The Right Way to Intervene in Clean Tech | by Armond Cohen, Andreas Goldthau and Simone Tagliapietra – Project Syndicate

The Role of State Intervention in the Clean Energy Transition

As Western governments face the increasingly urgent task of accelerating the transition to a low-carbon economy, the pendulum has swung away from a heavy reliance on markets to drive innovation toward state intervention. Fearing China’s dominance in clean-tech supply chains, and recognizing the potential for job creation, the United States has put in place a wide range of industrial policies that support the development and deployment of green solutions.

Government Policies Driving the Transition

1. The US Inflation Reduction Act encourages reshoring by offering generous government support for firms building green-manufacturing capacity in the country.
2. The European Union’s Net-Zero Industry Act introduces a domestic clean-tech manufacturing target, marking a paradigm shift in Europe’s approach to economic governance.

However, striking the right balance between the public and private sectors will be crucial to managing the clean-energy transition efficiently and avoiding any backlash against climate goals.

The Failure of Energy Markets

• Energy markets have failed to accelerate the deployment of green technologies with sufficient scale and speed.
• In the absence of reforms or supplemental policies, energy markets will continue to promote the cheapest power available, which until recently meant fossil fuels in most places.

Given this, governments are revisiting industrial policy to spur investment in clean technologies. However, government intervention also carries risks, such as picking winners in green technologies or projects that may lead to costly or economically ineffective outcomes.

The Risk of State Capture

• Government intervention in the clean-energy transition carries the risk of state capture, similar to the fossil-fuel industries.
• Pervasive lobbying efforts, coupled with a lack of accountability and transparency, could result in suboptimal resource allocation.

The Importance of Balancing State Intervention and Market Forces

Striking the right balance between public intervention and reliance on market forces is crucial to move forward. Policymakers must take three steps:

1. Focusing on boosting breakthrough innovations for decarbonization through public funding for fundamental research and stronger incentives for firm-level innovation.
2. Nudging and steering large-scale private investment in green solutions through policy interventions, lowering the cost of capital, ensuring social acceptance, and providing enabling investments.
3. Designing energy systems and markets to create the conditions needed to achieve climate goals, combining ambitious pathways to net-zero emissions with flexible energy-market regulations.

The Challenges Ahead

• The transition to zero-carbon energy amounts to an industrial revolution with a firm deadline.
• Policymakers must be willing to take risks in creating incentives for clean-tech innovation and designing energy markets.
• The state and market need to be partners in the clean-energy transition, navigating complex trade-offs carefully.

This commentary is also signed by Bruce Phillips, Senior Adviser at the NorthBridge Group.

SDGs, Targets, and Indicators

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 7: Affordable and Clean Energy
• SDG 9: Industry, Innovation, and Infrastructure
• SDG 13: Climate Action
• SDG 17: Partnerships for the Goals

2. What specific targets under those SDGs can be identified based on the article’s content?

• SDG 7.2: Increase substantially the share of renewable energy in the global energy mix.
• SDG 9.2: Promote inclusive and sustainable industrialization and foster innovation.
• SDG 13.2: Integrate climate change measures into national policies, strategies, and planning.
• SDG 17.16: Enhance the global partnership for sustainable development.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

• Investment in green-manufacturing capacity in the country (indicator for SDG 9.2)
• Deployment of emerging clean technologies to demonstrate technical performance and reduce costs (indicator for SDG 9.2)
• Boosting breakthrough innovations for decarbonization through public funding for fundamental research (indicator for SDG 9.2)
• Carbon pricing, tax credits, and environmental regulations as incentives for firm-level innovation (indicator for SDG 9.2)
• Clean-energy standards, technology-specific tax incentives, government-directed procurement, and carbon pricing to steer private investment in green solutions (indicator for SDG 9.2)
• Flexible energy-market regulations aimed at establishing effective incentives to mobilize private capital and deploy clean-energy technologies at scale (indicator for SDG 7.2 and SDG 13.2)

SDGs, Targets, and Indicators Table

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Source: project-syndicate.org

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