Hard Truths About Green Industrial Policy
Published: 02:11 PM,Nov 26,2023 | EDITED : 06:11 PM,Nov 26,2023
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JACK COPLEY, and ALEXIS MORAITIS
CAMBRIDGE/DURHAM/LANCASTER – Industrial policies aimed at accelerating the energy transition are proliferating globally, from the European Union’s Green Deal Industrial Plan and the United States’ Inflation Reduction Act (IRA) to Japan’s Green Growth Strategy and the Korean New Deal. Wealthy, technologically advanced economies are engaged in a race for electric vehicles (EVs), transition minerals, and clean energy. Even developing economies are deploying state-led projects for green industrialization.
For instance, several African countries, including South Africa, Kenya, Mauritania, Egypt, Djibouti, Tunisia, Morocco, and Namibia, have initiated state-led efforts to support green hydrogen development. Additionally, countries like Indonesia, Bolivia, and Chile are implementing strategies to stimulate industrialization based on the extraction and processing of nickel, cobalt, copper, lithium, and other transition minerals and metals.
These policies utilize a variety of instruments, including subsidies, regulations, incentives, and diverse state-business arrangements. Despite differences in public and private resources, they all aim to address three interconnected crises: economic stagnation, polarized and precarious employment, and intensifying climate change.
The revival of industrial policy is grounded in the belief that addressing all three crises simultaneously will create a virtuous cycle: targeted investment in green manufacturing and energy will boost economic activity, create well-paying jobs, and usher in a low-carbon economy. The Biden administration’s “modern American industrial strategy” exemplifies this approach, incorporating the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the IRA. Termed the “Biden three-fer,” it seeks to enhance US competitiveness, provide better economic opportunities for workers, and accelerate decarbonization.
However, the win-win narrative underlying these strategies may mask the risk that solving one problem may exacerbate another. For example, the shift to manufacturing EVs, which require fewer parts, could lead to job losses in the US automotive sector, as both car companies and the United Auto Workers union have warned. While some jobs may be redirected to battery production, China's dominance over the global battery supply chain raises concerns for American and European workers.
The growth of green industries can also result in environmental harm. Despite intending to generate employment and value through the production of transition minerals, the industrialization strategies of several Global South countries tend to entrench extractive practices. In South America’s “lithium triangle” (Argentina, Bolivia, and Chile), efforts to capture various stages of the lithium supply chain threaten to deplete water supplies, degrade soil, and disrupt habitats, often impacting indigenous Andean peoples. Similarly, semiconductor production, crucial for clean tech, is energy-, water-, and land-intensive, releasing greenhouse gases into the atmosphere.
Economic stagnation can lead to destabilizing domestic politics, pushing governments to prioritize higher growth rates regardless of environmental costs. For instance, British Prime Minister Rishi Sunak's U-turns on net-zero pledges may seem politically attractive for immediate growth, but longer-term growth depends on competitiveness in green industries.
Industrial policy is not a silver bullet for the intersecting crises of our times. The policy objectives of environmental sustainability, industrial dynamism, and full employment require hard political choices about resource allocation, strategic priorities, and the distribution of economic and social costs. Trade-offs will grow more complex as global warming worsens and growth falters. The “wicked trinity” of contemporary governance – climate catastrophe, economic stagnation, and surplus humanity – will continue shaping public policymaking.
Policymakers should not abandon ambitious strategies but must acknowledge and deliberate the tensions and trade-offs in green industrial policies. This is essential for securing broad support and building transparent governance structures rooted in democratic deliberation, public oversight, and control. Many industrial strategies are currently products of top-down, technocratic policymaking, despite rhetoric about a “just green transition.”
Subjecting the economy to democratic decision-making challenges the current system but is necessary to secure and maintain popular legitimacy for green industrial policies, facilitate efficient decision-making, and minimize mismanagement. Without embracing these challenges, there's a risk of a public backlash that impedes the collective action needed to safeguard our future on this planet.
Project Syndicate, 2023
CAMBRIDGE/DURHAM/LANCASTER – Industrial policies aimed at accelerating the energy transition are proliferating globally, from the European Union’s Green Deal Industrial Plan and the United States’ Inflation Reduction Act (IRA) to Japan’s Green Growth Strategy and the Korean New Deal. Wealthy, technologically advanced economies are engaged in a race for electric vehicles (EVs), transition minerals, and clean energy. Even developing economies are deploying state-led projects for green industrialization.
For instance, several African countries, including South Africa, Kenya, Mauritania, Egypt, Djibouti, Tunisia, Morocco, and Namibia, have initiated state-led efforts to support green hydrogen development. Additionally, countries like Indonesia, Bolivia, and Chile are implementing strategies to stimulate industrialization based on the extraction and processing of nickel, cobalt, copper, lithium, and other transition minerals and metals.
These policies utilize a variety of instruments, including subsidies, regulations, incentives, and diverse state-business arrangements. Despite differences in public and private resources, they all aim to address three interconnected crises: economic stagnation, polarized and precarious employment, and intensifying climate change.
The revival of industrial policy is grounded in the belief that addressing all three crises simultaneously will create a virtuous cycle: targeted investment in green manufacturing and energy will boost economic activity, create well-paying jobs, and usher in a low-carbon economy. The Biden administration’s “modern American industrial strategy” exemplifies this approach, incorporating the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the IRA. Termed the “Biden three-fer,” it seeks to enhance US competitiveness, provide better economic opportunities for workers, and accelerate decarbonization.
However, the win-win narrative underlying these strategies may mask the risk that solving one problem may exacerbate another. For example, the shift to manufacturing EVs, which require fewer parts, could lead to job losses in the US automotive sector, as both car companies and the United Auto Workers union have warned. While some jobs may be redirected to battery production, China's dominance over the global battery supply chain raises concerns for American and European workers.
The growth of green industries can also result in environmental harm. Despite intending to generate employment and value through the production of transition minerals, the industrialization strategies of several Global South countries tend to entrench extractive practices. In South America’s “lithium triangle” (Argentina, Bolivia, and Chile), efforts to capture various stages of the lithium supply chain threaten to deplete water supplies, degrade soil, and disrupt habitats, often impacting indigenous Andean peoples. Similarly, semiconductor production, crucial for clean tech, is energy-, water-, and land-intensive, releasing greenhouse gases into the atmosphere.
Economic stagnation can lead to destabilizing domestic politics, pushing governments to prioritize higher growth rates regardless of environmental costs. For instance, British Prime Minister Rishi Sunak's U-turns on net-zero pledges may seem politically attractive for immediate growth, but longer-term growth depends on competitiveness in green industries.
Industrial policy is not a silver bullet for the intersecting crises of our times. The policy objectives of environmental sustainability, industrial dynamism, and full employment require hard political choices about resource allocation, strategic priorities, and the distribution of economic and social costs. Trade-offs will grow more complex as global warming worsens and growth falters. The “wicked trinity” of contemporary governance – climate catastrophe, economic stagnation, and surplus humanity – will continue shaping public policymaking.
Policymakers should not abandon ambitious strategies but must acknowledge and deliberate the tensions and trade-offs in green industrial policies. This is essential for securing broad support and building transparent governance structures rooted in democratic deliberation, public oversight, and control. Many industrial strategies are currently products of top-down, technocratic policymaking, despite rhetoric about a “just green transition.”
Subjecting the economy to democratic decision-making challenges the current system but is necessary to secure and maintain popular legitimacy for green industrial policies, facilitate efficient decision-making, and minimize mismanagement. Without embracing these challenges, there's a risk of a public backlash that impedes the collective action needed to safeguard our future on this planet.
Project Syndicate, 2023