Industrial policy has always been controversial, and green industrial policy has faced particular criticism, even though the case for government intervention is very strong. In many countries, policies to promote renewable energy have come under attack for promoting rent-seeking. This paper counters that while rent-seeking can be a problem, rent creation is necessary to lure investments into risky fields of green technology, which are desperately needed but which markets fail to attract.
Hence, the authors argue, the focus of the debate needs to shift from rent seeking to rent management: the art of defining the right amount of extra profits, offering them in the best way and withdrawing them when markets start to function without them. This repositioning of the debate then helps to address the various risks of rent management and ways to overcome them.
The paper examines the key factors needed for rent management to succeed. Drawing on a range of literatures, it first deals with the critical success factors for ‘normal’ rent management, then turns to rent management in green industrial policy in particular, defined as government-induced restructuring towards a low carbon economy. This is extra challenging because technological uncertainties are high and time horizons for investment are long, yet action is required now.
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