Energy policy as industrial policy

Senior politicians are fond of presenting climate change as an opportunity as well as a threat to economies and societies. In September 2004, for example, former UK prime minister Tony Blair said in a speech that 'just as British know-how brought the railways and mass production to the world, so British scientists, innovators and business people can lead the world in ways to grow and develop sustainably' (Blair, 2004). There is some evidence that this view is well founded, particularly if countries are early movers in implementing ambitious limits on carbon emissions. According to Michael Porter, stringent action can lead to innovation and competitive advantage through the growth of new export-led industries (Porter and van der Linde, 1995). There may be an economic return from public investment in innovation that is not factored into a traditional analysis based on market failures.

Despite this high-level endorsement, these arguments appear to carry little weight within some governments. In the UK, the notion that industrial policy and energy policy should be integrated is often dismissed in favour of a laissez faire attitude. Policy documents do not often express a view about the source of low carbon innovations that are to be deployed in the UK. The 2007 Energy White Paper has just a single paragraph about what it calls 'innovation and wealth creation' as a result of reducing carbon emissions (DTI, 2007a, p. 217), but this does not get into specific details about the industries that could be developed. Perhaps this is also related to the notion that government should not get involved in 'picking winners'. Civil servants sometimes complain in private that they would like government to offer more support to particular technologies. But their arguments that new UK-based industries could be established through this support are not taken seriously elsewhere in government.

In contrast with the situation in the UK, other countries' energy policies often place greater emphasis on this industrial policy dimension. This sees industrial development or transformation as an important outcome of energy policy, and helps firms to develop new networks, supply chains and links between users and producers. In the US, R&D and demonstration programmes are mostly national in character, and include explicit cost sharing with 'national champion' firms such as General Electric to help them maintain their leadership in technologies such as advanced gas turbines (Watson, 1997). In Germany, the feed-in tariff for renewable energy has been accompanied by incentives to grow new industries, for example solar PV technology in Baden Wurttemberg.

A recent German Federal Government policy document stated that 'research funding ... helps German companies to secure top positions in the fast-growing international markets for renewable energy, and thus also creates employment . Germany's research strategy is oriented to also develop technologies which primarily find application abroad' (BMU, 2006, p. 43).

In parts of the UK with devolved governments this dimension of energy policy receives more emphasis than at the national level. In Scotland, there is a particular interest in CCS technology since this could use some established skills in offshore engineering (Scottish Enterprise, 2005). These skills and Scotland's extensive renewable energy resources have also led to support for wave and tidal technologies on job creation grounds (Winskel, 2007). In Wales, the low carbon economy is highlighted as one of three key priorities in the recent national science policy (Welsh Assembly Government, 2006).

As these examples illustrate, the scope for industrial development as a consequence of innovation policy is substantial. But the way in which firms respond to new technology initiatives will be shaped by previous programmes and past investments in infrastructures (Rip and Kemp, 1998). This will also depend on the broader legacy of skills, strengths and weaknesses and corporate capabilities (Magnusson et al., 2005). Bearing this in mind, it is possible to see why government policies prioritise areas in which their country has perceived strengths. Despite their reticence on industrial policy, this leads the UK government to emphasise offshore renewables and CCS.

It is important that any development of this industrial policy dimension recognises that there are limits on what national innovation policies can achieve. Globalisation is pervasive in many of the industries that are developing low carbon technologies. Therefore, international collaboration by both firms and governments will continue to play an important role in innovation policy. Many countries (including the UK) already participate in multilateral processes, such as the IEA technology agreements and the Framework Programmes funded by the European Commission. The UK has also pursued bilateral and multilateral collaborations with countries such as China, India and the US. The US itself has helped to found a number of international networks such as the Carbon Sequestration Leadership Forum and the Asia Pacific Partnership.

Questions remain about the motivations for creating some of these organisations, and the extent to which these activities will lead to tangible technological progress. However, their existence has significant implications for national policies. It is essential that policies to support innovation in low carbon technologies do so at the appropriate scale. In some cases, it will make sense for a country such as the UK to host multilateral initiatives such as demonstration projects - perhaps with participation from developing countries to help their firms build capabilities. In other cases, encouraging firms to collaborate in projects or programmes located outside that country could help to build domestic capabilities as 'informed buyers', or as potential future innovators.

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