Green Industrial Policies

There is a geopolitical race to ‘win’ the green transition. Green industrial policy is central to it. The biggest global economies—the US, EU, and China—are working to ensure they and their industries and companies come out on top, controlling green technology and growing their economies. They start out with massive advantages, and their competitive approaches undermine the prospects of green economic development for most other countries.

Holding deeply entrenched economic power built on profound historical injustices, the US and EU have given their industries a massive boost through legislation and frameworks such as the 2022 Inflation Reduction Act(opens in new window) (IRA) and the 2023 Green Deal Industrial Plan(opens in new window) . These frameworks provide subsidies and other state support to domestic industry and deploy foreign policy influence on their behalf. The US and EU are also leveraging an edifice of inequitable trade, investment and tax laws written to favour Global North interests.

Having seized the initiative earlier with its 2015 Made in China(opens in new window) policy, China is well ahead in this high-stakes game of ‘who dominates the world economy’, and both the US and EU frameworks are direct responses to what they see as the China threat. The focus of the three blocs is now firmly on competition with each other, with the EU well behind and worrying about the US(opens in new window) almost as much as China. Meanwhile, countries in the Global South are viewed through a lens of raw materials suppliers and markets to which the US, EU and China can sell green technologies.

The industrial green transition should be different, an opportunity for all countries to advance genuinely sustainable economic development that benefits everyone. But this will not happen if we do not reframe the opportunity and remove obstacles in the path of Global South countries’ ability to develop green economies on their own terms.

Green Industrial Revolution: keeping low-income countries as raw material supplies

Let’s take one example: green technology, including electric vehicles, solar panels and wind turbines, is central to the green industrial policies of all the major global economies. The production of these technologies requires raw materials, including critical minerals. Most of these minerals are found in countries in the Global South, including the Democratic Republic of Congo (cobalt), Chile (copper and lithium), and Indonesia (nickel). China, the US and the EU are rapidly pursuing access to and control over these minerals.

The EU is engaged in what it terms ‘Raw Materials Diplomacy’ and has signed strategic partnerships on raw materials (opens in new window) with several countries, including Argentina, the Democratic Republic of the Congo, and Zambia. The EU is also pursuing a raw materials policy engagement with Brazil, Colombia, and Mexico, as well as with the US and China.

As SOMO reported recently, the partnerships with resource-rich Global South nations are presented as ‘mutually beneficial’, focusing on sustainable sourcing of critical raw materials and promoting local ‘value addition’. However, the texts are ambiguous and do not adequately address countries’ own transitions to renewable energy. Moreover, strategic partnerships are not binding instruments, and their vague ‘win-win’ language is often undermined by the binding provisions of free trade agreements.

The same old tactics deployed to frustrate industrial policies in the Global South

Mineral-rich countries in the Global South are trying to avoid a repeat of past exploitation and export-driven economic “development”, often foisted on them by institutions such as the World Bank and IMF. Several, including Indonesia(opens in new window) , Namibia(opens in new window) , and Zimbabwe(opens in new window) , have taken measures to discourage exports of raw materials and promote domestic processing. They face an uphill battle. Most debt is still repayable in USD, which drives many countries towards the export of raw materials. And the EU, despite its ‘win-win’ partnership language, has undermined efforts to develop domestic industry.

In 2021, the EU filed a complaint with the World Trade Organization (WTO) to challenge Indonesia’s export ban on nickel ore and other raw materials, contending these measures restrict access and distort global market prices, affecting EU steelmakers. In 2022, the WTO dispute panel ruled(opens in new window) in favour of the EU and rejected Indonesia’s defence that the measures were to prevent critical shortages of a product essential to the Indonesian economy. Indonesia subsequently appealed, but the case remains stalled because the WTO Appellate Body is not functioning. Meanwhile, the EU has been preparing unilateral action towards Indonesia, including the possibility of retaliatory tariffs on Indonesian products.

This is not an isolated action. The EU has updated(opens in new window) its trade strategy to, amongst other things, reflect its intention to use enforcement actions, including WTO rules and unilateral trade defence, to protect EU industries’ access to raw materials and, more broadly – and more troublingly – to shield EU industry from “unfair” competition and to maintain open markets abroad for its exports. This “green mercantilism” approach – protectionism at home, pushing free trade policies abroad – underscores the challenges for a just green transition: it cannot happen within a system where massive power disparities allow a small number of wealthy countries to have their cake and eat everyone else’s.

Economic decolonization must be a central element of the green transition.

Debt, subsidies and the entrenched Global North advantage

The challenge to realising a globally equitable green industrial transition is perhaps most starkly evident when one considers the huge debt that many Global South countries face and contrasts this with the sheer size of subsidies and financial support that the Global North economies are giving their green industries. Debt in low- and middle-income countries stands at $3 trillion(opens in new window) , a substantial portion of which is held by countries most vulnerable to climate change.

Much of this debt is the result of predatory lending practices and policy ‘solutions’ foisted on countries by international financial institutions and wealthy nations. As Fadhel Kaboub, writing recently in The Guardian(opens in new window) , so clearly articulated concerning Kenya, “the fact that Kenya is in a debt trap after decades of following IMF policy prescriptions means that either the IMF is incompetent or it is engaging in intentional economic entrapment. I believe it’s the latter.”

Meanwhile, the funds that Global North governments and banks are handing to their industries, in outright subsidies and low-cost borrowing, are huge. For the auto industry alone, the US and EU are offering billions in state support to buyers and manufacturers. The US IRA provides an estimated $370 billion in solar, wind and electric vehicle subsidies(opens in new window) . In 2023, the European Investment Bank(opens in new window) announced it would provide €45 billion in additional support to the Green Deal Industrial Plan, to be deployed by 2027. These figures are greater than the GDP of many low-income countries, whose ability to provide similar support to domestic industry is negligible.

Even the IMF has noted(opens in new window) the problem of wealthy nations’ green industrial subsidies, albeit from its very particular perspective. In 2023, the Fund observed: “The risk now is a harmful subsidy race between the world’s largest economies to lure green investment. This could undermine the level playing field in global trade, contribute to geoeconomic fragmentation, and impose large fiscal costs. It would ultimately reduce efficiency and undermine the rules-based global trading system that has served the world economy well over several decades.”

Leaving aside the fact that there never was a level playing field and the staggering assertion that the rules-based global trading system has served the world economy well (whose world are they talking about?) when even the IMF is warning against the subsidies race, the problem must be serious. Because the subsidy race involves two of its main creators and backers, the US and the EU. Only a handful of other countries can play the subsidy game.

The IMF went on to note that: “Richer nations with greater fiscal firepower might (emphasis added) emerge as winners in a subsidy race even if the global economy is worse off. Emerging market and developing economies with scarcer fiscal resources would find it particularly difficult to compete for investments with advanced economies in a more protectionist world, which could also hinder the transfer of technology…”. The penetrating analysis that wealthy countries can subsidize their green industries in ways most others cannot tends to undermine the IMF’s former assertion of a level playing field. Meanwhile, the claim that richer nations ‘might’ emerge as winners is absurd. There is no ‘might’ about it – it is a dead certainty. Unless something fundamental changes.

Green industrial policy: back to the future

The green industrial policies of the major economies have been introduced under the banner of promoting the competitiveness of their industries and greening the economy. Rolling out subsidies and protection measures, the US and EU are shifting their economic orthodoxy to some degree. Subsidies and protection were not the core of free market economics promoted by these countries over the past five decades (which does not mean they did not happen). These regions historically developed themselves through blatant protectionism of domestic industry in the late 19^th and early 20^th century. Their promotion of free market economics was done at a time when they were in the strongest position in the global economy, and these policies always advantage the economically stronger.

Now that the geopolitical picture has changed, free market prescriptions are being thrown overboard as and when they no longer serve the interests of the most powerful actors in the global economy. But they can still be deployed against an economically less strong entity….. as Indonesia discovered. Economic orthodoxies are not universal truths, despite the blustering of some pompous economists. They are political tools, frequently weaponised to defend a global economic status quo. Unless these tools—the iniquitous debt, trade and investment frameworks – are neutralised, everyone else will suffer, some by comparison, many in absolute terms, as they and their economics are left behind. But this is not inevitable.

A different way forward is possible

There are arguments that the policies of the US and EU will also benefit Global South countries. Green technology will cost less, and everyone will benefit. Such arguments must examine the history of similar claims, which are a perverse form of global trickle-down economics. They ignore issues of power and control over resources, or, more accurately, they are arguments deployed only by those who have the power to ensure they retain it.

We need to reset the global economy. As we go green to repair the planet, our commitment to reparation needs to be much deeper. A just transition is one in which economic decolonization and financial reparations for historical injustices must form a key part. Debt cancellation, an overhaul of trade rules, and unconditional climate finance can all play a role and enable countries in the South to build their economies on their terms.

The funds needed for such significant shifts can be paid for by wealth taxes and other forms of lawful but far-reaching expropriation of assets that have been accumulated under an exploitative economic system.

This is not a utopian dream; it is a reality check. We cannot continue as we are because the competitive approach inherently means winners and losers. If a just transition is to be realised, we need to recognise that the green industrial approach currently embraced by the major economies is a major obstacle.

The green industrial policies of the EU, the US, and China do nothing to address global economic inequality. They are driving increased resource consumption and consumerism and are inherently unsustainable in any real sense. As Angela Wigger(opens in new window) has noted, the EU Green Industrial Deal is “testimony to the competitiveness goal enjoying primacy above tackling the climate emergency.”

Collectively, civil society has made progress in addressing the problems of trade, debt, and tax avoidance. Increasingly, groups are taking on the gross over-consumption of global resources by the Global North and the rise of corporate monopolies that dictate global policy. Now, we need to double down, go further, confront the competitiveness issue, and make bolder proposals part of the conversation.

Moments of opportunity will arise. The Overton window can shift, and dramatically so at times. We must be ready. Where states compete, civil society movements must collaborate to dismantle what is an international architecture of injustice.

SOMO is working with partners globally on this. We must ensure the green transition is just and make ‘just transition’ more than a slogan.