How greening the economy can increase competitiveness

Green industrial policy for the economy of tomorrow

© Qilai Shen/Bloomberg 2018 (source)

26 February 2017, Geneva, Switzerland - In China, about half a million electric motors were sold in 2017, and over 90 per cent of them were manufactured by Chinese companies. Electric mobility is booming in China. Urban pollution from cars with combustion engines is a major cause of death in China, and the Chinese government has realized the opportunities, both in terms of human health and the economy, of developing a competitive advantage in the mobility market of the future. To do this, they have implemented a consistent set of policies to reach ambitious targets: producing 2 million hybrid and electric vehicles and claiming 20 per cent of the electric vehicle market by 2020.

Generous purchase incentives and dedicated research programmes have helped to kick-start the industry. To foster demand, public fleets, including buses and taxis, were replaced by electric vehicles. Additionally, restrictions on petrol motorcycles were enacted in 29 cities. After experiencing difficulties in breaking into a crowded international automotive market, these measures have helped China to successfully bypass the crowd to become a leader in electric vehicle technology. The measures implemented by the Chinese government are examples of green industrial policies – policies that aim to protect the  environment while boosting economic competitiveness.

According to Tilman Altenburg, co-editor of “Green Industrial Policy: Concept, Policies, Country Experiences”, green industrial policies, such as the Chinese push for e-mobility, are needed, because market forces alone cannot bring about the necessary change quickly enough to mitigate the existential threats arising from climate change. His comments took place on February 22, as policy makers and practitioners gathered at the Graduate Institute, Geneva, to discuss the role of green industrial policy as an instrument of transformative change.

The panel discussion, jointly hosted by the Partnership of Action on Green Economy (PAGE) and the Centre for International Environmental Studies (CIES) of the Graduate Institute, was held as part of a launch event for three major resources that PAGE has developed on green industrial policy. While, as Frank Van Rompaey, Head of the UNIDO Office in Geneva pointed out, “there is no policy blueprint for this transformation” that fits all countries, these resources can form a starting point from which governments are able to develop their own green industrial policy priorities and strategies. For example, in Costa Rica, the primary challenge was a lack of domestic energy production. As the Ambassador to the WTO from Costa Rica, Álvaro Cedeño Molinari explained, by substituting energy imports with domestic, renewable electricity generation, Costa Rica was able to reduce its vulnerability to fluctuating energy markets while also cutting emissions.

The panel addressed the potential difficulties in implementing green industrial policies while also adhering to international trade obligations. Trade is highly regulated in international law and various widely used green industrial policy tools, such as local content requirements, can be problematic under international trade law. As Jorge E. Viñuales, author of “Green Industrial Policy and Trade: A Toolbox”, explained, the trade architecture was not built with environmental conservation in mind and thus leaves various green industrial policies in a grey area.

As Chinese companies set out to conquer the international electric vehicle market, green industrial policies, including those related to trade, are a key tool for countries wishing to leapfrog existing technologies to green industries and carve out their competitive advantage for the economy of tomorrow.

More information on China’s e-mobility transformation can be found in Chapter 12 of Green Industrial Policies: Concept, Policies, Country Experiences, available here.