Green Industrial Policy in the UK: A Political Economy Perspective

Achieving net zero in the UK will require the large-scale deployment of technologies such as offshore wind, electric vehicles (EVs), batteries and heat pumps. Green industrial policy has become increasingly important, not only as a climate strategy but also as a means of providing a political underpinning of that strategy through providing growth, jobs, investment and energy security, and supporting regional economic development.

This report argues that the success of UK green industrial policy depends on two interrelated political economy challenges:

1. Building sufficient state capacity to implement industrial strategy effectively
2. Creating markets for low carbon technologies whilst managing potential opposition from consumers, businesses and workers.

The report finds that the UK has performed strongly in deploying low carbon technologies, particularly offshore wind, but has been less successful in capturing associated manufacturing opportunities. The UK remains heavily reliant on overseas manufacturers for key components and technologies across offshore wind, EVs and heat pumps. Outcomes in terms of manufacturing employment and regional regeneration have been more limited than anticipated.

A common criticism of UK industrial policy is that it has been characterised by policy instability, weak industrial expertise within government, and a tendency for Treasury priorities to dominate long-term industrial development goals. The report acknowledges these criticisms but argues that they do not tell the whole story. Beneath successive industrial strategies, the UK has developed a substantial network of institutions, including cross-sectoral and sector-specific organisations, which have provided continuity, sectoral expertise and in some cases growing funding over time.

However, this networked approach has had mixed results. Its greatest success has been in supporting innovation, research and technology development rather than the creation of large-scale manufacturing firms. As a result, green industrial policy has generated more high-skilled technical and professional jobs than the broad-based manufacturing employment often promised in political discourse.

Because of these limits, the report argues that UK green industrial policy in practice operates through two strategies:

1. A “convert” strategy, which seeks to persuade existing manufacturers to shift from high carbon to low carbon products (e.g. from gas boilers to heat pumps).
2. An “attract” strategy, which aims to bring foreign-owned low carbon manufacturers to the UK, particularly in sectors where no strong domestic producers exist (e.g., wind turbines).

Both strategies rely crucially on policies to create new markets for low carbon technologies, but the politics of market creation differ significantly across sectors.

The report concludes that the UK has built a relatively effective green innovation system but not a strong green manufacturing system. Existing institutional networks have helped create technological capabilities but have not delivered the scale of industrial transformation necessary to secure substantial manufacturing growth or widespread regional renewal. To help capture the economic and political benefits that green industrial policy is intended to achieve, the report recommends:

1. Sector-specific conversion strategies more tailored to the distinct circumstances of different industries
2. Building coalitions for a more ambitious, long-term approach to industrial policy and reforms to strengthen state capacity for delivering that policy.