lighter licensing regimes, tax deductibles in mobility services), and information and awareness raising activities that raise the interest in and the demand for servicizing solutions. The chemicals management and pesticides policy examples suggest a strong case for indirect measures in support of servicizing, i.e., the placing of requirements and pressures on customers that create market demand for new solutions. Some might argue that businesses are better off in finding the best opportunities and competitive solutions under the conditions of a free market. Indeed, policy makers are likely to struggle with an information deficit insofar as their capacity to accurately tailor policies so as to have the best possible effects in terms of direct environmental impacts and indirect impacts via incentive structures for resource efficient business models. However, the counter-argument is that environmental gains from servicizing are not the primary interest of the businesses and that not all servicizing solutions bring about environmental benefits (either directly, or in terms of aligning incentives structures for resource efficient business models). Companies – even large ones – can be locked-in to existing business models by industry dynamics and the need to show quarterly profits. Therefore, in cases where there are weak commercial incentives for new servicizing business to emerge and prevail, there is a need of policy intervention to create competitive conditions for the new solutions to stand a fair chance with the traditional sectors of production and consumption. Servicizing as a concept represents a variety of business approaches which today are real and happening on the market with different ‘shades of green’. When it is not happening or when it is happening without substantial environmental benefits, policy support is needed to fully unfold its potential. Today, some drivers for servicizing are still rather weak and there are barriers that are significant. In many cases individual actors may have limited capacity to address these barriers and that is why policy interventions are needed. It is the role of policy makers to identify innovative and emergent servicizing business models with high green potential and to design and implement 10   

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appropriate policies to help servicizing to become business as usual, and assure that the ‘greenest’ versions are the ones that are sustained and promoted. Recommendations for further and more research include: 1) furthering the understanding of market conditions that create space for servicising solutions to emerge; 2) focusing on better policy designs to place the servicing goal as a more central policy objective, 3) optimization of policy packages to facilitate servicising solutions with strong decoupling between the economic growth and absolute resource consumption; 4) improving methodologies of policy evaluations for higher level of the attributability to policy actions. Equally important is studying, describing and publicizing the existing servicising examples to increase awareness, raise interest and stimulate innovative thinking among consumers, industries and public authorities. 6 References Anttonen, M. (2009). Green from the front to the back door? A typology of chemical and resource management services. Bus. Start. and Envir. 19: 199-215. Anttonen, M., Halme, M., Houtbeckers, E. & Nurkka, H. (2011). The other side of sustainable innovation: is there a demand for innovative services? J. Clean. Prod. December 2011. Baudry, P & Osso, D (2011). Energy saving certificates in France: A new frame for the second period (2011-2013) and afterwards. ECEEE 2011 Study. Online: http://proceedings.eceee.org/visabstrakt.php?doc=2-394-11. Accessed: 2013-02-14. Bertoldi, P., Rezessy, S., Lees, E., Baudry, P., Jeandel, A., Labanca, N. (2010). Energy supplier obligations and white certificate schemes: Comparative analysis of experiences in the European Union. Energ. Policy 38: 1455–1469. Bulkeley, H. (2005). Reconfiguring environmental governance: Towards a politics of scales and networks. Polit. Geogr. 24: 875-902. DECC (2011). The Carbon Plan: Delivering Our Low Carbon Future. Department of Energy and Climate Change, London. Directive 2006/32/EC of The European Parliament And Of The Council of 5 April 2006 on energy end-use efficiency and energy services and repealing Council Directive 93/76/EEC. Online http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:114:0064:0064:en:pdf Directive 2012/27/EU on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC. Online: http://ec.europa.eu/energy/efficiency/eed/eed_en.htm. Accessed: 2013-01-25. EC (2008). Promoting Innovative Business Models with Environmental Benefits. Brussels, Final report. November 2008. European Commission, DG Environment. Online: http://ec.europa.eu/environment/enveco/innovation_technology/pdf/nbm_report.pdf. EC (2011). A resource-efficient Europe – Flagship initiative under the Europe 2020 Strategy. COM(2011) 21. Brussels 2011.01.26. European Commission (2000). Lisbon Strategy of Economic and Social Renewal. Brussels, European Commission. European Commission (2010). Europe 2020. A European strategy for smart, sustainable and inclusive growth. Brussels, European Commission: 37.

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