Six years on, the EU Green Deal has left electricity prices twice as high as in the US and China, hydrogen investment collapsed, and European industrial competitiveness in decline
Eight structural failures – from rent-seeking to distorted incentives – explain why mission-oriented green industrial policy systematically misfires
In the week the Chancellor declared an ‘active and strategic state’, the report urges caution: the UK should learn from the EU’s mistakes and abandon technology-specific subsidies and sector targets, replacing them with a comprehensive, technology-neutral emissions trading system
Summary
Since the 2008 financial crisis, environmental policy has shifted away from simply managing negative externalities and gradually converged with regular industrial policy. Various ‘green deals’ have been launched around the world with the aim of achieving a combination of economic and environmental development.
Economists, such as Mariana Mazzucato, have gained traction among European policymakers, arguing that governments should not only focus on correcting potential market failures but should also formulate and finance comprehensive public missions to steer innovation towards proposed solutions and technologies.
In 2020, the European Union launched its Green Deal. Six years later, investments in hydrogen-based projects have collapsed, and electricity prices are twice as high as in the U.S. and China.
The United Kingdom has followed a similar trajectory, with comparable results in terms of declining industrial competitiveness and soaring electricity prices.
So far, the EU Green Deal has proved to be expensive, fragmented and ineffective. However, this does not mean that there are no alternative ways to reconcile economic development with environmental considerations.
The green transition should be guided by market price signals rather than by directional industrial policy. Such a framework could be achieved with a) a uniform and comprehensive emissions trading system that in principle covers the entire economy, and b) technology neutrality on the part of government without sector targets, industry support, or industry-specific subsidies.