Industrial Policy for a Green Economy

The report examines industrial policy as a tool for structural economic transformation, contrasting traditional methods—such as import substitution and export promotion—with 'green industrial policy' designed to address environmental externalities. It argues that while market forces are generally preferred, government intervention is justified by market failures like coordination gaps and credit imperfections. The author identifies best practices, including the use of performance-based 'sunset clauses' and close government-industry collaboration. Green industrial policy is presented as a 'second-best' alternative to carbon pricing, requiring larger-scale intervention to stimulate both supply and demand for environmentally friendly technologies.

• Industrial policy is justified when markets are distorted or incomplete, specifically through Marshallian externalities (industry clusters), coordination failures, credit market imperfections, and 'learning by doing'.
• Historically, successful industrialization in countries like the UK and US relied on heavy protectionism during their catch-up phases before they transitioned to advocating for free trade.
• A critical distinction between the success of East Asian and Latin American industrial policies was the 'outward orientation' of Asian states, which tied domestic support to the fulfillment of export targets.
• Effective industrial policy requires 'sunset clauses' that link government aid to performance criteria, ensuring that support is withdrawn if firms underperform and preventing special interest capture.
• Green industrial policy differs from traditional policy because it requires a larger scale of government intervention to build markets, as the size of future green markets is largely determined by future government policy.
• Feed-in tariffs (FITs) have been highly effective for renewable energy, credited with driving 64% of global wind and 87% of global photovoltaic capacity by 2012.
• Developing countries may have a 'latecomer advantage' in green industrialization, as they can build new, efficient infrastructure without the burden of sunk capital in outdated systems.
• Frontier innovation in green technology remains highly concentrated in high-income countries; Japan, Germany, and the US accounted for 60% of total green innovations between 2000 and 2005.
• The report suggests that the most effective way to level the playing field for green industry is to remove harmful subsidies to polluting sectors, which also frees up financial resources for green policy.

APA

Schwarzer, J. (2013). Industrial Policy for a Green Economy. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/industrial_policy_green_economy.pdf

Chicago

Schwarzer, Johannes. Industrial Policy for a Green Economy. International Institute for Sustainable Development, 2013. https://www.iisd.org/system/files/publications/industrial_policy_green_economy.pdf.

Wikipedia

{{cite report |last1=Schwarzer |first1=Johannes |title=Industrial Policy for a Green Economy |publisher=International Institute for Sustainable Development |date=June 2013 |url=https://www.iisd.org/system/files/publications/industrial_policy_green_economy.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{schwarzer2013industrial, author = {Schwarzer, Johannes}, title = {{Industrial Policy for a Green Economy}}, institution = {International Institute for Sustainable Development}, year = {2013}, month = jun, url = {https://www.iisd.org/system/files/publications/industrial_policy_green_economy.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }