Green Industrial Policies A Path to Sustainable Prosperity
Green Industrial Policies workshop
On September 20th, C3A participated in a pivotal hybrid seminar on Green Industrial Policies (GIPs) hosted by University College London’s Institute for Global Prosperity, in collaboration with the Rebuilding Macroeconomics research network. This event moderated by William Hynes (Co-Director of C3A) brought together leading economists, scholars and practitioners, including Dani Rodrik (Ford Foundation Professor of International Political Economy, John F. Kennedy School of Government, Harvard University, and Co-director, Reimagining the Economy Program and Economics for Inclusive Prosperity network, Kennedy School), Isabel Estevez (Co-executive Director, I3T industrial policy think tank, and Senior Advisor, Global Fund for a New Economy, and Former Deputy Director, Industrial Policy and Trade, Roosevelt Institute), Eric Beinhocker (Executive Director, INET Oxford, and Professor of Public Policy Practice, Blavatnik School of Government, University of Oxford), and Simon Sharpe (Director of Economics, UN Climate Champions, and Senior Fellow, World Resources Institute, and Coordinator of Innovation Theme at C3A) to explore how GIPs can be effectively implemented in today’s intricate economic, technological, and geopolitical landscape.
Understanding Green Industrial Policies and its historical context
Green Industrial Policies (GIPs) are strategic initiatives designed to promote environmentally sustainable economic growth. They encompass a wide range of measures aimed at fostering industries that contribute to reducing carbon emissions and enhancing environmental quality. GIPs can include government subsidies, regulations, investment in green technologies, and incentives for businesses to adopt sustainable practices. By addressing market failures and promoting innovation, these policies seek to align economic development with environmental sustainability, ultimately guiding societies toward a greener future.
Traditional arguments for industrial policies often center around addressing market failures such as externalities and coordination challenges. However, GIPs transcend these ‘second-best’ approaches by presenting ‘first-best’ solutions. When carbon emissions are underpriced, the economic returns on carbon-reducing technologies fall short of their social benefits. Thus, competition for subsidies in the green sector should be viewed as a positive force that could catalyze innovation and investment.
Isabel Estevez shared compelling examples from Ecuador, where green public procurement significantly boosted manufacturing output and reduced reliance on imports. Simon Sharpe introduced a fresh perspective on policy design, advocating for feedback mechanisms that can better target societal tipping points, rather than simply internalizing external costs. Eric Beinhocker reinforced this by suggesting that successful transitions require a comprehensive portfolio of policies aimed at structural, rather than merely incremental, change.
Takeaways from our seminar
Green Industrial Policies represent more than mere adjustments to existing frameworks; they embody innovative strategies for achieving sustainable economic growth. As Dani Rodrik emphasized, “the pressing question is not whether GIPs are necessary, but how they can be effectively executed”. This sentiment resonated throughout the seminar, particularly among experts like Isabel Estevez, Simon Sharpe, and Eric Beinhocker, who discussed the multifaceted nature of these policies.
The seminar highlighted a backdrop of growing optimism regarding the green transition, spurred by significant reductions in renewable energy costs and advancements in technology such as electric vehicles (EVs) and battery storage. Additionally, geopolitical dynamics, especially competition among global powers like China and the United States, are driving nations to adopt GIPs not solely for environmental reasons but also for enhancing competitiveness and productivity.
Isabel Estevez urged attendees to broaden their interpretation of GIPs to encompass productive development strategies that address multiple societal challenges. These include climate change, biodiversity loss, and air pollution, while also ensuring equity, job quality, and macroeconomic stability.
The seminar also delved into analytical frameworks essential for assessing and fostering structural change within economies. Simon Sharpe outlined three critical questions that need to be addressed: Which sectors should be prioritized for competitiveness? What policies are most effective for building that competitiveness? And what macroeconomic effects should be anticipated?
Economic Complexity Analysis emerged as a promising tool for answering these questions, though it comes with limitations, such as potential distortions in product selection. Simon Sharpe advocated for the development of sector-specific global agent-based models to provide a clearer picture of industry interactions and dynamics.
One of the more compelling discussions centered around the political economy of GIPs. Subsidies tend to create more immediate winners than taxes, which can foster political support for reforms. Dani Rodrik noted that recent policies like the Inflation Reduction Act (IRA) have shifted the political landscape, making it easier to incentivize green initiatives than to impose punitive measures later.
However, there is a critical need for caution regarding the implications of GIPs for developing nations. The seminar underscored the risk of these countries being marginalized in the green transition. It highlighted successful examples from emerging economies, such as Indonesia’s ban on nickel processing and Chile’s green hydrogen initiatives, suggesting that with adequate support, these nations can integrate into global green value chains.
Global cooperation will be vital in ensuring that the most vulnerable countries receive the financial and technological resources necessary for their transitions. Transforming barriers into incentives can help bring those who are least able to afford change along with the global community.
The seminar at UCL served as a significant forum for exploring the potential of Green Industrial Policies. As the world faces the dual challenges of climate change and economic inequality, GIPs could offer a viable path toward sustainable prosperity. By moving beyond second-best solutions, we can embrace strategies that not only address environmental challenges but also foster inclusive growth. Because with the right tools, frameworks, and cooperation, the promise of Green Industrial Policies could be realized in practice as well as in theory.