Green Industrial Policy: Trade and Theory∗

This paper studies the reality and the potential for green industrial policy. We provide a summary of the green industrial policies, broadly understood, for five countries. We then consider the relation between green industrial policies and trade disputes, emphasizing the Brazil-US dispute involving ethanol and the broader US-China dispute. The theory of public policy provides many lessons for green industrial policy. We select four of these lessons, involving the Green Paradox, the choice of quantities versus prices with endogenous investment, the coordination issues arising from emissions control, and the ability of green industrial policies to promote cooperation in reducing a global public bad like carbon emissions.