areas such as research and development (R&D). The chapter emphasizes the role
of countries like Germany, Denmark and China in directing green transformations.
The chapter thus provides a fuller understanding of the public sector’s centrality
to risk-taking activities and radical technological change, essential to promote green
transform ations.
Transforming the energy sector
We cannot influence the emergence of innovative new ‘green’ companies,
technologies or transform energy markets without policies directed at both the
demand- and supply-side (Edler and Georghiou, 2007). Each influences either the
structure and function of markets or the investment of firms attempting to grow
or transition into green technology sectors. So, in the case of the energy sector,
demand-side policies include environmental regulations, public procurement, sup -
port of private demand and other systemic policies that have an impact on energy
consumption patterns. Supply-side policies are focused on how energy is generated
and distributed, and influence the development of innovation in energy technologies through the provision of finance (e.g. grants, equity support, tax incentives)
or through service support (e.g. information brokerage, networking, development
of common visions). Examples of demand-side policies include Renewable
Portfolio Standards, greenhouse gas (GHG) emission reduction targets, energyintensity targets (a measure of energy use per unit of GDP), new building standards
or even a ‘carbon tax’ that affect consumer preferences. Each targets energy
consumption patterns and establishes a demand for reduced pollution, increased
clean energy or better energy-system efficiency. State stimulus to green energy
technologies is therefore indirect, via changes in consumer demand that stimulate
the development of innovations. Supply-side policies could include tax credits,
subsidies, loans, grants or other monetary benefits for specific energy technologies,
favourable energy pricing schemes (such as ‘feed-in tariffs’), R&D contracts and
funding for discovery and development of innovations, and so on. Such policies
directly support the development of technologies, complementing and providing
a ‘solution’ to demand-side policies.
Understanding how businesses transform government support mechanisms into
lower-cost, higher-performance products through the innovation process is typically
the ‘missing link’ in discussions of energy policy, and this missing link can
undermine not just our desire to push an energy transition, but to do it with highroad investments in innovation. State support for clean technologies must continue
until they overcome the sunk-cost advantage of incumbent technologies, and these
sunk costs are a century long in some cases (Unruh, 2000). That is why much of
this chapter focuses on supply-side support mechanisms. In the current policy
environment, many countries have been aggressively deploying public finance with
the aim of promoting green industry, and this is the most direct support possible
for business development.
136 Mariana Mazzucato
of countries like Germany, Denmark and China in directing green transformations.
The chapter thus provides a fuller understanding of the public sector’s centrality
to risk-taking activities and radical technological change, essential to promote green
transform ations.
Transforming the energy sector
We cannot influence the emergence of innovative new ‘green’ companies,
technologies or transform energy markets without policies directed at both the
demand- and supply-side (Edler and Georghiou, 2007). Each influences either the
structure and function of markets or the investment of firms attempting to grow
or transition into green technology sectors. So, in the case of the energy sector,
demand-side policies include environmental regulations, public procurement, sup -
port of private demand and other systemic policies that have an impact on energy
consumption patterns. Supply-side policies are focused on how energy is generated
and distributed, and influence the development of innovation in energy technologies through the provision of finance (e.g. grants, equity support, tax incentives)
or through service support (e.g. information brokerage, networking, development
of common visions). Examples of demand-side policies include Renewable
Portfolio Standards, greenhouse gas (GHG) emission reduction targets, energyintensity targets (a measure of energy use per unit of GDP), new building standards
or even a ‘carbon tax’ that affect consumer preferences. Each targets energy
consumption patterns and establishes a demand for reduced pollution, increased
clean energy or better energy-system efficiency. State stimulus to green energy
technologies is therefore indirect, via changes in consumer demand that stimulate
the development of innovations. Supply-side policies could include tax credits,
subsidies, loans, grants or other monetary benefits for specific energy technologies,
favourable energy pricing schemes (such as ‘feed-in tariffs’), R&D contracts and
funding for discovery and development of innovations, and so on. Such policies
directly support the development of technologies, complementing and providing
a ‘solution’ to demand-side policies.
Understanding how businesses transform government support mechanisms into
lower-cost, higher-performance products through the innovation process is typically
the ‘missing link’ in discussions of energy policy, and this missing link can
undermine not just our desire to push an energy transition, but to do it with highroad investments in innovation. State support for clean technologies must continue
until they overcome the sunk-cost advantage of incumbent technologies, and these
sunk costs are a century long in some cases (Unruh, 2000). That is why much of
this chapter focuses on supply-side support mechanisms. In the current policy
environment, many countries have been aggressively deploying public finance with
the aim of promoting green industry, and this is the most direct support possible
for business development.
136 Mariana Mazzucato