The global race to become a leader in the manufacturing of green technologies is well underway. Many developed countries are pumping huge amounts of money into their respective green economies. How could this influence green economic growth in the Global South? Rebecca Bertram reports.

The green economy, involving aspects related to renewable energy, electric vehicles, renewable hydrogen production among others, is a crucial component in the global quest to reduce carbon emissions and mitigate dangerous climate change. Developed countries in North America and Europe have been at the forefront of building green energy technologies, investing heavily in research and development and creating new sustainable business models for a different green economic growth. Yet recently, support mechanisms for the green economy have become more competitive, and the Global South could be left behind.

The green economy can only have a meaningful impact on global warming if it is truly a global effort. Rich countries across Europe and North America have historically contributed to much more to global temperature rise than less developed countries in the Global South: while these countries account for a mere 12 percent of the global population they are responsible for almost 80 percent of the greenhouse gases emitted into the atmosphere over the past 170 years.

This argumentation is one brought up regularly by countries that find themselves most affected by climate change where extreme heat waves, floods and other climate-related disasters are a daily occurrence. As such, they want wealthier countries to pay for the harm caused by climate change. For the first time at the international climate negotiations in 2009 in Copenhagen, developed countries committed to a collective goal of mobilizing USD 100 billion per year in climate finance for developing countries. In 2021, almost USD 90 billion were accumulated, doubling finance levels since 2013 but falling short of the initial commitment and general need.

Recently, however, there has been a shift in global green economic relations: Both the United States and Europe – in an attempt to safeguard domestic industries – have begun to implement a series of so-called ”green” protectionist policies. For one, the European Union approved its Carbon Border Adjustment Mechanism (CBAM) in 2022, essentially a global carbon levy on imports to the EU. In the same year, the United States adopted its infamous Inflation Reduction Act (IRA), the single most powerful policy tool to incentivize the production of green technologies to date. The IRA provides up to USD 369 billion in climate investments through tax credits and subsidies. Proponents claim that the IRA could triple renewable capacity and significantly reduce carbon emissions resulting in a 60 percent carbon-free power sector by 2032. The special feature of the IRA aims to bolster US energy security and domestic manufacturing providing subsidies only to those companies that manufacture domestically.

While many praise the boldness by which the United States is moving forward on green energy development international criticism is mounting. First, the World Trade Organization prohibits such practices because the IRA unlawfully encourages reshoring supply chains to the US. The European Union, South Korea, Japan and India among others have openly criticized the IRA for its domestic content provisions and are developing their own retaliation protectionist provisions. For example, India is calling for a Make In India strategy while Indonesia aims to limit its nickel exports.

A growing number of protectionist policies around the world would not only severely hinder the global energy transition but also jeopardize the much-needed involvement by the Global South. While subsidies and tax credits are intended to support domestic industries they can distort the global market and lead to overproduction in Europe and the United States. This would lower the prices for green technologies and undermine the competitiveness of manufacturing in the Global South.

The latest protectionist tendencies in the green tech business highlight the economic and strategic importance of this sector. Like no other, it drives innovation and fosters the development of sustainable technologies and practices, which lead to new employment opportunities and an improvement in the overall quality of life. Green growth is particularly important for the Global South as it represents the most vulnerable to the effects of climate change and environmental degradation. Protectionist policies in many parts of the world could jeopardize the green growth capacity in the Global South, further undermining the region’s potential for sustainable economic growth.

The views and opinions in this article do not necessarily reflect those of the Heinrich-Böll-Stiftung European Union.