Green industrial policy (GIP) is strategic government policy that attempts to accelerate the development and growth of green industries to transition towards a low-carbon economy. Green industrial policy is necessary because green industries such as renewable energy and low-carbon public transportation infrastructure face high costs and many risks in terms of the market economy. Therefore, they need support from the public sector in the form of industrial policy until they become commercially viable.Koh, Jae Myong (2018). Green Infrastructure Financing: Institutional Investors, PPPs and Bankable Projects. London: Palgrave Macmillan. . Natural scientists warn that immediate action must occur to lower greenhouse gas emissions and mitigate the effects of climate change. Social scientists argue that the mitigation of climate change requires state intervention and governance reform.Schmitz et al. 2015, p. 812. Thus, governments use GIP to address the economic, political, and environmental issues of climate change. GIP is conducive to sustainable economic, institutional, and technological transformation. It goes beyond the free market economic structure to address market failures and commitment problems that hinder sustainable investment. Effective GIP builds political support for carbon regulation, which is necessary to transition towards a low-carbon economy. Several governments use different types of GIP that lead to various outcomes. The Green Industry plays a pivotal role in creating a sustainable and environmentally responsible future; By prioritizing resource efficiency, renewable energy, and eco-friendly practices, this industry significantly benefits society and the planet at large.
GIP and industrial policy are similar, although GIP has unique challenges and goals. GIP faces the particular challenge of reconciling economic and environmental issues. It deals with a high degree of uncertainty about green investment profitability. Furthermore, it addresses the reluctance of industry to invest in green development, and it helps current governments influence future climate policy.Karp & Stevenson 2012, p. 1.
GIP offers opportunities for energy transition to renewables and a low-carbon economy. A large challenge for climate policy is a lack of industry and public support, but GIP creates benefits that attract support for sustainability. It can create strategic niche management and generate a "green spiral," or a process of feedback that combines industrial interests with climate policy. GIP can protect employees in emerging and declining industries, which increases political support for other climate policy. While carbon pricing is efficient for abatement, it often fails to trigger radical innovation or systemic change on its own; GIP addresses these market failures by providing the "carrots" (subsidies, R&D) that make the "sticks" of carbon pricing more politically feasible. Carbon pricing, sustainable energy transitions, and decreases in greenhouse gas emissions have higher chances of success as political support increases. GID is closely associated with the green recovery, a set of policy directives to address the economic effects of COVID-19 and the environmental effects of climate change by encouraging renewable energy expansion and green job growth. However, GIP faces many risks. Some risks include poor government choices about which industries to support; political capture of economic policy; wasted resources; ineffective action to combat climate change; poor policy design that lacks policy objectives and exit strategies; trade disputes; and coordination failure.Meckling et al., 2015; Rodrik, 2014; Hallegatte et al., 2013. Strategic steps can be taken to manage the risks of GIP. Some include public and private sector communication, transparency, and accountability; policy with clear objectives, evaluation techniques, and exit strategies; policy learning and policy experimentation; green rent management; strong institutions; and a free press.Meckling et al., 2015; Rodrik, 2014; Schmitz et al. 2015; Hallegatte et al., 2013.
Governments in various countries, states, provinces, territories, and cities use different types of green industrial policy. Distinct policy instruments lead to several outcomes. Examples include sunrise and sunset policies, subsidies, research and development, local content requirements, feed-in tariffs, tax credits, export restrictions, consumer mandates, green public procurement rules, and renewable portfolio standards.
Versus industrial policy GIP and industrial policy (IP) have similarities. Both seek to promote the development of industries and the creation of new technology. Each approach also involves government intervention in the economy to address economic issues and market failures. Both use similar policy approaches, like research and development subsidies and tax credits. Further, they face comparable risks, such as implementation failure that occurs when the government fails to monitor the policy adequately.Hallegatte et al. 2013, p. 5. Additionally, the two are related because policymakers can use information from past IP when they design and implement GIP. Policymakers can apply policy learning and lesson drawing from the failures and successes of IP to GIP to lower its risks.Hallegatte et al. 2013, p. 6. For example, an important lesson from IP is that what works for one region will not necessarily work for another, so policymakers cannot directly adopt policy from a different region because it must address an area's local context to ensure success. Overall, the two approaches have many things in common.
However, GIP differs significantly from IP because it addresses environmental concerns, whereas IP does not. The current economy focuses on private benefits, such as immediate profitability, rather than social benefits, like reducing pollution. Since green investment has less private benefits than social benefits, GIP deals with the unique commitment problem that green investment profitability is highly uncertain, so firms are reluctant to invest.Karp & Stevenson 2012, p. 2. As a result, governments use GIP to promote green investments. Future environmental policy success, like carbon taxation policy, hinges on the future availability of renewable energy. Current investment is the only way to ensure future availability, and GIP addresses this fact. Efficient and accessible green technology will also make it politically easier to adopt future low-carbon policies.Karp & Stevenson 2012, p. 11. Thus, a transition towards a low-carbon economy depends on current investment, and as such, it depends on GIP.
Energy transitions The persistence of a carbon-based economy has led to environmentally destructive path dependency, and energy transitions are vital to divert from the reliance. Strategic niche management (SNM) offers an opportunity for energy transitions. New, sustainable technologies cannot immediately compete on the market with existing, unsustainable technologies due to path dependency. Green innovations that are not immediately profitable are vital for inducing sustainable development and achieving societal goals of mitigating climate change. Thus, governments must create technological niches and use forms of GIP to subsidize and nurture technological niches to ensure that green innovations develop.Schot & Geels 2008, p. 537. Technical niches provide protected space for innovative sustainable development that co-evolves with user practices, regulatory structures, and technology.Schot & Geels 2008, p. 538. Co-evolutionary dynamics are necessary for successful niche innovation -- multiple actors from multiple layers must work together for sustainable transitions. Social networks are essential for this niche development because numerous stakeholders lead to many points of view, more commitment and resources, and more innovation.Schot & Geels 2008, p. 541.
Sustainable urbanization models in cities are examples of SNM. In these instances, municipal governments and social networks help create small-scale testing spaces that allow for technological and social innovation, such as developing electric car technology and encouraging car-sharing. Overall, electric cars have not become a norm in the automobile industry. However, if a technological niche successfully emerges in the market, it can transform into a market niche and solidify its place in the industry and the socio-technical regime. In turn, the regime, or industry, influences the landscape, which can change the economic climate and induce sustainable energy transitions. Therefore, SNM and GIP can break path dependency and solidify the place of green technologies in markets and society.
Green industrial policy can induce a green spiral and can also break path dependency. Economists view carbon pricing as the most compelling approach to the mitigation of climate change, but their opinion ignores the political cost of the radical adoption of carbon pricing and its lack of political feasibility.Meckling et al. 2015, p. 1170. Consequently, the immediate adoption of carbon pricing often fails, and carbon pricing schemes often adapt to the demands of the polluters, which makes them ineffective. GIP addresses the issue of a lack of political feasibility through green spiral.
Green spiral means that GIP and carbon pricing approaches are most effective when policymakers produce them in a sequence to increase climate policy support over time and encourage positive feedback. GIP encourages increases in policy support as it contributes to the growth of a political landscape of coalitions and interests, such as renewable energy firms and investors, that benefit from energy transformation. Those alliances and interests generate political support for GIP, even when unsustainable industries may oppose it. They also become political allies during the development of stricter climate policy that negatively affects polluters. Thus, GIP creates positive feedback. Early GIP helps green industries expand, and the more they expand, the more support increases for decarbonized energy systems, and the easier it becomes to apply stricter climate policy. A green spiral makes sustainability feasible, attractive, and profitable for industries, which encourages the adoption of sustainable business techniques. For example, feed-in tariffs create direct incentives for the growth of green industry groups and can push sustainable shifts in investment and revenues. These shifts then create support for policy and technology experimentation, and they induce progress towards system-wide transformation.Meckling et al. 2015, p. 1171. A green spiral can create energy transitions to renewables and lower the political costs of transitions.
Environmental benefits