Conference Agenda

Achieving the goals of the Paris Agreement requires deep decarbonization across all sectors, including the basic materials industry, which is a major contributor to global CO2 emissions. While technological pathways such as carbon capture and storage and hydrogen-based steel production are available, structural challenges hinder progress. A critical challenge is the need for coordinated investments between upstream and downstream firms to enable successful decarbonization.

In this paper we develop a stylized theoretical model to analyse coordination challenges in the basic materials industry, incorporating indirect network effects that lead to multiple equilibria. We evaluate the effectiveness of the standard environmental economics policy toolkit, including carbon pricing and non-discriminatory subsidies, and show that while these instruments can achieve local optima, they are insufficient to achieve the coordinated equilibrium. We then explore discriminatory subsidies, assessing their potential to achieve the first-best outcome under both perfect and imperfect government ability to target firms. Our findings emphasize the critical role of targeted policies in overcoming coordination failures and align with socio-technical transitions literature advocating for selective industrial policy to achieve deep decarbonization in hard-to-abate sectors.