Most of the time I aim to blog about something I know or have learned. But today I thought I’d blog about what I don’t know, and see if readers can help fill in the gaps a bit. I was asked to give a talk today within the World Bank on firm-level interventions in developing countries, something I’ve worked a lot on. But after summarizing what I know, the request also came to talk about green policy, given the increasing emphasis on climate change and green growth. But my sense is that there is really very little rigorous impact evaluation evidence out there so far on the effect of government policies in this area. I looked again at Eric Verhoogen’s very nice forthcoming JEL piece on firm-level upgrading in developing countries, and it doesn’t mention green technology once. So I thought I’d look a little more, summarize what I’ve found, and then ask readers for what I’ve been missing.
Dani Rodrik has an Oxford Review of Economic Policy piece on Green Industrial Policy which notes a set of reasons why economists who tend to be skeptical of industrial policy may still see a rationale for policy intervention for green technologies. These include the R&D externalities from highly innovative and novel technologies; the fact that carbon emissions are underpriced generates an additional externality reason that differs from standard industrial policy; and competitive motives in an emerging technology space where first mover advantage could be important. He then discusses examples of the types of policies countries have used and writes “How well do these programmes work in practice? The short answer is that we do not know.”
Harrison et al. (2017) have an Annual Review of Resource Economics piece on Green Industrial Policy in Emerging Markets that discusses the two main areas for green policies:
1. Policies that promote industries that produce green technologies (e.g. sectors that produce biofuels, solar panels, or wind turbines)
2. Policies that encourage firms in traditional industries to produce their products in greener ways (e.g. through changes in inputs or processes that result in less energy use or less pollution).
However, they do not look at the empirical impacts of either type of policy. Most of the evidence they discuss concerns the role of regulations and audits to reduce pollution, along with some case study discussion of India and China’s efforts to develop photovoltaic cell industries. They too conclude “There is much we do not know about the effective use of green industrial policy… Research on green industrial policy is still in its infancy; studies that carefully tally up the gains and losses to provide summary conclusions on the welfare consequences of intervention would be a welcome addition to this young field”
Serin et al. (2022) discuss how RCTs can inform green innovation policies in the UK and do a search of the AEA registries, the IGL innovation database and other resources, and only find one study around area 1 (innovation in green technology). This is one in the U.S., recently published in PNAS by Guzman et al. (2023), which tests how the framing of email messages that detail the time frame and scale of climate change affect the likelihood that innovators apply to a technology competition – so nudging applications, rather than evaluating the policy itself. There are a few more studies planned or underway in area 2 (encouraging take-up of green inputs and technologies), although almost all are on the consumer side (e.g. how do subsidies or nudges affect take-up of solar home systems – see Fowlie and Meeks 2021 for a recent review). On the firm side, we have:
· Nick Ryan has a field experiment with energy-intensive Indian manufacturing firms that offers an industrial energy audit and (in a second treatment arm), a part-time engineer to help implement the audit recommendations. He surprisingly finds that rather than reducing energy use, this results in firms using more energy – something he attributes to these firms changing their labor and capital mix since energy is a compliment to other inputs in production. This finding that we need to look beyond the simple engineering estimates of what energy savings will be because of impacts on other inputs is something that also comes through in the Adhvaryu et al. (2020) ReStat paper on the productivity benefits of garment firms adopting LED lighting – which is not about policies to get firms to do this, but rather one of the underappreciated benefits that occur when firms do adopt LED lighting – worker productivity increases on hot days.
· I should note Nick has other nice non-experimental work on how the auction and contracting process for solar energy in India affects solar prices and clean energy investment through hold-up risk – basically a lot of state government-owned wholesale buyers of electricity are perennially bankrupt and have long track records of strategic renegotiation and default, which not surprisingly makes green energy firms reluctant to contract with them – and a (more-trusted) central government guarantee helps reduce this counterparty risk.
There are of course a few other studies underway, such as this World Bank one on trying to get Bangladesh leather good and footwear firms to adopt a more energy-efficient motor; and PEDL had a recent exploratory grant funding call on this last year; and I recognize that the combination of this being a new area, the difficulty and expense of doing evaluations that involve subsidies or advice to SMEs and large firms, the pause in many activities during the Covid pandemic, and the time taken to complete studies could mean that there is not much there yet – but are there other convincing experimental or non-experimental impact evaluations out there that help identify causal impacts of green industrial policies?
In response to this post, people shared several studies, all of which seem to be around regulatory policy rather than firm-support policies that provide subsidies, advice, or incentives to specific firms. Regulatory policies were also the one area where the Harrison et al. review I mentioned above had some evidence. Some of the studies shared are:
· He, Wang and Zhang in the QJE on estimating the impact of tighter monitoring of water quality regulations on productivity in Chinese firms.
· Chen et al. 2021 on how Chinese conglomerates react to energy conservation regulations by shifting production from regulated to unregulated firms in the same conglomerate instead of improving energy efficiency.
· Greenstone et al. 2022 on an experimental evaluation of a pollution market for emissions in Surat, Gujarat
· Münch and Scheifele 2022 on solar auctions with and without a requirement for local content held in India.