Making Industrial Policy Work for Decarbonization

Abstract

Industrial policy has moved into the center of debates on climate policy, as the EU’s Green Deal, China’s green industrial strategy, President Biden’s climate agenda, and green stimulus packages such as South Korea’s reflect. This represents a shift away from climate policy as we know it—as classic environmental policy. Industrial policy and environmental policy differ in their policy goals, policy instruments, and distributional effects. One primarily concerned with economic development, the other with cutting greenhouse gas emissions. This raises questions about policy interactions between industrial and environmental policy in broader climate policy mixes, and how these effect global decarbonization. This paper identifies complementary and conflictual dynamics between industrial policy and environmental policy in both domestic and international climate politics. It shows how green industrial policy can advance climate goals and cooperation, but can also present challenges to deepening climate cooperation and reducing greenhouse gas emissions. Developing an understanding of policy interactions is central to leveraging the potential of industrial policy to accelerate global decarbonization.