A vibrant green economy would be the bedrock of a strong, healthy, and sustainable future. Innovative technologies have grown in leaps and bounds in recent decades, promising to transform polluting sectors and create new possibilities for clean energy production. So why does the dream of establishing this vibrant green industry — one that balances economic, social and environmental priorities — remain so elusive for so many countries?
As countries strive to make good on national commitments to mitigate greenhouse gas emissions, the economic opportunities in this new sector have attracted new innovators and piqued the interest of traditional energy producers. But success has not been easy. From solar panel manufacturers to electric vehicle makers to green steel producers, economic challenges have plagued many fledgeling companies trying to gain a foothold in the green economy. In response to this, supportive governments often turn to a wide range of instruments to reinforce priority sectors that are essential for the net-zero transition. These supports might help, but they are rarely a perfect solution as they can adversely affect competition, job creation, and innovation both domestically and among trading partners.
“We are dealing with a climate crisis that impacts everyone. We need policies for that…”
Designing “good” green industrial policy
While countries are looking to advance green sectors and technologies, the question of how to support them to achieve optimal outcomes is complex. Without clear objectives and safeguards, environmental policy initiatives could jeopardize development objectives or cause unintended trade distortions. But with thoughtful planning, smart policies can drive inclusive growth and innovation.
“You have to be clear about the objectives,” said Takaaki Sashida of the Permanent Mission of Japan to the International Organizations in Geneva. “You can have multiple objectives, but unless you know what it is your policy is aiming for, it’s hard to make it a success.”
Concerns that markets alone will be unable to deliver a successful green transition are prompting a global shift in how governments approach industrial policy. Since the global pandemic, national priorities have changed dramatically. National security and geopolitical concerns are now taking centre stage, while traditional goals like economic competitiveness have become less influential on policy decisions.
As governments rethink their policy priorities, some experts are calling for a return to fundamentals. In a recent interview, Nat Tharnpanich, Thailand’s Minister Counsellor to the World Trade Organization (WTO), stressed the importance of building green industrial policy on sound principles. “The principle of three Ts — transparent, targeted, and transitory — should guide how we design green industrial policy.”
Building on the foundation of clear, principled policy design, some policy experts also argue that green industrial policy instruments must also embrace a wider range of tools to address the complexity of the challenges involved. Rather than relying solely on subsidies or regulations, policy makers should carefully consider what combination of measures will actually motivate the private sector while considering the unique needs of each country.
“Green industrial policy has to be tailored,” said Clara Brandi of the German Development Institute. “It’s about bringing together climate action with local development needs…access to energy, job creation. But we also need global cooperation. We need access to affordable finance, technology transfer and fair trade rules.”
Cross-border impacts and global trade rules
Developing new trade policies to address environmental challenges can be problematic as the ostensible goals could be used to disguise more strategic economic objectives. While many green industrial policies are designed with national interests in mind, their effects often spill across borders. From export bans on critical minerals to local content requirements in subsidy programs, the risks of trade distortions are growing.
Green industrial policies can also have cross-border environmental effects. For example, tightening regulations in one country can lead to carbon leakage (and subsequent border carbon adjustments) and rising demand for critical minerals to support clean technologies can accelerate environmentally damaging extraction in other countries.
These cross-border concerns have brought trade negotiators out from the shadows. “Trade diplomats are back at it again,” said IISD’s Ieva Baršauskaitė. “They’re trying to resolve challenges related to the way industrial policies in one country impact its neighbours or countries across the globe.”
As these challenges mount, some countries are calling for greater flexibility in trade rules to accommodate the reality of green industrial policy on the ground. For example, Indonesia’s efforts to capture more value from its mineral resources have been constrained by rigid approaches to trade. “You have to change the trade policy to support your green industrial policy,” says Poppy Winanti, Professor at Universitas Gadjah Mada in Indonesia.
But efforts to adapt inflexible trade rules can have institutional limits — especially at the multilateral level. Because environmental policy is not directly shaped by the WTO, global coordination and cooperation are crucial to ensuring concerns in multiple fora are adequately addressed and compatible with one another. While it remains too early to predict which topics will emerge as dominant themes for the 14th WTO ministerial conference in March 2026, some WTO members have already suggested industrial policy as an issue of interest.
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Developing country implications and considerations
Because developing countries look to industrial development as a crucial sector for economic growth, they are particularly sensitive to the implications of green industrial policies in other countries. As governments pursue ambitious green industrial policies, how can they ensure their efforts do not undermine the efforts of poverty reduction, job creation, competitiveness and economic resilience in countries that are already economically disadvantaged? “Green industrial policy is timely — and controversial — because it touches both climate and development,” Winanti observed.
This concern over green industrial policy initiatives compromising development efforts among trading partners — especially developing countries — was raised by several experts who met earlier this year Geneva. Charged with unpacking the wide range of issues related to green industrial policy, the global experts often underscored the assertion that environmental, social, and economic goals are deeply interconnected and cannot be addressed in isolation.
“Policymakers should think about how these green industrial policies relate to development,” said Sofia Boza, Chile’s ambassador to the WTO. “How can we improve lives through these new technologies in the sense of not only of improving how we manage natural resources, but also how these new value chains are good for development, are good for creating more employment, and are good as well for the development of certain regions?”
The LDC challenge
Moreover, not all developing countries are equipped with the same resources to enact national green industrial policies. While some governments can afford to reshape their industrial strategies and negotiate trade flexibilities, least developed countries (LDCs) are working with far fewer resources.
The LDCs were hit particularly hard by the global pandemic and the accelerating impacts of climate change have only deepened their existing economic challenges. Many also simply to not have the financial resources or institutional capacity needed to coordinate effectively and pursue industrial policy on their own.
“Finance and coordination are major challenges,” emphasized Ratnakar Adhikari, Executive Director of the Enhanced Integrated Framework for Trade-Related Assistance for the Least Developed Countries. “The LDC’s don’t have the fiscal space and the luxury to implement industrial policy because it requires a lot of resources.”
Nevertheless, many developing countries see green industrial policy as a pathway to economic diversification, value addition, and technological advancement. But turning potential into reality requires a strong framework that can offer financing, coordination, institutional capacity, and other supports. Without careful consideration and global cooperation, new green industrial policies have the potential to widen global inequality rather than close it.
Looking ahead
The potential of smart green industrial policy is clear but few success stories exist, many recommendations remain untested, and crucial questions require answers. How can climate, development, and trade priorities be balanced in practice? What kinds of policies will allow developing countries to seize opportunities rather than fall further behind? And what role should global rules and cooperation play in shaping a fairer transition?
IISD’s work in this area is striving to help answer these complex questions through innovative research and dialogue with global experts. Join our trade-focused mailing list to be alerted whenever new events are planned or communications products related to new green industrial policy developments are published.
Green Industrial Policy Roundtable Series
- Round table 1 | Setting the Stage
- Round table 2 | Deep Dives into Sectoral Industrial Policies and Development
- Round table 3 | Industrial Policies and the Global Trade Framework
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This article was originally published by the International Institute for Sustainable Development (IISD) and is republished here as part of an editorial collaboration with the IISD. It was authored by Andrew Aziz.
