Summary

• Since the 2008 financial crisis, environmental policy has shifted away from simply managing negative externalities and gradually converged with regular industrial policy. Various ‘green deals’ have been launched around the world with the aim of achieving a combination of economic and environmental development.


• Economists, such as Mariana Mazzucato, have gained traction among European policymakers, arguing that governments should not only focus on correcting potential market failures but should also formulate and finance comprehensive public missions to steer innovation towards proposed solutions and technologies.


• In 2020, the European Union launched its Green Deal. Six years later, investments in hydrogen-based projects have collapsed, and electricity prices are twice as high as in the U.S. and China.


• The United Kingdom has followed a similar trajectory, with comparable results in terms of declining industrial competitiveness and soaring electricity prices.


• So far, the EU Green Deal has proved to be expensive, fragmented and ineffective. However, this does not mean that there are no alternative ways to reconcile economic development with environmental considerations.


• The green transition should be guided by market price signals rather than by directional industrial policy. Such a framework could be achieved with a) a uniform and comprehensive emissions trading system that in principle covers the entire economy, and b) technology neutrality on the part of government without sector targets, industry support, or industry-specific subsidies.

 

The full book this report draws on is open access and available here

About the Authors

Magnus Henrekson is a Senior Research Fellow at the Research Institute of Industrial Economics (IFN) in Stockholm, Sweden. Until 2009, he was Jacob Wallenberg Professor of Economic Policy at the Stockholm School of Economics. His primary research focus is entrepreneurship economics and the institutional determinants of the business climate.

Christian Sandström is Associate Professor of Technology Management from Chalmers University of Technology, where he also received his doctoral degree (2010). His research concerns innovation policy and the interplay between technological and institutional change, and he has authored numerous books on ‘green bubbles’. He is currently aliated with Linnaeus University.

Mikael Stenkula is Associate Professor of Economics and Research Fellow at the Research Institute of Industrial Economics (IFN). His primary research areas are entrepreneurship economics and taxation. He also serves as the executive secretary of the Global Award for Entrepreneurship Research, the foremost global award for research on entrepreneurship.

IEA_DP148_Green Deals in the EU_v2 (Digital)