Green Development Compact: Atlantic Vision, Southern Expansion
TL/DR –
Both the United States and the European Union have taken steps towards green industrialisation in response to the climate crisis. However, their approaches differ, with the US focusing on inward-focused industrial policy and the EU targeting its high-cost energy matrix and complex regulatory structure that could hamper innovation. The article suggests that both strategies will require transnational cooperation and a focus on co-development to be successful.
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The Role of State Capacity in Green Industrialisation
Emerging from the Paris Agreement, both the United States (US) and the European Union (EU) have acknowledged the necessity of leveraging state capacity to address green industrialisation, despite the pressure on public finances. There is a growing consensus that domestic industrial capacity can be bolstered in this transitional period through strategic state intervention and planning.
Even amid political changes in the US, including the retraction of numerous goals outlined in the Inflation Reduction Act, the government at various levels has maintained an implicit industrial policy aimed at green technology sectors. As outlined in the Deese Foreign Affairs paper[1], the focus is on utilising foreign demand to revitalise energy-intensive manufacturing in the US.
In contrast, the EU’s approach is centred on overcoming the competitiveness deficit caused by its high-cost energy infrastructure and a complex regulatory and tax environment that stifles innovation. These priorities are reflected in the Bruegel white paper[2].
While the approaches of the US and the EU differ, they share a common understanding that domestic industrialisation in a transitional era can be achieved through strategic state intervention. However, northern-centric frameworks that perceive developing nations as simply markets for Western green technology or potential resource suppliers cannot capture the full potential of transnational cooperation nor effectively address the climate crisis.
Decarbonisation and Development in the Global South
The Global South recognises that decarbonisation is not just about carbon reduction, but also about development. The implications of climate change extend to food security, infrastructure, and progress in poverty reduction. As such, new approaches to green industrial policy and energy transition should be welcomed.
However, to be politically sustainable and viable, these efforts must transition from models based on industrial competition to those emphasising co-development. A sustainable design for such efforts must also consider the influence of the manufacturing base of the People’s Republic of China and the strategic choices it presents to decision-makers in both the West and the South. Industrial policy elsewhere must thus navigate around Chinese overcapacity and expertise.
Chinese capital also plays a critical role in the planning for the Global South. It cannot be disregarded but must be encouraged, regulated, and disciplined through institutional frameworks and regulations. This includes institutions like the Asian Infrastructure Investment Bank and the New Development Bank, which are already directing China’s vast savings resources into new geographies. These efforts must be expanded for the greater global good.
Navigating the Energy Transition
The global move towards more energy-efficient production is the defining economic event of our century. To achieve this transition, it is essential that we understand and address the interests of different nations and regions.
US View on Energy Transition
For the US, this global shift offers the opportunity to “renew leadership” through investment. This reflects the unique US approach to the world, which is focused on retaining American primacy, leveraging the world’s investible funds, and maintaining an input-cost advantage.
European Perspective on Energy Transition
Europe, on the other hand, is concerned with protecting jobs, maintaining competitiveness, ensuring economic security, and relying on a private sector that it can regulate but not directly command.
Global South’s Developmental Perspective on Energy Transition
For the Global South, including India, the climate transition has to be balanced with economic development. Countries in the Global South reject the idea of remaining on the periphery of the global value chain and require solutions that place their industrialisation at the core.
Proposing a Green Development Compact
To rectify the issues with the existing models – a “Marshall Plan” consumption finance model and an “extractivist” model – a new approach is required. This new approach should address the core interests of industrialisation, economic security, and distributed value creation. In response to this, we propose a Green Development Compact, built upon the principles of Co-Development and Co-Growth, Economic Security and Interdependence, and Distributed Value Creation.
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