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Green Industrial Policy and Development—Taking Advanced Economies Over?

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Abstract

This chapter explores the factors behind the apparent superior performance of green industrial policy (GIP) in developmental states (exemplified by China), as compared with the inefficiencies of GIP in developed countries (exemplified by the USA). The specific context is the overwhelming export competitiveness of green energy industry (GEI) actors in developmental states. Two intuitive explanations are analysed critically: differences between the two country groups in (1) the objectives of GIP and the proxies that measure policy performance and in (2) the alignment of institutions and policies with the requirements of the growth phase of the industry life cycle. The chapter highlights that the institutional, operational and governance-related differences between these two country groups are less clear-cut than what is suggested in the literature. Turning to the prospects of GIP, the paper anticipates a turn of the tide in the ongoing global green race. It is argued that different phases in the industry life cycle are characterised by different drivers of growth. GEI actors in China displayed spectacular catching up and were forging ahead during the growth phase of the life cycle, when the development of green energy industries was driven by scale-up and progress along the learning curve. Since further development, in the current phase, is driven by complementarities and spillovers, ‘game is not over in the ongoing global green race’.

Keywords

  • Green energy industries
  • Green industrial policy
  • Developmental states
  • Industry life cycle
  • China

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Notes

  1. 1.

    Gaddy et al. (2017) demonstrate that the cleantech boom in the USA, in the mid-2000s ended up in a bust by the end of the decade with venture capital investments yielding prohibitively low returns, coupled with expensive failure cases (Rodrik 2014). Several German solar companies have also filed for bankruptcy in the 2010s. Further, Germany’s decision to shut down profitable nuclear reactors and build expensive clean energy facilities was heavily criticised, causing huge financial difficulties, among others, for its largest utility company RWE, and making energy costs prohibitively expensive for German customers (Follett 2016).

  2. 2.

    Currently, the grid system is designed for steady electricity flows, which is hardly compatible with volatile renewables providing fluctuating energy inputs.

  3. 3.

    A telling quote by Schmitz (2017: 521–522) is: “…key actors behind climate-relevant policies are not primarily concerned with environmental or climate issues. Their prime concerns are securing energy for the country, fostering new green industries and making them competitive, creating jobs and incomes in these industries, or laying the foundation for increasing public revenue. Mitigating climate change is not irrelevant, but it tends to be a co-benefit rather than driver.”

  4. 4.

    The claim that the scope of developmental states’ GIPs is much narrower than that of advanced economies is of course exaggeration, valid only in relative terms, since developmental states have also been implementing more or less strict policies in the framework of their Nationally Determined Contributions to Paris Agreement targets (www.climateactiontracker.org).

  5. 5.

    This is best illustrated by a quote from Knuth (2018: 223–224): “With strong state supports, including in some cases state ownership, Chinese companies rapidly scaled up production of both wind turbines and solar PV modules […] Chinese producers achieved significant economies of scale in their rapid ramp-up, and several quickly became globally ranked solar and wind companies […] new Chinese renewables manufacturers targeted both China’s booming domestic market and international exports, they rewrote the rules of the global industry virtually overnight.”

    Further, according Lam et al.’s (2017) data, China’s indigenous wind turbine manufacturing companies dominated the explosive growth of Chinese wind capacity after 2005. At the same time, Chinese wind producers became dominant players in global markets: in 2017, four of the top ten global original equipment manufacturers in the wind turbine industry were based in China, with a cumulative market share of 27.8% (author’s calculations from REN21 2018 data).

  6. 6.

    Besides China, major developmental state exporters of solar technology include Taiwan, Malaysia, Korea, Singapore, Philippines and Mexico. China, India, and to some extent Vietnam, Singapore and Mexico are major wind technology exporters. Note that Brazil is an important player in wind technology manufacturing but except for wind turbine generators, Brazilian companies produce mainly for the domestic market (Jha 2017). Over the period from 2006 to 2015, 45 trade remedy cases in the clean energy sector have been notified to the WTO (Kampel 2017, p. vii).

  7. 7.

    An important economic barrier stems from the fact that competing ‘dirty’ technologies are usually more advanced than emerging green ones. Moreover, incumbent dirty technology providers usually invest in further developing their technologies.

  8. 8.

    Note that there are non-negligible differences across developmental states with respect to export orientation: Brazilian wind industry actors, for example, have achieved scale-up and technological learning mainly through acquiring the domestic market (for further details of the Brazilian case see the chapter by Riberio Marques da Silva in this volume). Differences can be observed even within China: the spectacular growth of the wind power industry was driven mainly by the expansion of the domestic market that enjoyed substantial policy support funding the increase of domestic installed capacity. Conversely, the Chinese solar industry was export-oriented from the outset (Lam et al. 2017; Zhang et al. 2013).

  9. 9.

    In accordance with Beeson (2010) authoritarian environmentalism is defined here as policy model featuring a relatively autonomous central state, with experts and technocrats playing key role, while the power of business groups and social actors is limited.

  10. 10.

    Geels (2014) and Johnstone et al. (2017), for example, offer detailed overview, how incumbent regime actors in the UK mobilised power to resist climate change-related pressures and prevent fundamental system change. Kungl (2015) provides a similar account for Germany.

  11. 11.

    For instance, China launched the world’s largest emissions trading scheme in 2017 (REN21 2018).

  12. 12.

    While the traditional virtues of industrial policy in developmental states (flexibility, pragmatism and responsiveness) remain relevant under increased volatility, uncertainty, complexity and ambiguity (VUCA) characterising the context of today’s industrial policy (cf. Petricevic and Teece 2019), these virtues need to be combined with agility. Agile industrial policy—similarly to the somewhat overused concept of enterprise agility—refers to policy-makers’ capability to dynamically redirect priorities and resources in response to new requirements and/or opportunities, while still preserving structural stability.

  13. 13.

    The synergistic interaction of the two kinds of policies refers to the fact that renewable energy industrial policies contributed to lowering the price of green technologies, and had, thus, beneficial impact also on sustainability-oriented transformative change in the energy sector. Similarly, renewable energy policies fostering the development and deployment of renewable energy technologies have also furthered competitiveness objectives.

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Szalavetz, A. (2021). Green Industrial Policy and Development—Taking Advanced Economies Over?. In: Gerőcs, T., Ricz, J. (eds) The Post-Crisis Developmental State . International Political Economy Series. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-71987-6_6

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