Green industrial policy

Green growth requires green technologies: production techniques that economize on exhaustible resources and emit fewer greenhouse gases. The availability of green technologies both lowers social costs in the transition to a green growth path and helps achieve a satisfactory rate of material progress under that path. The theoretical case in favour of using industrial policy to facilitate green growth is quite strong. Economists’ traditional scepticism on industrial policy is grounded instead on pragmatic considerations having to do with the difficulty of achieving well-targeted and effective interventions in practice. While these objections deserve serious attention, I argue that they are not insurmountable. A key objective of this paper is to show how the practice of industrial policy can be improved by designing institutional frameworks that counter both informational and political risks.