Summary

This report, by authors from Mistra Geopolitics and Stockholm Environment Institute, provides an overview of green industrial policies countries are adopting globally. It outlines the potential benefits and challenges for partner countries affected by these policies, and provides options to simultaneously support assertive green industrial policies while ensuring a globally fair and inclusive energy transition.

Shift in major economies

Recent policy developments in major economies mark a shift in climate policy with the state playing a more interventionist role to drive economic transformation. Instruments such as subsidies, procurement policies and clean technology incentives, long part of governments’ toolkits, are now playing a more prominent and higher-value role, alongside market mechanisms such as carbon taxes and emissions trading. Together with the increasing use of local content and manufacturing provisions for energy transition technologies and the adoption of the Carbon Border Adjustment Mechanism in the EU, it is fair to say that there is a broader trend toward “green industrial policies”.

This trend raises important questions about how inclusive these policies are for many emerging market and developing economies (EMDEs). While green industrial policies can be powerful drivers of decarbonization and are used by countries in all regions, the way they are currently designed in many major economies carry risks of leaving EMDEs with lower capacity for industrial policy measures behind. In many cases, green industrial policies are too narrowly focused on domestic benefits, framed through the lens of industrial competitiveness and economic and geopolitical security, and insufficiently aligned with principles of global fairness, mutual benefit and coherence with global climate targets. Without deliberate measures to make green industrial policies more inclusive, there is a danger of entrenching a “two-speed” transition, in which advanced economies surge ahead while many EMDEs face barriers to inclusion in new green value chains and adoption of energy transition technologies.

Such an outcome risks hindering the achievement of global climate ambition. Avoiding dangerous levels of global warming requires continuous progress toward decarbonization in all regions given the projected economic growth and rising energy demand in EMDEs. Moreover, for EMDEs to actively engage in a green energy transition, it must deliver tangible economic and social benefits, addressing their development priorities alongside emissions reductions.

Ensuring that green industrial policies align with inclusive development and climate goals calls for creating pathways for technology transfer, joint innovation, fair integration into green value chains, and significantly scaled-up international climate finance for industrial development. It also calls for trade policies and standards that enable and do not obstruct broad participation. At the same time, high-level political commitments to cooperation in green energy transitions must be anchored in operational collaboration between governments, industry and research institutions across economies at all income levels.

Pathways forward for decarbonization

This report examines how green industrial policies in major economies can be designed and implemented to better support inclusive, globally coordinated decarbonization. Drawing on published policy research and analysis, workshops and interviews, it identifies potential approaches for aligning industrial policy with development priorities and climate goals in emerging and developing economies. The following are examples of approaches and options that have been identified in this work:

Ensure access to green technologies and co-development with EMDEs

• Linking green subsidies in high-income countries to preferential licencing and technology sharing with EMDEs.
• Supporting joint ventures, innovation hubs, and collaborative R&D across borders.
• Investing in technical training and innovation capacity in EMDEs.

Promote fair and cooperative integration into green value chains:

• Supporting partnerships that enable EMDEs to move beyond raw material extraction into higher-value activities such as processing, manufacturing and innovation.
• Recognizing and investing in EMDEs’ potential to contribute to global decarbonization by producing and exporting low-emissions industrial products and energy carriers.

Scale up international climate finance for industrial development:

• Creating co-innovation, green tech diffusion, and industrial decarbonization funds, drawing on climate and development finance instruments and supported by bilateral and multilateral partnerships.
• Exploring climate-linked debt relief as a tool to create fiscal space for investments in climate technology diffusion and green industrialization in EMDEs.

Adapt trade rules and standards to support inclusion:

• Tailoring emissions standards and certification systems to EMDE contexts.
• Promoting mutual recognition of standards and providing technical assistance to reduce regulatory hurdles.
• Evaluating the recycling of revenues from carbon-related trade measures into industrial upgrading efforts in affected partner countries.

Anchor high-level commitments in operational cooperation:

• Expanding inclusive, multi-stakeholder platforms that support collaborative industrial transitions between high-income, emerging and developing economies – such as those piloted by the Leadership Group for Industry Transition (LeadIT).
• Facilitating business-to-business matchmaking and joint demonstration projects to turn climate goals into real-economy investment and technology partnerships.

Balance domestic competitiveness with global equity and climate ambition:

• Avoiding excessive localization requirements that sideline EMDEs.
• Prioritizing partnerships over protectionism to scale up climate solutions globally.