Association for Public Policy Analysis & Management

The transition of the electricity and transport systems is crucial for climate change mitigation. While technological change, in the form of falling costs of renewable electricity technologies as well as better electricity system control and integration technologies, has begun to fundamentally alter the economics of the electricity system, accelerating this transition remains a challenge for policy design. With the recent advent of cheap(er) and more efficient energy storage technologies, particularly in the form of lithium-ion (Li-ion) battery cells, the economics of the electricity system will shift further. Li-ion cells will also profoundly affect the transport sector: here, the world market for battery and hybrid electric vehicles is growing rapidly, testing the resilience of the automotive industry, a cornerstone of the economy in Europe and the US with a high share of GDP generated and, even more importantly, high numbers of jobs. At the same time, almost all existing Li-ion battery production is situated in East Asia (China, Korea, and Japan), with the US and particularly Europe lagging behind in manufacturing capacity. To seize the opportunities of a future mega-industry, the US and Europe want to catch-up with East Asian manufacturers that have been successful in improving performance and cost of batteries.

In our paper, we aim at bringing together technology innovation studies and policy design literature to assess current policy mixes targeting Li-ion batteries. Following earlier work, we argue that Li-ion batteries can be regarded as “dually complex”, i.e. a technology that is complex both in design and manufacturing. Such technologies pose a particular challenge for designing effective policy mixes that aim at localizing a manufacturing industry. Based on previous research on technology characteristics, we introduce six technology-specific (or “technology-smart”) policy design features that affect the localization of battery manufacturing industries. We also know from existing research that the general design features of a policy mix determine its overall effectiveness. Thus, we aim at assessing both technology-specific and general design features of policy mixes targeting Li-ion batteries. Empirically, we compare, over time (1998 to present), the policy mixes of two large, (quasi-)federal political entities that aim to catch up, namely the US and EU. To also include policy dynamics at the sub-federal level, we include California and the UK as well. We then compare these countries’ policy mixes to that of China, which has successfully caught up from Japan (and Korea), and selected provinces (that were more or less successful in this catching-up process). We show that neither the policy mix of the US (and California) nor that of the EU (and the UK) is as well-designed (i.e. “technology-smart”) and intense as that of China (and the successful provinces). Based on these insights, we provide policy recommendations on how to make policy mixes in the EU and the US more effective. We also contribute to fostering our understanding of how policy mixes aiming at transformative change actually develop over time.