Policy Brief

Greening industrial policy

by TOM KENYON– Industrial Development Officer in the International Financial Institutions Partnership Unit at UNIDO

 

What would ‘green’ industrial policy look like? We usually think of industrial policy as a process of public-private interaction geared towards: i) raising productivity in existing sectors, and ii) supporting the emergence of new ones. The first generally involves some combination of regulation or standard-setting, benchmarking, and the development of a market for upgrading services; the second, the elicitation of new investment proposals analogous to venture capital activity in more advanced economies, and the coordination of public inputs necessary for them to become viable. But how would industrial policy-makers in developing countries take environmental considerations into account in these processes?

To the extent that industrial policy is about raising productivity growth in existing sectors, the green analogy is clear: encouraging cleaner production and more efficient use of resources. The key is to convince enterprises that this makes financial sense, while tightening up regulatory enforcement and enabling the growth of financial and other business development services. But the more difficult challenge is to stimulate the structural transformation of whole economies towards sustainable growth. Conventional industrial policy was associated with encouraging a transition, first from agricultural to manufacturing activities, and then towards knowledgeintensive or service and export-oriented industries. In much the same way, ‘green’ industrial policy requires forming a judgment about which new clean-energy, low-polluting sectors are likely to succeed, given a country’s comparative advantage, and taking measures to support private investment in them.

What institutions and processes might be required to achieve these objectives? Conventional industrial policy consists of structured dialogue between government agencies and the self-organized private sector, aiming to discover missing public inputs and organizing a supply response. The necessary institutional tools are wellknown: deliberation councils that allow civil servants and entrepreneurs to exchange information about market opportunities; and representative bodies that ensure the political legitimacy of investment decisions and the accountability of those charged with implementing them.

Greening these processes involves bundling in other actors to internalize “new” externalities. Some countries have tackled this at the macro level through ‘policy integration’. Singapore, for example, requires all firms receiving support from its investment promotion agency to meet the regulatory requirements of its Ministry of the Environment. At the micro level, countries, such as Costa Rica, have involved local stakeholders in strategic environmental assessments.

Conventional industrial policy is also about the deployment of tools for influencing firm’s behaviour – industrial zones, venture capital funds, licensing regimes for foreign direct investment, public support for research and development, and so on. What would green versions of these look like? Some examples:

Industrial zones – Traditionally, industrial zones have been used to ensure adequate physical infrastructure and a hospitable regulatory environment in countries where state incapacity or political considerations prevent the extension of these amenities over an entire territory. But inducing – or requiring – potential polluters to operate from industrial zones also provides a means of monitoring and achieving cost-effective pollution control of their activities. The UN Environment Programme (UNEP) has produced several manuals to help policymakers in deciding where to locate zones to minimize their environmental impact.

FDI licensing – Most policy-makers recognize that foreign direct investment can contribute to productivity growth through the transfer of technology and know-how. But not all potential foreign investors are alike. Unfortunately, very few investment promotion agencies in developing countries possess the expertise to assess newcomers’ likely environmental performance. And in recent years donors have emphasized rapidity of response and procedural simplicity over the development of analytical capacity. Awareness of simple signals such ascompanies’ possession of ISO 1400 certification, or the age of the technology they intend to use, could make a difference.

Firm-level benchmarking – In many OECD economies, private companies provide benchmarking services that give industrial firms a sense of how their performance might be improved relative to international standards. The methodologies they use can quite easily be adapted to include environmental measures (e.g. atmospheric emissions, energy intensity, water use etc.). In South Africa, UNIDO is working with the government, the National Cleaner Production Centre, and a local benchmarking firm to assess the environmental performance of automotive components suppliers, and to stimulate the demand for cleaner production techniques and technologies. 

December 7th, 2009 at 09:02 0 Comments »

 

0 Comments »