The central question of this paper is whether technology neutrality is, on balance, a helpful principle for green industrial policy (GIP). To answer this question, we first conduct a systematic literature review to understand what GIP is. We find that the term is most often used by authors in a neoclassical economic tradition and propose a definition that encapsulates the dominant elements of various definitions in this literature. Using a transdisciplinary approach, we turn to the question of technology neutrality in GIP. Considering a range of disciplinary perspectives and arguments, we conclude that the weight of argument and evidence lies strongly against de jure technology neutrality in GIP. Furthermore, the literature provides a range of alternative principles and approaches that can better address potential government failures in GIP and related policies. Finally, combining theoretical approaches and case-study evidence from the US Inflation Reduction Act and the European Union's Carbon Border Adjustment Mechanism, we provide potential explanations for why technology neutrality nonetheless remains a popular principle in GIP.
Policy implications
- Use green industrial policy to target market failures that inhibit the emergence and scale-up of new, clean industries. Although green industrial policy can be viewed as a second-best approach to addressing the climate externality when emissions pricing is politically infeasible, it is most efficient and effective when used to directly target other market failures such as knowledge spillovers, information asymmetry and credit constraints.
- Move away from technology neutrality as a guiding principle for green industrial policy: Recognise that de jure technology-neutral (technology agnostic) policies may inadvertently favour established, polluting industries and hinder the transition to a greener economy.
- Target green industrial policies at market failures inhibiting the emergence and scale-up of clean technologies and industries, acknowledging that this targeting will often imply technology-specific instruments and strategies.
- Instead of using technology neutrality to attempt to address potential government failure in green industrial policy, follow the recommendations of the academic literature on best practice. These recommendations include clear communication of objectives, accountability to the public, transparent prioritisation, systematic evaluation and adjustment of policies, and credible discipline to adjust policies that no longer achieve objectives.
- Embed green industrial policy in broader systemic approaches such as mission-oriented industrial strategy and sociotechnical sustainability transitions.
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