Abstract
Energy plays an important role in the economic and social development of the world. Moreover, the history of economic and social development can be considered as the history of energy development (Li N..., 2021). After the Industrial Revolution, use of fossil fuel-based energy (coal, oil, and gas) greatly increased productivity. However, environmental pollution caused by these kinds of energies has gradually become a challenge of the modern world. Recent studies confirm that the consumption of fossil fuels causes negative effects on the environment (Wu MR..., 2018). In order to reduce the negative impact on the environment, in various international negotiations, including the Paris Agreement, the replacement of traditional fossil fuels with renewable - green energy resources, is considered. Including solar, wind, hydrogen, hydro energies and etc; which does not cause harmful effects on the environment. Also, the transition to green energy is considered a necessary condition for sustainable development. Since the 1980s, despite various global climate policies, carbon dioxide emission levels have been steadily increasing; Excluding the disruption caused by the COVID-19 pandemic (BP..., 2022). It is a significant fact that emission reduction obligations are voluntary and self-fulfilling, without any legal penalties (Ganda, 2019). Consequently, these policies have neither brought significant benefits to countries nor any punitive measures for their violations. Based on this, it is necessary to investigate the contributing factors at the local level and ensure an effective economic policy. To analyze this issue, this paper reviews economic theory, several market failures, namely: environmental and knowledge spilover "externalities” and practical ways to overcome these failures. Most of the policy instruments used to drive the green energy transition, such as regulations, subsidies and tax incentives, have been known from industrial policy. However, for the green transformation to be real and effective, the dose of government intervention needs to exceed the norms imposed by "traditional" industrial policy. Supportive public policies can encourage change by shifting profit opportunities from polluting investments to green investments. However, these changes always involve "losing" parties who will try to lobby their interests in government forces; This will create a risk for both political and economic stability. These interests need to be well studied and managed. However, given the complexity of the green transformation, it is unrealistic to expect that government policy alone will be able to achieve this. In addition to the involvement of the government, there is a need to develop a policy that will unite non-state forces as well. For example, environmental non-governmental organizations and consumer associations, as well as other forces operating in the economy, including firms, investors and households.