Industry 4.0 and environmental protection: The catalyst role of public financial support

López-Cózar Navarro, Cristina; Priede-Bergamini, Tiziana; Cuello-de-Oro-Celestino, Diego Article Industry 4.0 and environmental protection: The catalyst role of public financial support Amfiteatru Economic Provided in Cooperation with: The Bucharest University of Economic Studies Suggested Citation: López-Cózar Navarro, Cristina; Priede-Bergamini, Tiziana; Cuello-de-OroCelestino, Diego (2025) : Industry 4.0 and environmental protection: The catalyst role of public financial support, Amfiteatru Economic, ISSN 2247-9104, The Bucharest University of Economic Studies, Bucharest, Vol. 27, Iss. 68, pp. 111-127, https://doi.org/10.24818/EA/2025/68/111 This Version is available at: https://hdl.handle.net/10419/318586 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Transformations of the Socio-Political-Economic Systems at the Confluence with New Technologies: Revisiting the “Liberalism Versus Statism” Dilemma in the Context of the Industrial Revolution 4.0 AE Vol. 27 • No. 68 • February 2025 111 INDUSTRY 4.0 AND ENVIRONMENTAL PROTECTION: THE CATALYST ROLE OF PUBLIC FINANCIAL SUPPORT Cristina López-Cózar-Navarro1 * , Tiziana Priede-Bergamini2 and Diego Cuello-de-Oro-Celestino3 1) Polytechnic University of Madrid, Madrid, Spain 2) European University of Madrid, Madrid, Spain 3) University of Valladolid, Segovia, Spain Please cite this article as: López-Cózar-Navarro, C., Priede-Bergamini, T. and Cuello-de-Oro-Celestino, D., 2025. Industry 4.0 and Environmental Protection: The Catalyst Role of Public Financial Support. Amfiteatru Economic, 27(68), pp. 111-127. DOI: https://doi.org/10.24818/EA/2025/68/111 Article History Received: 3 September 2024 Revised: 5 November 2024 Accepted: 7 December 2024 Abstract This article examines the relationship between the adoption of digital technologies and the corporate commitment to environmental protection, while also exploring whether this relationship is strengthened by public financial support. Using a sample of 1,616 Spanish manufacturing firms and analyzing each technology independently, the study finds a positive and significant association between Industry 4.0 technologies and the implementation of environmental practices. Furthermore, the results highlight the mediating role of public support, since firms adopting advanced technologies and receiving direct state funding or tax incentives demonstrate higher levels of environmental investment. By disaggregating the types of technologies and distinguishing between funding mechanisms, this research provides nuanced insights into the effectiveness of public interventions in promoting sustainable production processes. The findings underscore the interplay between the public and private sectors in advancing environmental innovation, revealing the role of statism in fostering sustainability within the framework of Industry 4.0. Keywords: Industry 4.0, technologies, public support, environmental protection, subsidies, tax deductions. JEL Classification: M11, M15, O32, O33 * Corresponding author, Cristina López-Cózar-Navarro – e-mail: [email protected] This is an Open Access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. © 2023 The Author(s). AE Industry 4.0 and Environmental Protection: The Catalyst Role of Public Financial Support 112 Amfiteatru Economic Introduction The digital transformation of production systems has been one of the central issues for manufacturing companies in industrialized countries. Marking the beginning of the so-called fourth industrial revolution, this new paradigm, known as Industry 4.0 (I4.0), is based on the implementation and integration of a wide variety of information and digital technologies (Lasi et al., 2014; Schwab, 2017), which have made it possible to revolutionize production methods to make them more efficient. In the European context, digitalization is a priority of EU policies, considering the gaps compared to the United States (Ionaşcu et al., 2022). According to the report Digitalisation in Europe 2022-2023: EIB Investment Survey (European Investment Bank, 2023), the EU has been closing this gap with the United States in the adoption of advanced digital technologies, with 69% of EU companies implementing these new technologies by 2022, compared to 71% of US companies. Despite these encouraging figures, it is important to note that further progress is needed to avoid being left behind in the race toward digitalization, but investment in digital technologies is significantly lower in smaller companies (European Commission, 2023).). This is because they often face budgetary constraints and lack the resources to adopt new technologies with the same speed as larger companies. I4.0 transforms production methods and supply chains, optimizing and achieving greater efficiency throughout the entire process (Ghobakhloo, 2020; Díaz-Chao, Ficapal-Cusí and Torrent-Sellens, 2021). By reaching greater interaction and better coordination between the different parties, I4.0 technologies (I4.0T) contribute to sustainable production and distribution. Digitization can support a more effective and efficient allocation of resources and therefore lower resource consumption. In summary, it can be useful in achieving a sustainable environment in the manufacturing industry (De Sousa Jabbour et al., 2018; Bhatia and Kumar, 2022; Javaid et al., 2022). Although I4.0T is often credited with fostering sustainability through enhanced resource efficiency and optimized supply chains that nourish each other, it is also true that the increased energy demand of digital infrastructures and the challenges in managing electronic waste (e-waste) generated by I4.0 systems may undermine these environmental benefits (Bonilla et al., 2018; Ghulam and Abushammala, 2023). This duality suggests that, while I4.0T can support environmental goals, its implementation must carefully balance the potential for resource optimization with the risks of unintended ecological harm. Despite the opportunities offered by I4.0, it is also necessary to bear in mind that it requires large investments (Luthra and Mangla, 2018; Tirabeni et al., 2019). Indeed, to take full advantage of all its benefits, it is necessary not only to have the technologies but also to master several capabilities. The use of I4.0T will require that employees receive the proper training and skill development to understand, manage and execute new jobs, as well as to undergo organizational and corporate culture changes (De Sousa Jabbour et al., 2018). All of this involves significant outlays, which can be a barrier for many companies, especially for SMEs (Ingaldi and Ulewicz, 2020; Kumar, Singh and Dwivedi, 2020; Torrent‐Sellens, Ficapal‐Cusí and Enache‐Zegheru, 2023; López-Cózar-Navarro, Priede-Bergamini and Cuello-de-Oro-Celestino, 2024). In fact, it is often not enough to make an initial investment, but also necessary to consider the general maintenance costs that companies must bear to keep the technology operational and up to date (Kumar, Singh and Dwivedi, 2020; Ghobakhloo et al., 2022). Additionally, since technological innovation is developing at an Transformations of the Socio-Political-Economic Systems at the Confluence with New Technologies: Revisiting the “Liberalism Versus Statism” Dilemma in the Context of the Industrial Revolution 4.0 AE Vol. 27 • No. 68 • February 2025 113 unprecedented pace, as breakthroughs and improvements emerge, companies will need to continue investing to upgrade and take full advantage of the benefits of I4.0. These are investments with uncertain returns and a long payback period, which means that profitability and return on investment are main concerns for most companies in addition to their potential future benefits (Horváth and Szabó, 2019; Verma et al., 2022; López-Cózar-Navarro, PriedeBergamini and Benito-Hernández, 2023). Thus, given that new smart technologies can contribute to a more sustainable industry, but many companies do not have the financial resources to undertake digital transformation, we consider that public administrations must support these projects in a global sense. Consequently, following this reasoning, we propose a research question based on whether public financial support is the catalyst for I4.0T to improve the environmental and ecological performance of firms. This question engages in the global debate on whether market forces or government interventions are more effective in aligning I4.0T with EP. Market-driven approaches emphasize innovation and efficiency, while governmental support may address resource limitations, a broader adoption, and equitable progress. The aim of this paper is therefore to study whether companies that use digital technologies and receive support and/or obtain tax benefits invest in environmental protection (EP). We intend to address some gaps existing in the current literature on the relationship between the use of I4.0T and sustainability. Although there are papers on the subject, research is still scarce (Javaid et al., 2022). In fact, most of the previous research is conceptual in nature and is based solely on qualitative or theoretical arguments (Veile et al., 2021; Torrent‐Sellens, Ficapal‐Cusí and Enache‐Zegheru, 2023). As shown by Hallioui et al. (2022), the relationship between I4.0 and EP, as two new elements of the contemporary business setting, has garnered a great deal of attention over the past years, but there is still a dearth of empirical data to support the effectiveness of these technological tools as sustainability drivers. Thus, our paper aims to expand the knowledge on these issues by providing empirical evidence with a large sample of Spanish manufacturing companies; and, at the same time, introducing differentiating elements in the research. Indeed, we study the various I4.0T separately because the previous literature has generally considered I4.0 as a collection of technologies without distinguishing among them (Bai et al., 2020). However, each of these technologies has the potential to have an impact on EP, both favourably and/or unfavourably (Chiarini, 2021). Therefore, we agree with Bai et al. (2020) in considering that analysing each I4.0T independently can yield greater insights. On the other hand, regarding public support, we propose to distinguish between tax deductions (indirect support) and subsidies (direct support). In addition, in the case of receiving public financial resources, we suggest distinguishing according to their origin (funds received from the central or local government or from other organizations). This will allow us to go deeper and study the effectiveness of each of the initiatives developed by different public administrations. The study focuses on Spain, a country where the business landscape is predominantly based on SMEs, which often struggle to access funding and show low levels of technological intensity (Camiña, DíazChao and Torrent-Sellens, 2020). Additionally, the Spanish government's interest in new technologies and digitalization has significantly increased in recent years, as evidenced by several initiatives and programs implemented by the Department of industry and small business affairs. However, Spain’s territorial structure, organized into Autonomous Communities with a high degree of self-governance, makes it particularly interesting to analyze the possible differences between the financial resources provided by the central AE Industry 4.0 and Environmental Protection: The Catalyst Role of Public Financial Support 114 Amfiteatru Economic government and those of local administrations, to identify which have a greater impact on the business sector. Building on this, it is crucial to consider the broader debate regarding the role of market forces versus governmental intervention in reconciling technological innovation with the EP. With this objective in mind, the article is structured as follows. The literature review and working hypotheses are then presented. In the following sections, the method of empirical analysis and the results and discussion are developed, concluding with the analysis' primary findings and their implications for the various agents involved. 1. Review of the literature and hypothesis The literature argues that I4.0 can aid achieve greener production systems and promote sustainable development (Luthra and Mangla, 2018; Ghobakhloo, 2020; Kumar, Singh and Dwivedi, 2020; Torrent‐Sellens, Ficapal‐Cusí and Enache‐Zegheru, 2023; López-CózarNavarro, Priede-Bergamini and Cuello-de-Oro-Celestino, 2024).).). Dubey et al. (2017) conducted a seminal study in which they empirically investigated the effects of big data and predictive analytics on social performance and environmental performance using a sample of 205 manufacturing organizations in India. They suggest that adoption of I4.0 in manufacturing can improve supply chain sustainability for Indian firms. De Sousa Jabbour et al. (2018) point out that I4.0T can make it possible to allocate resources such as energy, water, materials, and products more effectively by using real-time data from supply chain partners and manufacturing systems. Papers such as those developed by Hallioui et al. (2022) and Javaid et al. (2022) develop research based on a literature review to explore the ways in which I4.0T can enhance environmental sustainability. Offering empirical evidence, Meghișan-Toma et al. (2022), from a survey of workers in Romanian companies, find a positive relationship between the use of I4.0T and green performance. Camodeca and Almici (2021) -with Italian listed firmsand Ionaşcu et al. (2022) -with companies included in the main EU financial markets-, find a positive relationship between digitalization and EP and sustainable development. Referring specifically to the manufacturing industry, Bhatia and Kumar (2022) with a sample of Indian firms, and López-Cózar-Navarro, PriedeBergamini and Cuello-de-Oro-Celestino (2024) with Spanish firms, find evidence on the connection between I4.0T and environmental commitment. However, although technological progress is undoubtedly crucial and essential to drive sustainable development, it is also evident that it contributes significantly to the generation of polluting waste. At the end of their useful life, the electronic devices required to develop I4.0T significantly add to the accumulation of e-waste, becoming one of the greatest environmental threats of our time. The paradox lies in the fact that, while technology offers innovative solutions for sustainability, it also presents critical challenges for managing the waste it produces due to its complexity and diversity (Oláh et al., 2020; Ghulam and Abushammala, 2023); suggesting that the relationship between I4.0 and EP can be complementary, but in some cases contradictory depending on implementation. On the other hand, as discussed before, within I4.0 there is a wide range of technologies, each providing different solutions and advantages (Xu, David and Kim, 2018; Martinelli, Mina and Moggi, 2021; Hallioui et al., 2022). Bai et al. (2020), using information from the World Economic Forum, conclude that each technology must be carefully evaluated, as a specific technology will influence sustainability differently. In the Italian manufacturing industry, Transformations of the Socio-Political-Economic Systems at the Confluence with New Technologies: Revisiting the “Liberalism Versus Statism” Dilemma in the Context of the Industrial Revolution 4.0 AE Vol. 27 • No. 68 • February 2025 115 Chiarini (2021) found that some technologies were relevant in improving environmental performance, others contributed moderately, others had a negative effect and others no effect at all. Similarly, Duan et al. (2024) investigated how various I4.0Ts should contribute to sustainability at the product level in China. Their results show that augmented/virtual reality has the potential to significantly advance social sustainability in manufacturing, and big data analysis shows encouraging findings for methods that are both economically and environmentally sustainable at the product level. Therefore, to shed light on the relationship between I4.0 and EP, we propose a first general hypothesis and the following sub-hypotheses, considering each technology separately. H1: There is a positive relationship between using I4.0T and performing EP.  H11. Augmented or virtual reality → + → EP  H12. Automatically guided vehicles or systems → + → EP  H13. Automated storage systems → + → EP  H14. Cloud computing → + → EP  H15. Machine learning / Big data → + → EP  H16. Computer vision → + → EP  H17. Natural language process → + → EP  H18. Radio frequency identification and inventory → + → EP  H19. Industrial robotics → + → EP  H110. Touchscreens / Kiosks for customer interface → + → EP  H111. Industrial internet / internet of things → + → EP  H112. 3D print → + → EP In view of all the available technologies, it can be stated that the development of I4.0 is complex since it is a broad phenomenon. In fact, the variety and complexity of each technology is widely recognized in the literature. Previous research has indicated that a major obstacle to the extensive adoption and use of I4.0T across various businesses is its intricate and fragmented character (Ghobakhloo et al., 2022). In addition, financial limitations are seen by business organizations as an important barrier to advancing their capacities in terms of modern machinery and tools, facilities, and sustainable process improvements in I4.0 (Luthra and Mangla, 2018). As Tirabeni et al. (2019) claim, large investments are required in order to benefit from what this industry has to offer. Without support, a single business, hardly a SME, cannot access digitization. Horváth and Szabó (2019), with qualitative research based on interviews with top executives, found that SMEs have limited resources and are often unable to invest in new technologies. On the other hand, bigger multinational companies show a better condition, since they can allocate and deploy more resources to innovative developments, thus the management's ability to handle uncertainty and their willingness to try novel ideas may be the main outstanding concerns. In short, compared to SMEs, multinational corporations have stronger incentives and fewer obstacles in the way of I4.0; nevertheless, smaller businesses also show an excellent potential. AE Industry 4.0 and Environmental Protection: The Catalyst Role of Public Financial Support 116 Amfiteatru Economic In this same line, Ingaldi and Ulewicz (2020) study the use of I4.0T and how prepared smaller organizations are for sustainable development through technology advancement, pointing to the lack of funding as a primary constraint. Kumar, Singh and Dwivedi (2020) claim that promoting I4.0T for SMEs might be difficult because of a range of financial and operational restrictions and highlight lack of funds for investments in new technologies as a main challenge. Similarly, the EIB report (2023) also points to the shortage of funds and the lack of sources of financing as one of the main obstacles faced by companies. In sum, the digital transformation of the industrial sector requires a substantial amount of funds, and hence a major barrier to sustainability is the industry's lack of financial resources (Verma et al., 2022). Consequently, the proposal to increase digitalization with incentives and tax reductions aligns with the opinions of several academics who emphasize the critical importance of allocating financial resources to develop I4.0T (Horváth and Szabó, 2019; Matt et al., 2021). Since most organizations rely on external support to adopt disruptive technologies, most scholars believe that governments can play a relevant role in business digitalization by simplifying the first stages of the digital shift, such as the adoption decision-making process particularly for SMEs (Ghobakhloo et al., 2022). In the literature, there are some papers that contrast the benefits of public support focused on specific regions. Camodeca and Almici (2021) found that Italian companies have boosted digital transformation efforts due to tax incentives from the national I4.0 plan, which has been crucial in encouraging this shift. Matt et al. (2021) conducted 52 semi-structured expert interviews in the Tyrol-Veneto cross-border macro-region and found that appropriate incentives and financial resources are key for I4.0 adoption. These include providing tax reliefs and other incentives to support digitalization investments and company training initiatives. Referring to Spain, Camiña, Díaz-Chao and Torrent-Sellens (2020) stated that in the Spanish context, characterized by SMEs with low technological intensity and limited R&D resources, public support policies are essential. Providing incentives and financial assistance can help these companies invest in digital transformation and training. This discussion inevitably touches on the broader debate about whether public administrations should finance private initiatives, raising questions of efficiency and effectiveness. Our analysis seeks to assess whether existing public support mechanisms are achieving their intended goals in driving digital and green transitions, shedding light on the balance between market and government interventions. Thus, our aim is to corroborate whether the efforts made by public administrations do indeed serve to improve the behaviour of companies in relation to EP. With the aim of studying the effectiveness of the different types of public support, the following hypotheses are presented. We propose a first general hypothesis and four sub-hypotheses. H2. Companies using I4.0T and receiving public support perform EP.  H21. Companies using I4.0T and receiving state support perform EP.  H22. Companies using I4.0T and receiving local support perform EP.  H23. Companies using I4.0T and receiving other support perform EP.  H24. Companies using I4.0T and receiving tax deductions perform EP. Transformations of the Socio-Political-Economic Systems at the Confluence with New Technologies: Revisiting the “Liberalism Versus Statism” Dilemma in the Context of the Industrial Revolution 4.0 AE Vol. 27 • No. 68 • February 2025 117 2. Research methodology 2.1. Sample This paper is based on data from the Survey on Business Strategies (SBS), an annual survey of Spanish manufacturing companies. Managed by the SEPI Foundation in collaboration with the Spanish Ministry of Industry, the SBS provides a representative sample of the sector and has been extensively cited in research on I4.0 (Camiña, Díaz-Chao and Torrent-Sellens, 2020; Díaz-Chao, Ficapal-Cusí and Torrent-Sellens, 2021; Torrent‐Sellens, Ficapal‐Cusí and Enache‐Zegheru, 2023) and environmental sustainability (Benito-Hernández, LópezCózar-Navarro and Priede-Bergamini, 2021, 2023; Garcés-Ayerbe et al., 2022; López-CózarNavarro, Priede-Bergamini and Benito-Hernández, 2023). 2.2. Variables We aim to examine the role of public support as a catalyst between the use of digital technologies and companies' commitment to EP. Thus, the dependent variable (INVEST) is defined as a categorical variable that indicates whether the company has invested in equipment and facilities related to the control of environmental pollution. The SBS allows access to this information, including a direct question on this aspect (Díaz-Chao, FicapalCusí and Torrent-Sellens, 2021; Benito-Hernández, López-Cózar-Navarro and PriedeBergamini, 2023; Torrent‐Sellens, Ficapal‐Cusí and Enache‐Zegheru, 2023; LópezCózar-Navarro, Priede-Bergamini and Cuello-de-Oro-Celestino, 2024). In previous studies, the influence of I4.0T on EP has been measured with a limited number of technologies (Camiña, Díaz-Chao and Torrent-Sellens, 2020; Torrent‐Sellens, Ficapal‐ Cusí and Enache‐Zegheru, 2023). In our case, as can be seen in Table 1, we include 12 different technologies that give rise to 12 categorical independent variables. The responses of the companies to each of these variables have been regrouped into categorical variables with 4 values: 0 (No I4.0T used or tested / no reply /do not know); 1 (I4.0T used for less than 5% of activity); 2 (I4.0T in use for an interval between 5% and 25% of activity); and 3 (I4.0T in use for more than 25% of the activity). If the 12 independent variables above allow us to test H1, providing a valuable descriptive study about the greater or lesser use of each of them and their impact on EP, their use becomes statistically complicated and not very useful in testing H2. Indeed, in this hypothesis, the aim is to analyse the mediating role that public financial support, in its interaction with I4.0, plays on EP. To make the results more comprehensible and following other authors who have used the same data base (Camiña, Díaz-Chao and Torrent-Sellens, 2020; Torrent‐Sellens, Ficapal‐Cusí and Enache‐Zegheru, 2023), an additive indicator is constructed from the previous variables. A categorical variable is generated, called I4.0+, with 4 values: 0 (no use of I4.0T); 1 (use of 1 to 4 I4.0T); 2 (use of 5 to 8 I4.0T); 3 (use of 9 to 12 I4.0T). Consequently, we created an independent variable that gradually measures the more or less intensive use of the different technologies that represent I4.0. Regarding public financial support, three variables refer to the financial resources received for R&D (from the state administration, the local administration, and other financing institutions), and TAX includes the total value of the deductions applied in corporate tax. AE Industry 4.0 and Environmental Protection: The Catalyst Role of Public Financial Support 118 Amfiteatru Economic Finally, this paper considers three control variables. The company age (AGE) represents the firm’s year of constitution and has been used in previous literature (Benito-Hernández, López-Cózar-Navarro and Priede-Bergamini, 2021). The size of the company is represented by two variables: the number of employees (EMP) and the total amount of sales (SALES). Previous studies have found a positive relationship between company size and environmental strategies (Garcés-Ayerbe et al., 2022). Expenses on EP (EXPEN) has been also used as a control variable in previous literature (Benito-Hernández, López-Cózar-Navarro and PriedeBergamini, 2023; López-Cózar-Navarro, Priede-Bergamini and Cuello-de-Oro-Celestino, 2024). These expenses can be considered as short-term policies that may strengthen investments in EP in the long term. Table no. 1. Variables Name Environmental protection Investment in EP INVEST 0 = No investment in EP 1 = Investment in EP I4.0 Technology Augmented or virtual reality AVR 0 = No use / no tested / 1 = In use for less than 5% of activity 2 = In use for an interval between 5% and 25% of the activity 3 = In use for more than 25% of the activity Automatically guided vehicles or systems AGVS Automated storage systems ASS Cloud computing CC Machine learning / Big data MLBD Computer vision CV Natural language process NLP Radio frequency identification and inventory RFII Industrial robotics IR Touchscreens / Kiosks for customer interface TKCI Industrial internet / Internet of things IIIoT 3D Print 3DP Industry 4.0 I4.0+ 0 = No use of I4.0T 1 = Use of 1-4 I4.0T 2 = Use of 5-8 I4.0T 3 = Use of 9-12 I4.0T Public support Financial resources received from the state administration for R&D STATE Total state financing Financial resources received from the local administration for R&D LOCAL Total local financing Other public financing for R&D OTHER Total other public financing Total value of the deductions applied in corporate tax for R&D TAX Total tax deductions Transformations of the Socio-Political-Economic Systems at the Confluence with New Technologies: Revisiting the “Liberalism Versus Statism” Dilemma in the Context of the Industrial Revolution 4.0 AE Vol. 27 • No. 68 • February 2025 125 R&D collaboration and financial aspects. 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