Editing IPCC:AR6/WGIII/Chapter-11 (section)

=== 11.5.2 Current Industrial and Broader Policy Context ===

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The basic motivation for industrial policy historically has been economic development and wealth creation. Industrial policy can be progressive and promote new developments or be protective to help infant or declining industries. It may also involve the phase-out of industries, including efforts to retrain workers and create new jobs. Industrial policy is not one policy intervention but rather the combined effects of many policy instruments that are coordinated towards an industrial goal. Industrial policies can be classified as being either vertical or horizontal depending on whether singular sectors or technologies are targeted (e.g., through R&amp;D, tariffs and subsidies) or the whole economy (e.g., education, infrastructure, and general tax policies). The horizontal policies are not always thought of as industrial policy, although taking a broad view, including policy coordination and institution building, is important for industrial policy to be effective (see e.g., [[#Andreoni--2019|Andreoni and Chang 2019]] ).

In the past ten years there has been increasing interest and attention to industrial policy. One driver is the desire to retain industry or re-industrialise in regions within Europe and North America where industry has a long record of declining shares of GDP. The need for economic growth and poverty eradication is a key driver in developing countries. An important aspect is the need to meet the ‘dual challenge of creating wealth for a growing population while staying within planetary boundaries’ ( [[#Altenburg--2017|Altenburg and Assman 2017]] ). The need for industrial policy that supports environmental goals and green growth has been analysed by [[#Rodrik--2014|Rodrik (2014)]] ; [[#Aiginger--2014|Aiginger (2014)]] ; [[#Warwick--2013|Warwick (2013)]] ; and [[#Busch--2018|Busch et al. (2018)]] . Similar ideas are taken up in OECD reports on green growth ( [[#OECD--2011|OECD 2011]] ) and system innovation ( [[#OECD--2015|OECD 2015]] ). However, these approaches to green industrial policy and innovation tend to focus on opportunities for manufacturing industries to develop through new markets for cleaner technologies. They rarely include explicit attention to the necessity of zero emissions and the profound changes in production, use and recycling of basic materials that this entails. This may also involve the phase-out or repurposing of industries that currently rely on fossil fuels and feedstock.

The policy implications of zero emissions for heavy industries are relatively unexplored, although some analyses in this direction are available (e.g., [[#Åhman--2017|Åhman et al. 2017]] ; [[#Philibert--2017a|Philibert 2017a]] ; [[#Wesseling--2017|Wesseling et al. 2017]] ; [[#Bataille--2018a|Bataille et al. 2018a]] ; [[#Wyns--2019|Wyns et al. 2019]] ; [[#Bataille--2020a|Bataille 2020a]] ; [[#Fan--2021|Fan and Friedmann 2021]] ). For industry, there has been a long time focus on energy efficiency policies through voluntary and negotiated agreements, energy management and audit schemes, and various programmes targeting industry ( [[#Fischedick--2014|Fischedick et al. 2014]] a). Since AR5, interest in circular economy policies has increased and they have become more prevalent across regions and countries, including the EU, China, USA., Japan and Brazil (e.g., [[#McDowall--2017|McDowall et al. 2017]] ; [[#Ranta--2018|Ranta et al. 2018]] ; [[#Geng--2019|Geng et al. 2019]] ). For electrification and CCUS, efforts are nascent and mainly focused on technology development and demonstrations. Policies for demand reduction and materials efficiency are still relatively unexplored (e.g., [[#Pollitt--2020|Pollitt et al. 2020]] and [[#IEA--2019b|IEA 2019b]] ). Since zero emissions in industry is a new governance challenge it will be important to build awareness and institutional capacity in industrialised as well as developing countries.

In the context of climate change policy, it is fair to say that industry has so far been sheltered from the increasing costs that decarbonisation may entail. This is particularly true for the energy- and emissions-intensive industries where cost increases and lost competitiveness may lead to carbon leakage (i.e., that industry relocates to regions with less stringent climate policies). Heavy industries typically pay no or very low energy taxes and where carbon pricing exists (e.g., in the European Trading Scheme) they are sheltered through free allocation of emission permits and potentially compensated for resulting electricity price increases. For example, [[#Okereke--2012|Okereke and McDaniels (2012)]] show how the European steel industry was successful in avoiding cost increases and how information asymmetry in the policy process was important for that purpose.

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