Conference Agenda

Green industrial policy has become a central tool for accelerating the deployment of clean technologies in hard-to-abate sectors, yet there is little economic guidance on how governments should choose among alternative policy instruments. This paper develops a unified framework to compare green industrial policy designs when clean investment is irreversible, learning-by-doing and market formation generate dynamic spillovers, and private returns are uncertain. We show that instrument choice is irrelevant in deterministic environments: conditional on inducing the same deployment, alternative instruments are equivalent in welfare terms. Under uncertainty, however, irreversible investment creates an option value of waiting that delays socially desirable deployment. Policy instruments differ in how they reshape the distribution of returns, reduce downside risk, and accelerate investment timing. Using the marginal value of public funds as a welfare metric, we show that state-contingent price stabilization instruments dominate deterministic subsidies, and that symmetric contracts weakly dominate one-sided guarantees by achieving similar deployment with lower expected fiscal cost. A quantitative framework illustrates the magnitude of these effects.

This study examines the economic rationale for Carbon Capture, Utilization, and Storage deployment, motivated by the abatement wall, which is a threshold where conventional decarbonization strategies encounter prohibitive marginal costs in hard-to-abate sectors. By constructing a social planner framework that optimizes a portfolio of polluting resource use, carbon utilization, and carbon storage, we analyze the trade-offs determining the optimal abatement mix. Our analysis reveals that an increase in the social cost of emissions does not uniformly necessitate increased carbon storage. Instead, we identify a structural dichotomy between agile economies, characterized by flexible consumption preferences and cost-effective utilization technologies, and brittle economies, which are constrained by rigidities. In agile systems, a rise in emissions intensity triggers a reallocation of resources toward efficient utilization and output reduction, rendering increased storage redundant. Conversely, brittle economies must rely on storage as a brute-force backstop. Furthermore, we demonstrate that innovation policies that reduce the cost of utilization or enhance its efficiency expand the feasible economic frontier, whereas storage serves primarily as a substitute for utilization when technological limitations are binding. These findings underscore the necessity of a differentiated policy approach that treats utilization as a value-creating substitute for raw materials, while managing storage as a necessary infrastructure for handling residual emissions.

The deployment of clean technologies in hard-to-abate sectors is often hindered by high costs and investment risks. Carbon Contracts for Difference (CCfDs) have emerged as a policy tool to mitigate these risks, yet their design raises a central question: Should support be technology-neutral or technology-specific? This paper examines this trade-off in a setting with two competing abatement technologies, differing in both cost structure and exposure to financing constraints. We develop a partial equilibrium model under asymmetric information, where firms’ perceived costs exceed social costs due to technology-specific risk premiums. We compare policy instruments along two dimensions : uniform vs. technology-specific, and prices vs. quotas, covering all four combinations. Uniform instruments introduce systematic distortions in the presence of heterogeneous cost premiums. We find that a technology-neutral quota combined with targeted subsidies corrects allocation distortions and outperforms technology-specific quotas. Similarly, differentiated prices outperform a single uniform price, with welfare gains increasing in the degree of substitutability between technologies. We further develop a microfounded extension, calibrating it to the hydrogen sector in Europe, where green and blue hydrogen compete under spatially heterogeneous conditions. Numerical simulations confirm that technology-specific instruments yield substantial welfare gains when technologies are close substitutes and risk heterogeneity is pronounced. Overall, our findings support an optimal sequencing of policy design, where early-stage technology-specific support gives way to neutrality as competition intensifies and the transition matures.

Green industrial policy has become the dominant approach to climate mitigation. Canada's clean technology investment tax credits, like the US Inflation Reduction Act and European Green Deal, direct substantial public resources toward clean energy investments. The underlying assumption is that making clean energy cheaper effectively reduces emissions. We show that the emission benefits of this approach are not guaranteed but depend on sectoral production characteristics, and that alternative investment strategies may be more effective. We develop a general equilibrium model where two intermediate sectors differ in process emission intensity and substitution flexibility between energy and non-energy inputs. When clean energy becomes cheaper, sectors respond asymmetrically. More flexible sectors substitute aggressively toward cheap energy, releasing other inputs that are absorbed elsewhere. The emission consequences depend on which sectors expand. We establish a clean energy paradox: if the dirtier sector is more flexible, clean energy investment increases aggregate emissions despite lowering the carbon intensity of energy use. In contrast, productivity improvements in lower-emission sectors unambiguously reduce emissions through a composition effect that does not depend on substitution elasticities. The results characterize conditions under which carbon pricing and cleaner-sector investment emerge as complements, both operating through reallocation mechanisms that shift production toward cleaner activities.