The political economy of green industrial policy in liberal states

Nations are increasingly turning to green industrial policy to promote low-carbon economic development. While liberal states have long been portrayed as institutionally ill-equipped to pursue state-led economic transformations, recent research shows that they can and do advance such strategies. However, explanations for why these countries vary in their capacity to overcome institutional constraints in green industrial policy remain underexplored. The argument in this paper is that some political economy conditions shape the capacity of liberal states to pursue proactive green industrial policy. Empirically, the analysis compares the industrial strategy for carbon capture of two liberal states, Canada and the United Kingdom, that display contrasting degrees of alignment with the liberal market approach. Findings reveal that the United Kingdom's shift towards a more state-led strategy was enabled by politically salient coalitions in industrial regions and the renewed legitimation of industrial policy after the 2016 Brexit referendum, whereas Canada's strong hydrocarbon incumbency and persistent market fundamentalism sustained a liberal market approach. The paper contributes to understanding the conditions under which liberal states can move towards more state-led industrial transformations. • Engages in debates on liberal states' ability to pursue green industrial policy. • Shows variation in how liberal states depart from market-led strategies. • Uncovers key political economy mechanisms to explain policy variations. • Helps make sense of the uneven progress made by liberal states in industrial policy.