Green industrial policies: opportunities and obstacles from the global trade and investment regime

Many countries are returning to industrial policy tools to meet various growth and development goals, such as participating in newly emerging global value chains, ensuring supply chain resilience, and adopting renewable energy sources. At the same time, the existing stock of trade and investment agreements may act as an obstacle to industrial policymaking. The rules in these agreements embody a more “hands-off” approach to economic governance that prioritizes nondiscrimination and the removal of as many restrictions on cross-border economic activity as possible. This paper analyzes the extent to which countries face actual or potential legal constraints in their pursuit of green industrial policy under the international trade and investment regime. To answer that question, a green industrial policy landscape is created from existing policy data. The paper then examines the extent to which those policies are actually or potentially threatened by current trade and investment rules governing industrial policy measures.Consistent with other related literature, the research finds that advanced economies are the most active policymakers. However, the policy mix varies significantly between advanced economies and emerging market and developing economies, with the latter tending to rely on measures that are more strictly constrained by rules.Despite these constraints, the importance of globally inclusive participation in climate action is imperative, and newly emerging global value chains for low-carbon technology products may provide opportunities for lower-income countries to promote growth through green industrial development. The tension, therefore, must be resolved to ensure that trade and investment rules do not pose an obstacle to this new wave of industrialization that contributes to the global goal of slowing climate change for the benefit of current and future generations.Key policy insights The mix of policy tools used by advanced economies and emerging market and developing economies differs, but even advanced economies are increasingly using policies prohibited by global trade rules.Most countries rely heavily on permitted policies, but this does not fully account for the ways nondiscrimination and nonarbitrariness standards constrain public policy.Policies enabling the development of green supply chains must be treated deferentially under trade and investment rules.