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The Right Green Industrial Policies

MÁLAGA, SPAIN – The future of our planet depends on the world economy’s rapid transition to “green growth” – modes of production based on clean technologies that significantly reduce emissions of carbon dioxide and other greenhouse gases. Yet carbon remains badly mispriced, owing to fossil-fuel subsidies and the absence of tax revenues needed to address the global externalities of climate change.

In this context, subsidies that promote the development of green technologies – wind, solar, bio-energy, geothermal, hydrogen, and fuel-cell technologies, among others – are doubly important. First, they nudge pioneers to invest in uncertain, risky ventures, with the resulting research-and-development efforts generating highly valuable social benefits. Second, they counter the effects of carbon mispricing on the direction of technological change.