Framework for a Green Industrial Policy

* Article: * Jostein Hauge & Jason Hickel (05 Jun 2025): A progressive framework for green industrial policy, New Political Economy, doi

URL = https://tandfonline.com/doi/pdf/10.1080/13563467.2025.2506655

Abstract

"In the age of ecological breakdown, there is a growing need for ‘green’ industrial policy. However, existing frameworks for green industrial policy fail to address unsustainable growth in energy and resource use in high-income economies. In this sense, they are not adequate to achieve core ecological objectives. This paper fills a gap in the literature by offering a progressive framework for green industrial policy that combines traditional green industrial policy perspectives with insights from ecological economics and literature on post-growth and degrowth.

The framework has three key pillars:

(1) scale down ecologically harmful industries and sectors to directly reduce energy and resource use;

(2) organise production more around public benefit, with greater democratic control and guidance over investment and production; and

(3) work towards global ecological justice and enable greater ‘ecological policy space’ for the global South to pursue industrial development.

The paper argues that this progressive approach to green industrial policy is necessary due to the scale and urgency of the ecological crisis. The framework shows how productive capacity can be liberated and redirected towards more socially and environmentally beneficial ends, while also democratising control over the economy."

Discussion

The green journey of industrial policy

J. HAUGE AND J. HICKEL:

"Governments are also now recognising that industrial policy may be useful or necessary to achieve certain ecological objectives, and that industrial production itself must be attentive to ecological impacts. Thus, the emergence of ‘green industrial policy’. This approach started gaining traction in the 2010s, kickstarted by calls for green growth – very simply, the idea that economic growth can and should be more ecologically sustainable (Jacobs 2013, Pollin 2015, Hickel and Kallis 2020). Hauge (2023) highlights that three economic and political observations specific to the contemporary world economy underpin the rationale for green industrial policy: (i) change to the status quo of the global economic system is needed, involving a stronger focus on ecological sustainability; (ii) the manufacturing sector must play a role in the green transition, both through offering new, green technological solutions and through making existing energy systems and production methods greener; (iii) state action, involvement, incentives, and investment are crucial to achieve a green transition, especially because private markets – which organise production around what is most profitable rather than what is most necessary – do not have a good track record of dealing with problems related to ecological breakdown.

In the age of ecological breakdown, the world economy needs more and stronger green industrial policy. However, there are questions about whether industrial policy, as currently formulated, can be truly green. A growing body of literature in industrial ecology and ecological economics, developed under the umbrella of post-growth and degrowth, argues that continued aggregate growth in highincome countries is likely to be incompatible with ecological sustainability (Weiss and Cattaneo 2017, Haberl et al. 2020, Vogel and Hickel 2023). According to this literature, high-income countries should pursue planned reduction in energy and resource use in order to enable rapid decarbonisation and alleviate other ecosystem pressures (Hickel 2021). Some of this can be achieved through efficiency improvements, but it also requires scaling down less-necessary forms of production to reduce energy and resource use directly, and so that productive capacities can be redirected toward more socially necessary objectives.

To the extent that one of the objectives of industrial policy is to increase aggregate production, this is at odds with the critique of growth that has been developed within industrial ecology and ecological economics. Indeed, there are clear contradictions between this aim of industrial policy, as traditionally formulated, and ecological sustainability. This paper discusses these contradictions and offers a new, progressive framework for green industrial policy. This framework fills a gap in the existing literature by building on insights from literatures on both green industrial policy and degrowth. The paper first explores the journey of industrial policy toward ecological considerations, outlining the rationales and pillars of both industrial policy and green industrial policy. Then, the paper explores the contradictions of green industrial policy from a degrowth perspective. Building upon these critical analyses, the paper offers a progressive framework for green industrial policy, rooted in three policy areas: reduce damaging and unnecessary forms of production, organise production more around public benefit, and pursue global ecological justice.

Industrial policy can generally be defined as state intervention to move the economy towards a desired structure in the medium/long term. At a more granular level, industrial policy refers to strategic government intervention at the firm or industry level to develop the economy, often with the aim growing innovative, productive, and high-value activities (Chang 1994, Pack and Saggi 2006, Rodrik 2008, Hauge 2023, Juhász et al. 2023). Industrial policy can be designed in a range of different ways, so, in practice, the toolbox of industrial policy is extensive. Trade policy is an obvious example, such as import tariffs and export subsidies to protect and assist domestic producers. But industrial policy can also involve less obvious instruments, such as price regulation, exchange rate policy, labour training policy, long-term financing by development banks, the establishment of state-owned enterprises, and infrastructure investment, to name a few.

The appropriate degree of state intervention has always been central to discussions on industrial policy. This makes the role of industrial policy a contentious issue, as it relates to state-versus-market debates. Irrespective of one’s opinions on this, industrial policy has been used by governments for hundreds of years and has been an invaluable tool for economic growth and development strategies. Alexander Hamilton, one of the founders of the United States, was a fierce a supporter of industrial policy, and laid the basis for a century of steep tariff barriers on imports of manufactured goods into the United States, which helped enable US industrialisation (Chang 2002). In the second half of the twentieth century, industrial policy was at the centre of the rapid economic development of the so-called ‘Asian Tigers’ (Hong Kong, Singapore, South Korea, and Taiwan) (Wade 1990, Amsden 1992, Chang 1994, Woo-Cumings 1999).

Even governments that have been ideologically opposed to state intervention have used industrial policy. Ronald Reagan protected the US steel and automotive industries from import competition, and Margaret Thatcher designed financial incentives to increase investment rates in the UK automotive industry (Juhász et al. 2023). That said, the period of neoliberalism spearheaded by Thatcher and Reagan in the 1980s saw a decline in the use of industrial policy globally, and particularly in the global South. This was largely because industrial policy was effectively outlawed by international organisations – such as the International Monetary Fund (IMF), the World Trade Organization (WTO) and the World Bank – through the enforcement of free trade agreements and structural adjustment programmes (Wade 2003, Chang 2007, Gallagher and Kozul Wright 2022). Since the 2010s, however, industrial policy has come back with force (Stiglitz et al. 2013, Cherif and Hasanov 2019, Aiginger and Rodrik 2020, Juhász et al. 2023). This is due to a number of reasons (for a detailed discussion, see Evenett et al. (2024)). First, in the wake of the global financial crisis in 2007/08, governments have become more wary of leaving key national objectives to the market, and have generally increased levels of regulation and intervention. Second, we have witnessed increasing geopolitical competition, especially between the United States and China, the two largest economies in the world. Both countries are more actively ramping up investment in manufacturing and innovation as part of broader strategies to strengthen their international competitiveness and international economic power. Third, the COVID-19 pandemic and Russia’s invasion of Ukraine rattled global supply chains, reminding countries of the dangers of being too dependent on imports of critical goods and intermediate inputs. The response by governments around the world was to use industrial policy to strengthen domestic production.

The return of industrial policy is also due to growing environmental concerns. Governments are recognising that the world economy needs to become cleaner and greener, involving change to the status quo. So far the private sector has not made the necessary investments in renewable energy, public transit, building insulation, etc, because these are not considered sufficiently profitable (Christophers 2024). In light of this, governments are recognising that state intervention is necessary to achieve a green transition. Of course, the motivation to develop green industries is not coming purely from the perspective of respecting planetary boundaries, but also from a desire and need to be internationally competitive in technological clusters that are shaping our future (Lebdioui 2024). Countries are racing to become global leaders in industries associated with renewable energy, such as batteries, electric vehicles, photovoltaics, and wind turbines, to name a few. China, for example, has become the world’s leading manufacturer of electric vehicles and photovoltaics through years of strategic industrial policy (IEA 2024).

Unsurprisingly, the idea of ‘green industrial policy’ has become more central to discussions on ecological sustainability and national economic development/planning policy (Hallegatte et al. 2013, Rodrik 2014, Schmitz et al. 2015, Altenburg and Assman 2017). The idea of green industrial policy has grown alongside and builds upon the idea of ‘green growth’. Green growth as an agenda was pushed by various international organisations in the 2010s, and has by now become mainstream. The idea is to achieve growing GDP alongside a reduction of ecological impacts to sustainable levels, e.g. by absolutely decoupling GDP from greenhouse gas emissions and resource use (Jacobs 2013, Pollin 2015, Dale et al. 2016, Hickel and Kallis 2020, Green 2023). In terms of how green industrial policy has been defined and discussed in existing literature, it can be understood as state intervention that supports the green growth agenda. One lens through which one can understand green industrial policy is through the idea of Green New Deals (although a few of these – such as the Green New Deal for Europe – are critical of the idea of green growth). These are sweeping public policy packages with the intention of tackling climate change and global warming, while at the same time creating jobs and reducing economic inequality (e.g. Pettifor 2019, Rifkin 2019, Chomsky and Pollin 2020, Ajl 2021). Green New Deals have a strong association with progressive politics, especially in the United States, building upon Franklin D. Roosevelt’s famous New Deal in the 1930s. In both Europe and the United States, the concept of Green New Deals started gaining momentum in the 2010s. It reached mainstream political discussion in 2019, when the Democrats Alexandria Ocazio-Cortez and Ed Markey attempted to get legislation passed for a Green New Deal in the United States Senate.

In line with both green growth and Green New Deals, green industrial policy focuses heavily on reducing greenhouse gas emissions through investment in new energy systems, energy infrastructure, and energy efficiency. The literature on green industrial policy is rich with extensive country case studies on public investment strategies in renewable energy, but also provides insight into the details of green government intervention, including carbon taxes, feed-in tariffs, research and development (R&D) support, subsidised credit, and public procurement (e.g. Hallegatte et al. 2013, Altenburg and Assman 2017, Pollin 2020).

There is clearly a need for more green industrial policy. However, one may question the ability of industrial policy to be truly green, at least in terms of how it has been considered so far. At their core, existing frameworks of green industrial policy support the idea of increased aggregate economic growth. But mounting evidence suggests that, in high-income countries, degrowth approaches may be necessary for ecological sustainability."

(https://www.tandfonline.com/doi/pdf/10.1080/13563467.2025.2506655)