Technological discontinuities and the climate transition in Europe: The role of policy in two traditions of economic thinking

Book chapter, 2021

This chapter discusses how different analytical perspectives affect what policy interventions are deemed warranted and effective in supporting the industrial transformation required to reach climate neutrality. The development of wind and solar power over the last 40 years gives hope and provides useful examples of successful policies. However, the European Commission has for long opposed many of these policies, due to a narrow focus on market failures and static cost efficiency derived from a neoclassical economics perspective. Recent documents in the EU indicate a new focus on innovation and industrial change, which may enhance the EU's ability to lead the climate transition. For this, a broader analytical perspective is required, such as the technological innovation systems approach, which stresses dynamic long-term efficiency, acknowledges the need for technology-specific policies, including market formation, and uses system weaknesses as guide to policy intervention.