Renewable energy and import-substituting industrialization

One of the arguments about green jobs as a catalyst for economic growth is the protectionist  import-substitution argument. I've been largely missing this until it appeared in the Asheville Citizen-Times yesterday (Stimulus can ...):

Backers of efforts to create green jobs say they are more likely to be created domestically since renewable energy sources are often located close to where the energy is used.

The idea is that since we import oil, substitution of domestically produced energy sources (with production triggered by protectionist subsidies) will create jobs while replacing only those jobs in oil exporting countries. Yet, this flies in the face of the fact (based on theory and empirical evidence) that more trade is better in terms of economic growth and job creation.

Here is how Krugman and Obstfeld* put it (page 243: Apologies, I have only the second edition on my shelf):

Although there are doubts about the infant industry argument, many developing countries have seen this argument as a compelling reason to provide special support for the development of manufacturing industries. In principle such support could be provided in a variety of ways. For example, countries could provide subsidies to manufacturing production in general, or they could focus their efforts on subsidies for the export of some manufactured goods in which they believe they can develop a comparative advantage. In most developing countrires, hower, the basic strategy for industrialization has been to develop industries oriented toward the domestic market by using trade restrictions such as tariffs and quotas to encourage the replacement of imported manufactures by domestic products. The strategy of encouraging domestic industry by limiting imports of manufactured goods is known as the strategy of import-substituing industrialization.

... By protecting import-substituting industries, countries draw resources away from actual or potential export sectors. So a country's choice to seek to substitute for imports is also a choice to discourage export growth. ...

As a strategy for encouraging growth of manufacturing, import-substituting industrialization has clearly worked. Latin American economies now generate almost as large a share of their output from manufacturing as advanced nations. ... For these countries, however, the encouragement of manufacturing was not a goal in itself; it was a means to the end goal of economic development. Has import-substituting industrialization promoted economic development? Here serious doubts have appeared. Although many economists approved of import-substitution measures in the 1950s and early 1960s, since the 1960s import-substituting industrialization has come under increasingly harsh criticism. Indeed, much of the focus of economic analysts and of policymakers has shifted from trying to encourage import substitution to trying to correct the damage done by bad import substitution policies.

The next section of the text is titled "Results of favoring manufacturing: problems of import-substituting industrialization." While import-substitution in the renewable energy sector has received little research effort (here is an exception that is on my reading list), at first glance there is little to suggest that a substitution of renewable energy for manufacturing in the above quote would change anything about the failure of import-substitution to generate economic growth.

*Commenters beware: Argue with Krugman at your own risk.