Coordination in Chaos

The first 100 days of the second Trump administration have indicated that the next months, and perhaps years, will be marked by more uncertainty and increasing political and economic fragmentation. Trump’s threats to use tariffs and trade sanctions to settle diplomatic disputes come amid ongoing strategic and technological competition between the United States and China—competition that Trump has vowed to intensify. Despite this uncertainty and the Administration’s aversion to climate action, “green” industrial policies are likely here to stay, and will sit under a broader umbrella of industrial support by national governments to build technological capability. 

As green industrial policies become a mainstay of government agendas, the approaches undertaken range widely, especially with regard to the question of coordination. When it comes to national-level, unilateral action, there is the extraordinary example of China, whose industrial support for green sectors has in turn spurred a wave of industrial policy by Western governments. Researchers at the Center for Strategic and International Studies in Washington, DC, have estimated that, between 2009 and 2023, China provided over $230 billion in industrial support to its electric vehicle (EV) sector alone, now a world leader. Beyond EVs, Chinese industrial investment extends to many such green and non-green sectors.

In recent years, other national efforts to support green sectors have shifted toward clean energy manufacturing and technological development, due to both the pressing need to combat climate change and growing anxiety around China’s dominance in such goods. Under geopolitical and domestic political pressures, advanced economies in the global North and emerging and developing economies in the global South all seek to ensure economic competitiveness by capturing shares of technology for the energy transition and their accompanying inputs. With subsidies, tariffs, export controls, and investment screenings, the sourcing of materials and finance for the transition has become even more important. 

Fearing the loss of clean energy technological leadership, advanced economies have upped their green industrial policies to play catch up. A prime example is the Inflation Reduction Act in the United States, which despite Trump’s public distaste for it, will persist in some form, thanks in part to its heavy subsidies for Republican-controlled districts. Likewise, on a regional level, the European Green Deal represents a comprehensive framework to make Europe energy consumption neutral by 2050 to coordinate policies across European Union member states to promote green energy and invite subsidies for green technologies. Complimenting this is the continent’s Carbon Border Adjustment Mechanism, a tariff on emissions-intensive imports, which seeks to protect EU industries that pay a price on emissions, drawing ire from exporters to the EU, developed and developing alike. Developing countries are not far behind: India has instituted “Production-Linked Incentives” to grow domestic manufacturing of green sectors like solar manufacturing while erecting non-tariff barriers for imports of Chinese solar equipment. In an effort to grow local processing and manufacturing, mineral-rich countries in Latin America, Africa, and Southeast Asia have instituted or threatened to institute export bans of raw minerals critical for clean technologies.

These national and regional efforts have varying levels of commitment, technological advancement, and policy frameworks. While a globally integrated energy transition governed exclusively by price and comparative advantage is unlikely, some degree of specialization and cooperation between countries will be necessary, and multilateral institutions and plurilateral agreements will certainly have a role to play given massive financing gaps. Consequently, coordinated or cross-border green industrial policies could be utilized to promote the development of clean energy technologies across geographies in the global North and South. Negotiating and implementing such coordinated strategies in a shapeshifting geopolitical landscape will be the central challenge for the years to come. 

Why do we need green coordinated industrial policies?

Coordinated green industrial policies are essential in a world characterized by uneven capacities and resources across nations. In the case of green technology manufacturing, and manufacturing in general, some countries have existing resources and expertise and some do not. Differentiation will always be the case even as the world steps back from a more liberalized global trading regime. For instance, reserves of lithium, a crucial component of current battery technologies, are concentrated in a handful of countries. A coordinated approach can help streamline supply chains, ensuring that countries benefit from each other’s strengths and resources. This fragmentation can lead to inefficiencies, such as technological duplication and missed opportunities for collaboration. 

Coordination can help adapt technology and manufacturing to suit local contexts and priorities. While countries like China are leading the charge with ambitious policies and investments, others lag behind due to fiscal constraints or lack of political will. There is a growing understanding that an active state is needed to carry out a green transition, which could undertake massive state expenditure for green industrial policy.¹ This, however, is challenging for some countries in the global South with limited fiscal capacities. Coordination could bridge some of this gap by building local capacity and economic opportunity through the trade of finance, resources, and expertise.

Lastly, cross-border industrial policy offers an opportunity to foster innovation at multiple levels—the bedrock of clean energy technologies and broadly green industrial policy. Global collaboration on industrial policy can enable the diffusion of technology and knowledge between regions, helping less advanced economies transition to cleaner and more efficient technologies without having to reinvent the wheel. Collaboration can allow for economies of scale, which can reduce the costs of research and development, production, and deployment of clean technologies.

While cross-border green industrial policies are crucial for global climate action, they face significant challenges due to divergent national interests, information asymmetries, economic disparities, regulatory inconsistencies, and geopolitical tensions. These acute challenges are underscored by the varying aspirations to promote national interests by countries, from “America First” to India’s ambitions of development by “Atmanirbharata,” or self-reliance. Protectionist measures can hinder collaboration, complicating coordinated industrial policies. 

In addition to geopolitics, information asymmetries are a common challenge for any kind of industrial policy. With nations striving for technological supremacy, the intricacies involved in determining the right balance of subsidies, incentives, and regulatory and institutional barriers have never been more pronounced. In addition to the required “embeddedness,” or information and accountable feedback loops between governments and firms, an additional layer of feedback between governments is required. Existing institutional frameworks both domestic and international may not be equipped to handle the complexities of coordinating such policies. 

Operationalizing cross-border, coordinated green industrial policy

In this backdrop of fragmentation, expanding clean energy manufacturing and technologies could happen in three modes: unilateral, multilateral, or bilateral and plurilateral (see Figure 1). Each approach has its own advantages and disadvantages, influencing how effectively governments can promote their green industrial policy objectives. 

Figure 1: Coordinated Green Industrial Policy: Various approaches

The unilateral approach

Unilateral industrial policy actions are undertaken by individual countries, focusing on domestic needs and priorities. This is more or less business as usual. This approach can be particularly appealing if domestic priorities and constituencies align. Governments can prioritize national interests by directly addressing important domestic economic issues, such as job creation and energy security. Unilateral policies can often be implemented relatively quickly compared to multilateral or bilateral agreements, reducing the bureaucratic hurdles that can delay action. The unilateral approach does not mean the absence of foreign participation. For example, China’s emergence in electric vehicle manufacturing was incumbent upon foreign auto firms partnering with local firms.

There are, of course, disadvantages too. A unilateral approach can lead to competitive deregulation, where countries lower standards or incentives to attract investment, potentially undermining long-term sustainability goals and creating a race to the bottom. Moreover, another disadvantage is a regulatory patchwork. Differing policies can create a fragmented regulatory environment that complicates business operations for the multinational private sector companies, leading to inefficiencies and increased costs.

The multilateral approach

Multilateral efforts to promote industrial policy can be coordinated through multilateral development banks and funds like the World Bank, the Green Climate Fund, or the Global Environment Facility. These platforms allow for collaboration among multiple nations, in multilateral institutions with a larger balance sheet and therefore higher risk tolerance than some of their smaller, individual client nations. This is crucial when investing in emerging sectors like clean energy, where upfront costs and uncertain returns can deter private investment. Additionally, these institutions possess significant technical expertise and institutional buy-in for developing countries. Existing multilateral frameworks also provide a platform for wealthier nations to assist developing countries in navigating the complexities of industrial policy. 

However, critics of these institutions point to their promotion of a Washington Consensus that eschews governments’ intervention in markets, along with their inability to quickly scale finance for climate change to developing countries. Consequently, these institutions may perpetuate traditional, paternalistic donor-recipient relationships, pressuring developing countries to conform to standards set by donor nations and limiting their agency in crafting policies tailored to their unique contexts. Likewise, multilaterals must manage the equities of various national governments subject to geopolitics, as well as bureaucratic inertia, making it difficult to reach consensus and implement policy measures through their lending instruments.

Bilateral and plurilateral approaches

Bilateral and plurilateral agreements involve collaboration between two or more nations, such as initiatives led by the Quad (comprising the US, Japan, India, and Australia), BRICS, trilateral partnerships like the US-India-Africa coalition, or the recent Just Energy Transition Partnerships (JET-P). These arrangements are often characterized by a more flexible and strategic focus.

Bilateral and plurilateral agreements allow like-minded countries to band together, creating a coalition that can quickly respond to strategic and economic opportunities. This nimbleness is particularly advantageous in fast-evolving sectors like clean energy. Such collaborations can facilitate targeted investments in technology and infrastructure that align with the specific interests of the participating nations, enhancing overall economic resilience.

Compared to multilateral organizations, however, bilateral and plurilateral coalitions may lack the same level of expertise and resources, as many do not have dedicated secretariats or budgets, hindering the effective implementation of industrial policies that require feedback between firms and governments. Moreover, these coalitions of the willing are vulnerable to changes in political leadership or shifts in national priorities. As governments change, so too can their commitment to collaboration.

There is a growing consensus that an active state is needed to carry out a green transition. This entails massive state expenditure for green industrial policy, as seen in China.² In coal dominant economies in the global South like South Africa, Indonesia, Vietnam, India, and others, stagnant green industrial development suggests that far greater fiscal spending or international financial flows are necessary. 

Many of these countries were recent recipients of JET-Ps designed by countries in the global North to provide financial support for the green transition. While JET-Ps were dismissed by critics as quick fixes, in a fragmented world these could manifest as vital elements of a coordinated green industrial policy because they involve a strategic, collaborative effort between governments, industries, and international partners, which helps to build trade networks for green technologies and establishes cross-border mechanisms for sharing knowledge and best practices in green industrialization. Experts are hailing JET-Ps as climate oriented country platforms which aligns national and international climate objectives, helping unlock both public and potentially private international financing for green energy transitions. JET-Ps could well embody the essence of plurilateralism—as they allow for meaningful collaboration, targeted action, and flexible outlook, which many multilateral frameworks don’t. This makes them more practical for addressing the complex, diverse challenges of the global energy transition.

Toward a sustainable future

Given the strategic importance of clean energy technologies in combating climate change and fostering economic development, the need for coordinated industrial policy has never been more urgent than today, as countries around the world face the challenge of balancing domestic priorities with the necessity for international cooperation.

A nuanced approach to coordinated action will be necessary. Among the different modes of action, plurilateral approaches are most promising. The International Solar Alliance, launched in 2015, is a plurilateral partnership that aims to promote solar energy in solar rich nations in the global South. So far, more than 120 countries have joined this initiative to develop solar energy infrastructure. Similarly, JETP-s, which have thus far been marred with financing and implementation challenges, could prove to be a key plurilateral instrument of coordinated green industrial policy for addressing the needs of countries with different levels of development and industrial capacity. While the Trump administration decided to withdraw US support from JET-Ps earlier this year, other nations—including Germany and Japan—stepped up to finance ongoing projects. Coordination in the current age, therefore, must be attentive and adaptive to rapidly changing geopolitical trends.  

By fostering collaboration, investing in innovation, and prioritizing sustainable practices, governments can navigate the challenges of industrial policy while promoting economic growth and addressing strategic concerns. The future of clean energy manufacturing depends on our ability to coordinate efforts across borders, ensuring that the transition to a sustainable economy is not only achievable but equitable.