The German scientific advisory board for economics published its take on EU industrial policy. Unfortunately, its conclusions are off the mark on three important issues: the appropriate role of the EU-level, the self-sufficiency of ETS, and declaring sectors as 'strategic'. Thread 🧵 (1/n)
Since taking office, DE economics minister Katharina Reiche has strongly criticized industrial policies - but often she argued merely against caricatures of modern EU industrial policy. → Question is: will DE substantially move away from clean industrial policies, or is this just rhetoric? (2/n)
So far, it also has just been rhetoric, while on substance she has been doing rather non-targeted IP it seems. At least looking at the level of subsidies in the KTF, backup power plants, Industriestrompreis, expansion of electricity price compensation,…
In other worlds, what role will the ministry assign to tools like CCfDs (Klimaschutzverträge), lead markets, green standards, tax credits for clean tech, etc? In this context, the assessment of the scientific advisory board is potentially quite crucial in shaping the ministry's position. (3/n)
The board (Wissenschaftlicher Beirat) consists of >35 distinguished economics professors, and since members aren't replaced by new governments, they span the political spectrum. The quality of their assessments is typically very high (e.g. see the assessment on green lead markets from 2024). (4/n)
With the industrial policy report, the first half is good. It's a differentiated, analytically crisp description of what industrial policy actually is; it delineates horizontal and vertical policies, discusses different levers (like subsidies, regulation, trade measures)... (5/n)
... and highlights insights from research. It also describes justifications for industrial policy (e.g. climate (negative externalities), innovation spillovers (positive externalities), coordination-failures, foreign subsidies, supply chain resilience,...), as well as... (6/n)
... risks (e.g. subsidy races, distortions to competition, insufficient government knowledge, not letting losers go, etc.). Their intermediate conclusion: any industrial policy needs very strong justification, which is no doubt correct (and we have argued for e.g. here: (7/n) tinyurl.com/dragi-IP)
After this descriptive part, the authors derive recommendations. Most of them should be followed, such as not overusing a fluffy concept of 'resilience' to subsidize whoever is calling loudest. And it's true that the EU's 40% NZIA objectives shouldn't have treated all technologies the same. (8/n)
Other policy recommendations one can argue at lengths about, like whether buy-EU clauses in lead markets make sense (the report opposes them). But three of the recommendations are, in my view, simply mistaken, and acting on them would be highly destructive for EU growth & decarbonisation: (9/n)
For one, the authors claim that with ETS, "many [clean industrial policy] measures are superfluous or even harmful”. That's shortsighted: ETS will politically only survive if prices don't skyrocket, and that needs various complementary measures. I criticized this here: tinyurl.com/TSB-Energie (10/n)
Also surprising to see them jumping to such strong conclusions on climate policy, with very little analysis or engagement with the policy framework. The critique mostly looks at the NZIA (where their assessment seems fair to me) and does engage little with any of the substantive proposals of the CID
It's, frankly, quite surprising to me that the scientific board doesn't acknowledge this relatively obvious fact of the political economy around the EU's climate policy architecture. The second problematic recommendation concerns the role of the EU level. (11/n)