Working paper No. 365: Why Green deals may fail – evidence from biogas, bio-ethanol and “fossil free” steel

Sammanfattning

Environmental policy is no longer about imposing regulations on industry but is increasingly regarded as industrial policy. Both the EU and national governments are taking more active roles in initiating “green deals” and various technologies aimed to result in 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 by using hydrogen instead of coal. We argue that the presence of large public funds from different funding bodies such as the EU, 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 those actors that have been involved. We explain these results and draw policy conclusions concerning the risks related to green deals. Relatedly, we argue that the EU’s current efforts into hydrogen gas face similar challenges.