policymakers demonstrate

Economic Approaches to Energy, Environment and Sustainability 305
examples of translating these principles into practice. Issues surrounding innovation
in relation to economic growth are further explored in Chapter 1.
Industrial Strategies
As Mazzucato’s research suggests, green industrial strategies can guide innovation
and strengthen a country’s innovation system and secure comparative
advantage in key sectors and areas of technology that enhance resource productivity.
This can be delivered with both horizontal instruments that give the
right incentives right across the economy, and targeted sector-specific policies
that focus on the skills and supply chains required for greener products and
processes. This would also require a clear approach to the selection of technology
priority areas with explicit processes for review, and enhancement of
‘mission-driven’ R&D agencies, identifying where new ones may be necessary
to drive core green economy technologies. Where possible, these should
build on existing regional industrial and innovation strengths. Complementary
policies can include the development of long-term patient-finance vehicles for
green innovation, to invest and hold equity in technology-based firms developing
new technologies; better alignment of downstream policies focused on supporting
diffusion of core green technologies (i.e., deployment subsidies) with
upstream funding support for technological innovation; and support for innovation
in business models, including the provision of a small fund for proofof-concept
or feasibility studies for innovative business models. Establishing
appropriate financial institutions for such a purpose may be required, such as
the Green Investment Bank in the UK.
7.5.5 EU Energy and Climate Change Policy: Lessons and Priorities
for Research
The evidence suggests that the climate policy mix in the EU has had a relatively
significant impact on CO 2 emissions in recent years, although nonclimate policy
and nonpolicy factors (such as the 2008 financial crisis) have also been
highly influential (Drummond, 2014).
The EU Emissions Trading System
The EU Emissions Trading System (EU ETS), a cap-and-trade system applicable
to the power and heavy industry sector across EU Member States (plus
Norway, Iceland and Lichtenstein), is the cornerstone of the EU’s climate policy
landscape, and covers around 55 per cent of total CO 2 emissions. Although the
primary objective of the EU ETS (i.e., to maintain obligated emissions under
the level of the cap) has been and continues to be achieved, it is unlikely that
the EU ETS has been a significant driver of CO 2 abatement. A primary factor
for this is permit oversupply and consequential low carbon prices, first as a