ABSTRACT
Given the scarcity of financial resources and the magnitude of the transformation task ahead, the efficiency and effectiveness of transformational policies are vital. Efficiency is particularly important in developing and emerging countries, since other pressing aims, such as poverty reduction and investment in health and education, are strong rivals for resources. In theory, such horizontal and macroeconomic measures as the capping and trading of greenhouse gas emissions make for the greatest possible efficiency and effectiveness. In practice, however, they are more often than not jeopardized — or rendered ineffective — by political economy dynamics. Nor do they correct market failures other than environmental externalities, such as coordination failure and capital market failure. The selective support of specific technologies is therefore needed to complement horizontal measures. The need for selective support is reinforced by the imperative of accelerating the transition to sustainable technological pathways. Sustainable technologies need support not only in their research and development phases, but also throughout the technology cycle. Similarly, polluting technological pathways need to be actively disrupted. We call the set of potential government interventions aimed at achieving this kind of transformation to environmental sustainability ‘green industrial policy’.
