Directionality in Innovation Policy and The Ongoing Failure of Green Deals

Abstract

Environmental policy is no longer only about imposing regulations onindustry. It is increasingly regarded as industrial policy. Both the European Union and national governments are taking more active roles in initiating green deals and various technologies aiming at sustainable development. In this chapter, we describe and discuss some recent experiences of green innovation policies. Historical examples concerning efforts in both biogas and ethanol are combined with a more contemporary description of fossil-free steel, i.e., steel made using hydrogen instead of coal. We argue that the presence of large public funds from different funding bodies such as the European Union, various government agencies, and municipalities has distorted incentives, making it rational for firms to pursue technologies without long-term potential. The result has been an absence of sustainable development, mounting debt, and financial problems for the actors involved. We explain these results and draw policy conclusions concerning the risks related to green deals. Relatedly, we argue that the European Union’s current efforts in hydrogen gas face similar challenges.

The chapter can be accessed here.