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GREEN INNOVATION AND INDUSTRIAL POLICIES

BOX 3.8

The role of green procurement

When governments look for ways to influence the economy to achieve greener growth, public procurement stands out as a viable tool. For this reason, both industrial and developing countries are now pursuing green public procurement. In recent years many countries—Brazil, China, the Republic of Korea, Turkey—have implemented green initiatives to protect the environment and mitigate emissions (OECD 2010; Thomson and Jackson 2007). Green procurement is estimated to have accounted for 6 percent (Korea) to 60 percent (Sweden) of total public procurement in 2005 (OECD 2007). The preferences of governments for green products in the early stages can help fi rms reduce production costs. They can also have dynamic effects in relevant markets. New companies can be motivated to enter the market, leading to further market development. If the market evolves rapidly, private users of

Whether green environmental policies are desirable, many countries, mostly middle and high income, are actively engaged in policies that support specific industries. Some of these policies aim to provide direct environmental benefits (biofuel production in Brazil, concentrated solar power in Morocco). Others aim to produce related upstream goods and services (solar PV panels in China, high-speed trains in Europe). It is worth exploring the motivations for green industrial policies and the lessons from past experience with standard industrial policies.

What role for green industrial policies? Green industrial policies can be implemented for multiple reasons. All these reasons are linked to different market failure or policy objectives. Compensate for the uncertainty in future environmental policy and promote new industries and technologies. Most countries that adopt green industrial policies claim to do so to take advantage of a latent comparative advantage, create jobs, and pursue new sources of growth. The underlying argument is that prices are not enough to address the

similar products will also be educated to use greener products. In addition, the dynamic market development may lead to significant economic competitiveness in such technological domains. For instance, a French company that invested in R&D to develop an environment-friendly paint for public road signs also developed other paint products that now lead the market (OECD 2007). Governments can take advantage of standardraising demonstration effects and the provision of a guaranteed demand to foster markets of green products, change technological standards, generate green jobs, adapt public assets (such as buildings and infrastructure), and take a lead in educating consumers and fi rms to engage in more sustainable consumption and production. From a global welfare and climate change perspective, such procurement should not discriminate against foreign suppliers.

standard market failures that hamper new industries (such as increasing returns, coordination failures, and underdeveloped financial markets). Even if prices were to fully reflect the environmental externality, current and new green industries would face many challenges. Pricing policies are politically vulnerable, and the lack of credible long-term commitments and regulatory uncertainty discourages the private sector from making long-term investments in green industries. Witness the European carbon emission trading scheme, which effectively created a carbon price but did little for environmental innovation (Borghesi and others 2012; Rogge and others 2011). When long-term innovation, deployment, and production scale-up is needed, pricing policies may need to be complemented by innovation and more targeted industrial policies (Vogt-Schilb and Hallegatte 2011), as with PV solar energy in Germany and China (box 3.9). Level the playing fi eld. The risk of pollution leakage from countries with strict environmental regulations to laxer countries has been used to justify green tradebased industrial policies.12 The fear is that

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Inclusive Green Growth  
Inclusive Green Growth  

As the global population heads toward 9 billion by 2050, decisions made today will lock countries into growth patterns that may or may not b...