Green Industrial Policy in Emerging Markets

Abstract

In this review, we discuss the challenges and opportunities associated with implementing green industrial policy in developing countries. These policies promote industries that produce green technologies and encourage traditional industries to produce goods and services in greener ways. We describe the experience in some emerging markets of voluntary programs to reduce emissions. Contrasting India and China's efforts to promote their solar photovoltaic industries, we also discuss the relative efficiency of promoting deployment versus promoting R&D. We also warn against expecting too much from policies that encourage renewables while governments simultaneously subsidize fossil fuels. The review discusses the potential of hybrid policies that combine command-and-control regulations targeted at the intensive margin for the largest polluters with market-based incentives that widen the reach of environmental regulations. We conclude with a discussion of how dismantling tariffs and facilitating foreign direct investment, ostensibly for nonenvironmental reasons, can have important environmental consequences.