Industrial Policy: An Explainer
By now, you've heard us refer to the phrase "industrial policy." Just what do we mean when we say that?
In these opening weeks of The Just Transmission, you will have seen the term industrial policy, a time-old phrase with deep relevance in our current moment. When we speak of industrial policy, particularly in the climate context, we speak of combining our energy transition with the opportunity to grow new sectors through coordinated state policies that create good jobs, invest in the state’s tax base, socialize technology that we need, and connect climate action to economic development. Industrial policy can be a tool of marketcraft, as well as a means to build a society that works better for everyone.
Broadly, industrial policy is best understood as a set of tools that can incentivize and guide what goods and services are produced and how this production is achieved. Incentives, conditional procurement, and public investment are used to form industries that are underdeveloped or non-existent. Corrective mechanisms – taking the form of taxes, standards, and regulatory oversight – are used to shepherd these industries in strategically advantageous directions.
As other countries expand their productive capacity, the urgency of transforming our own system grows. Climate change is driven by a model of production that is scientifically understood to threaten human health and the planet’s long-term viability. Without an ambitious industrial policy to rapidly remake how we produce the essential infrastructure of our energy system, we are unlikely to tackle this existential crisis. Doing so also offers a historic opportunity to build a cleaner, more productive, sustainable, and equitable economy.
Policy with Precedent
Industrial policy has a long history in America. Alexander Hamilton’s advocacy for industrial policy was driven by the goal of achieving economic independence from Britain, which at the time used its dominant economic position to relegate the United States to the status of a raw materials exporter. Industrial policy was brought to the forefront again in times of national reckoning, catalyzing Reconstruction after the Civil War and bringing an early end to the Great Depression through the New Deal. The latter overlapped with a wartime mobilization for WWII that established decades of productive capacity and know-how in booming automobile, defense, and fossil fuel industries that gainfully employed millions. In the second half of the 20th century and into the 21st, neoliberal ideology drove U.S. policy that publicly rejected industrial policy. In practice, we continued to operate a highly sophisticated, decentralized, and largely invisible innovation system that drove state developed technologies from lab to market.
The most public evidence of this fact is the continued use of the Defense Production Act (DPA), which has been used to support industries deemed essential for national security. Since the COVID-19 pandemic, DPA alongside newer industrial policies (e.g. IRA and CHIPS Act) has become more widely accepted - to speed up vaccine production and develop domestic clean energy and semiconductor manufacturing.
President Biden used industrial policy as a scalpel, precisely applied to specific industries and showing that private capital responds to federal signals, but without a durable long term strategy for political buy-in. The Trump Administration has wielded industrial policy like a machete, hacking at all industrial targets: taking erratic equity stakes in a range of companies, using the DPA to prop up a waning coal industry and repealing a key legal basis for climate regulation. What comes next must look different from both approaches.
Industrial Policy Must Be Driven By Public Benefit
The potential paradigm shift away from America’s present economic framework is welcome if strategic, publicly oriented industrial policy is what comes next. The current economy is largely characterized by short term profits, maximization of shareholder value, offshoring manufacturing, and a misguided belief that markets exist without public guidance. Firms today are seen as instruments for courting investors instead of stable employers. Companies offer fewer decent jobs, driving income inequality, to the detriment of our social and political system. Growth for its own sake is misguided if it cannot be felt widely, beyond the four walls of shareholder meetings.
But the current political moment has showcased the long term futility of this economic paradigm. The contradiction of a national affordability crisis paired with record financial profits and sustained GDP growth has become publicly visible and, in turn, increasingly untenable. Through industrial policy we can correct for having forgotten that the primary purpose of economic growth is material prosperity. Averting the worst of the climate crisis is reason enough to reorient our economy, and ensuring this realignment provides shared prosperity will create political buy-in for a more sustainable economic development agenda.
Now is the Time to Reindustrialize
Our new energy economy represents a generational opportunity to get back to basics. Local productive capacity of clean technologies has the potential to create jobs, drive down costs, strengthen supply chains and rebuild tax bases. Perhaps most importantly, it can tap into an American muscle memory for manufacturing know-how, reminding us of something we have forgotten how to do. At the point of mid-transition, we know what technologies we need to weather the home stretch – solar, next-gen batteries, heat pumps, etc. We must now produce them, ensuring that the transition becomes a series of opportunities to build a better future. Other countries already have a sophisticated and expansive industrial playbook to decarbonize their economy that we can leverage moving forward.
Despite the last gasps of those who would remake the US in the image of a petrostate, the 21st century will be heralded by the electrostates. Unless we shape this transition, we risk being left behind globally, having not taken our clearest cue to redevelop.
ICYMI: What We Read and Reacted to This Week:
An AI data center boom is fueling Redwood’s energy storage business (2/19/2026)
Redwood Materials has gotten into the BESS game. Based out of an SF R&D facility employing almost 100 people, the battery unit at Redwood is also its fastest growing.
Costs of Big Batteries Are Tumbling and Can Boost Clean Power (2/18/2026)
The US Had a Big Battery Boom Last Year (2/23/2026)
Two good pieces on the fact that the role of batteries in energy development is already being established, in large part due reasons of efficiency and cost.
Newsom appoints a new utilities regulator with a mandate to cut costs (2/19/2026)
The press release announcing governor Newsom’s appointment of John Reynolds as president of the CPUC is rife with language referencing affordability and cutting costs for ratepayers. Outgoing CPUC president Alice Reynolds will be reassigned to a board of governors position at CAISO.
Data center growth has helped PG&E cut rates 11% since 2024, CEO says (2/17/2026)
A written account of a stance we’ve been hearing from utilities in-person lately: “PG&E maintains that it can reduce customers’ electric bills by about 1% for each gigawatt of new load on the system.” The utility’s CEO points to AI data centers, EV adoption, and expansion of Californian manufacturing as drivers of this load growth.
Most EV batteries outlast their cars, real-world data shows (2/18/2026)
New research complicates how we think about EV longevity, something that now seems more influenced by charging hygiene rather than miles driven. Regardless, it’s clear that batteries remain useful even after they age out of traction applications, bolstering the case for repurposing towards BESS.
Microsoft to keep buying enough renewable energy to match all its electricity needs (2/18/2026)
Yet another instance of renewable energy being a top choice for business interests for largely economic reasons.
Joseph Stiglitz is the latest to decry the decline of quality manufacturing jobs under Trump tariffs, taking this as a telltale sign of an unsustainable economy. This comes after Ford CEO Jim Farley has voiced similar concerns.