Green Industrial Policy and the Renewable Energy Transition: Can Industrial Policy be Green?

Thursday, 2 July 2015: 8:30 AM-10:00 AM
CLM.B.05 (Clement House)
Kathryn Hochstetler, Norwegian Institute for Urban and Regional Research, Oslo, Norway; University of Waterloo, Waterloo, ON, Canada
Industrial policy uses state-based tools like planning, finance, and other incentives to try to move economic actors and outcomes in desired directions. Traditional industrial policy often aimed at developing industries like steel, automobiles, and petrochemicals that carried heavy environmental costs. Green industrial policy (GIP) tries to use those same tools to promote economic activity that is less harmful for the environment, such as the development of industries that solve environmental problems or produce green goods. GIP for the promotion of renewable electricity is especially common and is the focus here. This paper uses case studies of GIP for wind and solar power in Brazil and South Africa to ask whether the two parts of GIP are compatible with each other. I conclude that specific industrial policy choices on domestic content requirements produced very different results for the two countries and the two industries. In Brazil, a uniform requirement of 60 percent local content – first a statutory requirement and later administered through BNDES’ loan conditions – eventually produced a burgeoning wind industry, for both wind power installation and production of wind power components. That uniform requirement is so hard to meet for solar power, however, that the solar industry in Brazil was effectively stillborn until the requirement was changed in October, 2014. (Solar power has very few heavy, low-tech components, unlike wind power). In South Africa, in contrast, auctions that select electricity producers use the potential producers’ own bids for the level of local content production as part of the selection process. The result is that both wind and solar power grew in South Africa, but not as rapidly as the wind sector in Brazil, nor as slowly as the solar sector there. The paper is based on extensive fieldwork in 2013 and 2014 in both Brazil and South Africa, including interviews with government officials, firms, industry associations, and NGOs.