Realising a sustainability transition through the “new” industrial policy The new industrial policy seems to push political reality closer to a position from which it is possible to articulate and act on the huge, complex task of a sustainability transition.

The “new” industrial policy – referring to the emerging political actions and wider policy programs around the Inflation Reduction Act in the US and the Green Deal Industrial Plan in the EU – has generated considerable enthusiasm, but also concern. For us, a multidisciplinary group of scholars studying the conditions for a rapid sustainability transition, the excitement relates to the way industrial policy operationalises the call to deeply and determinedly transform the infrastructures and activities of the economy. The new industrial policy seems to push political reality closer to a position from which it is possible to articulate and act on the huge, complex task of a sustainability transition.

BIOS organised a two-day pilot session for the science-driven planning of a sustainability transition at the Ateneum Art Museum. November 20, 2023. Photo: Juhani Haukka

Before the recent practical industrial policy innovations in the US and in Europe, there have been many expert-led initiatives and academic studies about sustainability transitions, such as the Green New Deal for Europe and the normative study of a Green State[1], in a more place-based fashion for instance our plan of Ecological Reconstruction for Finland, but they have remained rather far removed from the political reality. Previous political attempts have either had too little effect on shaping the direction of economic development (e.g. the EU Green Deal, despite its many carefully designed disciplinary mechanisms, such as the emissions trading system and the obligations on land-use) or they have not passed through the political machinery into action (e.g. the 2019 Green New Deal in the US).

Now there seems to be a political opening toward actually steering structural changes in the productive capacity of the economy. The COVID-19 response was already an exercise for modern states in strongly guiding and supporting various sectors of the economy. Interestingly, the pandemic-related state action was also largely based on scientific deliberation. The measures were, of course, hasty reactions to a sudden crisis. In comparison, the new industrial policy is more long-term and more proactive, responding to creeping, slowly emerging crises rather than acute, rapidly evolving ones.

The innovations in real politics have lately generated a lot of useful interdisciplinary sense-making of industrial policy, both on the policy that is now being pursued and on the theoretical potential of industrial policy. Recent discussions and texts, in the Anglosphere particularly the Varieties of Derisking interview in Phenomenal World, the response of JW Mason, an associate professor in economics, to the interview, historian Adam Tooze’s posts one & two, Transitioning Systems? by Melanie Brusseler at Common Wealth in the UK, and a number of reports by the Roosevelt Institute, have basically created a new public around the topic. These outputs form a mosaic-like but still somewhat coherent lens through which to analyse different economic and industrial steering mechanisms in their real-world contexts.

While we are excited about this shift, we also see room for elaboration and enrichment in the debate. Hence, we want to contribute to the body of work from the perspective of multidisciplinary sustainability science, by examining a bit more deeply the ecological goals and constraints of industrial policy and by shedding light on what we term science-driven planning. We propose the framework of societal metabolism as a complementary analytical lens to thinking about industrial policy.

Societal metabolism

As far as we can see, the debate has yet to go deep enough into the relationship between industrial policy and the transformation needed for economies and societies to give up on the use of fossil fuels and the over-consumption of other natural resources. The questions asked have been too imprecise to be answered adequately. We believe that the concept of societal metabolism is useful in finding both the right questions and the initial answers to them, as we will demonstrate below.

For example, the introduction to “Varieties of Derisking” asks: “Do these policies target the right constraints and the most important barriers to rapid decarbonisation?” The question is reasonable for a policy analyst, but from a sustainability transition perspective, it is crucial to first examine what we really mean by rapid decarbonisation. What kinds of real-world changes does it refer to?

In the same discussion, economics researcher Chirag Lala poses more questions: “What do we expect investment to do? And why is investment not happening at the requisite speeds or the requisite volume in the areas we would need for decarbonisation? We need not just new generation systems, but new heating systems, industrial equipment, transportation equipment, and so on.” If we stick to this line of thinking, industrial policy narrowly points at the production capacity of zero-carbon technology and products. There’s a sense that decarbonisation requires massive amounts of new things, and we need to focus on boosting the production of these things.

But we need to ask “productive capacity for what?” (You need to know what war you will be waging.) We have to have a comprehensive understanding of the socio-technical systems that we aim to build and reconfigure. The point of industrial policy is that production is matched with consumption, and based on the international scientific consensus reports by IPCC and IPBES, among others, we know that it is not just production systems but interconnected production-end use systems that must change. It may be helpful to have in mind a basic image of societal metabolism:

Figure 1. Stylised depiction of societal metabolism.

The starting point in the simplified image is that all human activity builds on ecological systems that have their own limits and properties. Human societies take in energy and materials and give out waste and emissions. Take and give too much, and the ecological systems discontinue to function in ways modern humanity is accustomed to. Society is built to provide humans with shelter, nutrition, mobility, culture, and so on. This is accomplished through production systems and end-use systems, which co-determine each other. On the whole, it is this societal metabolism that we urgently need to transform away from fossil fuels and other types of over- and mis-use.

Seeking to decarbonise while holding on to current levels and ways of end use is senseless for at least three reasons. First, the energy system and other related systems are easier and faster to decarbonise the smaller the throughput is. And this is not just philosophy. The decarbonisation process goes on by still using fossil fuels, because of the systems we have inherited. Especially in the early phases, the process is inevitably “dirty”. In the meanwhile, we are within only years of blowing up our existing carbon budget for staying below 1,5 or even 2 Celsius global warming. If we are serious about rapid decarbonisation, we must lower the volume of energy production wherever possible. This means simultaneously upgrading also end-use systems (concretely e.g. cities and transport infrastructure and services but also ways of life) to enable good life with less energy consumption.

Second, it is dangerous to take on decarbonisation as a singular challenge without acknowledging the broader ecological crisis we are facing. Biodiversity loss is also driven by climate change, but we cannot reverse it without reducing and qualitatively improving material resource use. The energy system itself uses plenty of materials, but energy is also used to modify, shape and distribute materials that are used for other purposes. And this is where all types of industrial production come into play, not just the ones directly related to energy production. It is the whole of societal metabolism that needs to be transformed in order to stop the destabilisation of ecological systems.

Third, international trade and supply chains are already stressed. From this perspective, it is quite clear that we do not want to extract and distribute minerals and other materials any more than is absolutely necessary. Holding on to current levels and ways of end-use while seeking to decarbonise holds precisely this risk – the new industrial policy not diminishing global inequalities and pressures for resource conflicts but exacerbating them.

All of the three points converge in the observation that qualitative change of the metabolism (its provisioning systems and the needs that are provided for) needs to accompany the quantitative decrease of its footprint.

The industrial policy discussion has from time to time touched upon the systems perspective. Typically, the reference point is electricity grids: how to make different elements of renewable power work together, and how to ensure that the investments are coordinated. That is an important theme, but as said, it is just part of the bigger picture. Even the technical properties of the grid might leak to the side of end-use systems, namely the flexibility in the necessary balancing of intermittent electricity production with its use can be answered either within production or usage or through a combination of them. One path to follow would be to make our social practices compatible with varying energy use (a small Finnish example would be to learn to heat the electric sauna when the wind blows; a more universal one would be to sync the charging of batteries based on electricity production patterns). How utopian that is, is contestable, and depends on established cultural traits, among other things.

Practical issues

To further clarify and concretise the scope of industrial policy in relation to a sustainability transition, let’s take two prominent examples: EVs and hydrogen. In both cases, solely from a production capacity perspective, it might make sense to proceed at full speed, but in terms of urgently transforming societal metabolism, there are considerable threats.

It may be in the interests of car makers to sell and produce as many electric cars as possible, but from a sustainability standpoint, it does not make sense. Rather, the goal should be to enable sufficient mobility efficiently. The solution that stands out from the research literature is to transform systems of mobility so that walking and cycling is prioritised, electrified public transportation comes second, and a mix of shared and privately owned electric cars make up the rest. An industrial policy focused solely on ramping up zero-carbon production systems will miss the mark.

Green hydrogen is another ride that should be closely examined before jumping on it. It refers to the generation of hydrogen through electrolysis of water, using renewable zero-carbon power. From an efficiency point of view, replacing fossil fuel -based raw materials seems plausible, for example in steel-making or agriculture. But because of great energy losses in the production process and other issues, such as explosiveness and difficulty of distribution, it is unlikely that green hydrogen would take a very broad role for instance in transport systems. In the meanwhile, large infrastructure projects are being developed in Europe that are not just for green hydrogen but also allow carrying natural gas. The risk is that building “green hydrogen compatible” capacity actually prolongs fossil fuel use.

Both examples have direct geopolitical implications. If we again consider Europe, green hydrogen is something that might become more “European” than fossil fuels ever could (save for Norway). That seems to be part of its appeal. The response to the energy crisis which hit Europe after Russia’s 2022 attack on Ukraine was in major part based on LNG, liquified natural gas. New LNG ports were built, and Europe sought to secure LNG deliveries from all other places than Russia. That trajectory was not very satisfactory either in terms of climate emissions or the goal to reduce dependence on non-democratic countries. There seems to be a hope that only if we could switch natural gas to green hydrogen, all would be alright. Materially speaking, the hope seems to be highly inflated. Green hydrogen will likely be produced for certain usages – but for many other types of usage, electrification is a far better candidate.

But electrification has its limits and complications, too. Europe imports a majority of the materials for batteries and solar PV generation. There is a wish to become more self-sufficient in minerals, but new mines take ten plus years to open. And when a new super-sized battery factory was recently opened in France, the machinery came from China for the most part. Reducing the size of the car fleet in Europe that needs to be electrified reduces the strain on nature and people everywhere.

Science-driven planning

The previous examples and the concept of societal metabolism lead us to recognise that the premises for a new industrial policy are more complex than the recent international discussion has so far suggested. Before it is meaningful to start thinking about how industrial policy can accelerate economic processes, we need to answer the question of what these processes should be qualitatively, what they aim to achieve (materially), and on what scale and under what conditions they are possible.

In the light of the above, we see multiple needs for planning, which has received increasing attention both in academia[2] and in politics in recent years. In our research (so far only in Finnish, articles in English forthcoming), we have looked at planning historically and explored what planning could be today, particularly in the context of a rapid sustainability transition. There are also illuminating pieces for non-academic audiences by Max Krahé, Yakov Feygin & Nils Gilman and Louis de Catheu & Ruggero Gambacurta-Scopello (in French).

We see two important roles for planning: first, it should indicate what are realistic and desirable future industrial paths, and second, it should provide a credible basis for critically evaluating whether policy and industry are going in the right (ecologically sustainable) direction and with enough speed.

Indicative planning needs to have an eye on both production and end-use systems and their interconnections – for example, in terms of their aims and temporal sequencing. Industrial policy must also have the best possible understanding, or situational awareness, on questions like what are the likely technological trajectories, what is the availability of sustainably sourced key materials, and what needs to happen on the whole-system level for individual elements of the system to proceed – and vice versa. This requires putting together information from multiple knowledge areas that typically remain isolated, such as natural systems, material resources, technologies, international trade, and social practices. To service decision-making, the planning also needs to balance between different rationalities, such as ecological resilience, economic competitiveness, geopolitical security, and human welfare.

Balancing between the sometimes conflicting rationalities calls for planning that is science-driven – referring above all to rising above individual interests but also to other scientific virtues such as transparency in data and methods. Planning should be science-driven also because of even a broader issue: it must form a legitimate and credible knowledge platform for public and private actors to anticipate and coordinate future changes in the economy. In this way, science-driven planning would enable three-way critical scientific and public evaluation: evaluation of the planning itself, of industrial policy-making, and of business decision-making.

One thing must be added: the planning, as a continuous process, is not just about the planners hired for the job, and the knowledge in their minds, rather it is about the way in which they can draw in information and understanding from multiple sources. The planning must form a respectful relationship not only to the scientific academic community but other knowledgeable communities as well, in businesses, technical consultancies, NGOs and elsewhere.

We believe that this is actually possible, even in today’s complex world. As we are yet unable to assess the lasting effects of the ecological planning put forward by Emmanuel Macron – and to our knowledge there are no better official attempts at indicative planning in Western contexts – our trust is based on our own work since 2015. The objective of our research unit has been to analyse the effects of environmental and resource pressures on Finland and to develop the anticipatory skills of decision-makers and citizens. One of our results is the plan of “Ecological Reconstruction” for Finland we published in 2019. In itself, the plan is not enough to form the basis for Finnish industrial policy, but by having gone through the process, we feel that we can grasp what kind of task it would be.

In the context of Finland, we have proposed the setting up of a new science-driven planning unit under the Prime Minister’s Office. As a high-profile unit, with transparent working methods and regular external communication, it would nationally become the central knowledge platform on the basis of which public and private actors could assess the realistic and desirable future paths of key production and consumption systems.

At the end of 2023, we organised a two-day pilot session that imagined and worked toward the processes of the would-be planning unit. We had some of the best experts in Finland taking part, and the results were promising. With a focus on the intertwined paths of clean electricity and forest, we achieved situational awareness that differs significantly from the recent public and political understanding in Finland and urges key actors to coordinate their actions under concentrated innovation and industrial policy. What became clear is that well-designed science-driven planning can achieve a solid critical assessment of existing industrial visions already in a short time-frame, but feeding into active innovation and industrial policy requires continuous adaptive planning in a dedicated unit.

Another study of ours took a look at existing plans, namely the low-carbon sectoral roadmaps in Finland that were initiated by the Ministry of Economic Affairs and Employment and realised by the different industries themselves. Our main finding was that although the roadmaps were a useful exercise in many ways, they pointed to directions that were ultimately dead-ends. The largest sectors all relied on greatly increased biomass use, and taken together, there is not nearly as much biomass available from sustainable sources. The roadmaps also remained sectorally isolated: the interconnections between the sectors were not considered.

Let’s go

The new industrial policy is very welcome for the potential capacity it gives to the state to transform the economy to collectively desired directions. Of course, industrial policy as a practice is ridden with contradictory goals and takes. There is a very real struggle to align geopolitical security with ecological sustainability interests, among others.

The practical policy innovations, especially in the US but to some extent also in Europe, have generated insightful discussions on the instruments and mechanisms of industrial policy. We have argued that there is a need for science-driven planning already before we can meaningfully choose the policy instruments. Achieving a deep sustainability transition requires getting many things right at the same time. Some of the things require well-targeted policies, others are adequately boosted through more broad-based support. Some things need discipline, others need cultivation. Private business is good at certain things, public organisations at others.

Planning is and is not something new. Scientific planning has a long history: its possibilities were intensively debated between and after the World Wars and some fruits of these debates materialised to planning that backed the success of post-war welfare states. But planning is new in the sense that after a few neoliberal decades we need to re-institutionalise it – in ways that work today –  as a strong part of the innovation and industrial policy system.  The test for ecological planning in France and potential attempts elsewhere is whether they produce meaningful shared understanding for the relevant actors, and whether the plans can be linked to the urgent but forward-looking industrial policy struggles.

Planning also exists everywhere already. Large international corporations are basically centrally planned economies. The EU is a large planning organisation for European single market rules. To complement the economic-technical planning of market rules, the new industrial policy demands substantive or qualitative planning, with a constantly updated outlook on industrial pathways that fit within ecological boundaries.

We are confident that industrial policy can become an important ally and a tool for a rapid sustainability transition. To succeed, industrial policy must be purposefully aligned with the best possible information and understanding, openly developed, on what it takes to transform particular economies with particular conditions.

Paavo Järvensivu, Tero Toivanen, Jussi Ahokas (BIOS Research Unit)

[1] Eckersley, Robyn. The green state: rethinking democracy and sovereignty. mit Press, 2004.

[2] For a recent overview, see Durand, Cédric, Elena Hofferberth, and Matthias Schmelzer. “Planning beyond growth: The case for economic democracy within ecological limits.” Journal of Cleaner Production (2023): 140351.