The Role of Industrial Policy in the Renewable Energy Sector

Renewable electricity generation technology costs have fallen dramatically, investment has grown rapidly, and renewables are now a pillar of climate and decarbonization policy. Part of the credit for these trends goes to environmental policy efforts to support renewable energy as a substitute to fossil energy. The recent rise in protectionism, industrial policy, and geopolitical tensions has the potential to either undermine or enhance these environmental policy objectives. In this paper, we provide an overview of renewable energy economics and policy, with a focus on solar and wind power. We outline theoretical rationales for industrial policy and review recent empirical research, paying particular attention to how renewable energy policies have generated spillovers across firms and countries. We close by highlighting how this recent evidence can inform ongoing industrial policy debates.