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The transition from unabated fossil fuels to zero-carbon energy is being likened to an industrial revolution, but with the added pressure of a firm deadline. Western governments, recognizing the need to accelerate this transition, are shifting away from relying solely on market forces and implementing state intervention. The United States, for example, has introduced industrial policies that support the development and deployment of green solutions, including the Inflation Reduction Act which encourages reshoring and offers government support for building green-manufacturing capacity domestically.

Similarly, the European Union has introduced the Net-Zero Industry Act, which establishes a domestic clean-tech manufacturing target, signifying a paradigm shift in Europe’s approach to economic governance. However, striking the right balance between the public and private sectors will be crucial in ensuring an efficient and timely clean-energy transition and avoiding any backlash against climate goals.

The current energy markets have failed to accelerate the deployment of green technologies at the required scale and speed. Without reforms or additional policies, these markets will continue to prioritize cheap power, which has historically been fossil fuels. Consequently, governments are turning to industrial policy to incentivize investment in clean technologies, drawing from past successes in spurring economic growth.

However, government intervention in the clean-energy transition poses risks. The selection of winners in green technologies or projects could result in costly investment decisions or economic inefficiencies, similar to the issues that prompted pro-market energy-sector reforms in recent years. Additionally, the renewables domain is not immune to the risk of state capture, with lobbying efforts and a lack of accountability potentially leading to suboptimal resource allocation.

Another concern is the fragmentation of global clean-tech supply chains due to “nationalist” climate bills. The division of labor between the United States, Europe, and China has driven down the price of solar panels and accelerated their global deployment. Forceful reshoring could hinder the pace of the energy transition worldwide.

To strike the right balance, policymakers must take three steps. First, governments should focus on boosting breakthrough innovations for decarbonization by providing public funding for research and incentivizing firm-level innovation through carbon pricing, tax credits, and environmental regulations. Second, the state should nudge and steer private investment in green solutions through various policy interventions such as clean-energy standards, tax incentives, government procurement, and carbon pricing. Public support is also crucial for lowering the cost of capital for clean-energy projects and ensuring social acceptance. Finally, governments must design energy systems and markets that create the conditions necessary to achieve climate goals, combining ambitious net-zero emissions pathways with flexible energy-market regulations.

Despite the challenges and uncertainties surrounding the clean-energy transition, policymakers must be willing to take risks in creating incentives for clean-tech innovation and designing energy markets. However, it is vital to remember that the state and market must work together as partners, navigating complex trade-offs to successfully achieve a clean-energy future.

In this situation, AI legalese decoder can play a crucial role. AI legalese decoder can assist in identifying relevant legal and regulatory frameworks, ensuring compliance with environmental regulations, and analyzing complex trade-offs associated with the clean-energy transition. With its ability to process and interpret vast amounts of legal and policy data, AI legalese decoder can provide valuable insights and recommendations to policymakers, helping them navigate the complexities and make informed decisions for a successful transition to zero-carbon energy.

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