Are Europe’s clean industrial goals at odds with those of the Global South?

With its Clean Industrial Deal, the EU seeks to reconcile decarbonisation with industrial competitiveness – and ensure the political viability of its climate strategy. While this initiative is predominantly being developed as an EU domestic strategy, its international aspect is equally important.

Affordable clean energy is paramount to making Europe’s clean industrialisation work. Producing this energy in Europe is constrained by limited renewable energy endowments and land availability. Additionally, the transport costs of imported clean energy – in the form of electricity or hydrogen – are much higher than those of fossil fuels. 

In a new Policy Brief, Ben McWilliams, Jeromin Zettelmeyer and I argue that an alternative (but currently underexplored) way to fuel Europe’s clean industrialisation is to import energy-intensive primary tradeable products such as ammonia, methanol and reduced iron.

The Clean Industrial Deal should facilitate trade in energy-intensive intermediate inputs because they are cheaper to import than the energy itself, and because they could boost the competitiveness of downstream stages in the energy-intensive value chain (such as steel production). By lowering overall energy demand and hence electricity prices, they would also raise EU competitiveness more broadly.

The international benefit of such a strategy is that it embeds third countries - especially in the Global South - into clean industrial value chains. Stable European demand can help such countries develop export-driven, clean industrial strategies. Politically, this could be an important carrot that complements the stick of the EU's carbon border adjustment mechanism.

To pursue this option, EU governments must become more selective in how they subsidise energy consumption in energy intensive industries, linking support to strong decarbonisation actions. Further, the EU should forge strong Clean Trade and Investment Partnerships with selected partners in the Global South, putting trade in energy-intensive clean products at their core. Doing so would be good for both Europe’s and the Global South’s industrialisation goals, as well as for the speed of global decarbonisation.

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