Industrial policy can have far-reaching implications. Tan’s research question asks, "What are the effects of industrial policy on energy supply chains and their effects on decarbonization?" He is interested in understanding how subsidies within energy supply chains, especially renewable and global fossil fuel subsidies, resonate throughout the entire production network. Then he wishes to empirically assess their effects on decarbonization.
Tan expands on recent research on the economic logic of industrial policies. In production networks, demand side policies tend to cascade upstream, and supply-side policies tend to cascade downstream (Baqaee 2021). As a result, in the presence of distortionary wedges industrial policies increase the size of downstream sectors, so targeting industrial policy upstream would result in larger gains than targeting industrial policy downstream (Liu 2019).
A naive implication of this model would be that it is more costly to tax oil than beef for the same emissions since oil products are comparatively more upstream, because cheap oil is more important for the economy than cheap beef.
This conclusion however assumes that cheap oil is not substitutable with cheap green energy. High substitutability between green and dirty technologies within the above framework would instead suggest that a green transition might be more easily achieved with subsidies on ‘green inputs’ such as rare earth metals rather than subsidies on ‘green technologies’ such as solar panels. Tan hopes to estimate the impacts of energy subsidies on global supply chains, enabling him to assess the environmental and economic effects of industrial policies on a global scale.
