Renegotiating supply chains for the green transition: industrial policy within a changing global economic order

Since the turn of the century, green industrial policy has been on the rise, guided by concepts of green growth and motivated by the mounting pressure to address the challenge of climate change. A first wave of green industrial policy focused on promoting promising clean technologies, such as wind and solar energy. With the formulation of carbon neutrality targets by mid-century, the scope of the green transition has widened considerably, including not only the build-up of new, green industries but also the decarbonization of existing, energy-intensive sectors. Moreover, this transformation process is taking place within in the context of rising geopolitical rivalry and a weakening of multilateral governance. The international trading system in particular, as epitomized by the World Trade Organization, is increasingly under strain. Against this background, green industrial policy can be conceptualized as processes of political negotiation, in which governments engage with stakeholders at multiple levels of governance to reshape global supply chains. This ranges from processes for the development and implementation of national schemes to support investments in the decarbonization of industrial supply chains to the remaking of an international trading system that shields climate-friendly investments from international competition. It involves the development of new alliances and venues for renegotiating the rules governing economic exchange and setting the terms for investment. In this paper, we illustrate how these processes are taking shape in the steel sector. A sector with a long history of industrial policy making and that accounts for almost 10 percent of global GHG emissions, it is emblematic of these multi-level processes of political negotiation that are poised to reconfigure important parts of the world economy. Focusing on Germany, the EU and the US, we trace how the interplay of national and international policy processes is reshaping the rules of engagement in the sector, driven by a combination of policy aims, including national security, industrial competitiveness and climate change. It identifies the main interventions at various levels of governance and the different at times competing international fora for negotiation that have emerged. The paper closes with a discussion of key challenges and trade-offs of green industrial policy making as well as broader implications for global regimes for decarbonization and economic governance within a changing world economic order.