As the world grapples with intensifying climate impacts, a decisive and collaborative effort is required to transition towards net-zero emissions. The Energy Transitions Commission (ETC), a coalition of global industry leaders, has released a critical report outlining the dynamics of global trade in clean energy and the necessity of carbon pricing. The central focus of the report is to propose principles for building clean energy supply chains and managing carbon border adjustment mechanisms (CBAMs), both of which are essential to achieving a sustainable, decarbonised global economy.
Global greenhouse gas emissions are yet to peak, with carbon concentrations and temperatures rising faster than earlier projected. While many low-carbon technologies such as solar PV, wind turbines and electric vehicles (EVs) are reaching cost parity or becoming cheaper than fossil-based counterparts, hard-to-abate sectors like steel, chemicals, aviation, and shipping still face significant cost barriers. In these sectors, policy support like carbon pricing becomes indispensable.
China’s clean tech dominance
A cornerstone of the ETC report is the evaluation of China’s commanding position in global clean technology manufacturing. As of 2023, China accounted for up to 98% of the global supply in key components of clean technologies. It produces over 80% of the world’s battery cells and solar PV modules, 65% of wind turbine nacelles, and nearly two-thirds of all EVs. This dominance extends to the midstream processing of critical minerals, refining the vast majority of global lithium, cobalt and graphite.
China’s leadership is not merely a function of cheap labour or lax environmental regulations, which have diminished in relevance as automation and environmental standards have improved. Instead, it stems from five major structural advantages: a strategic and coordinated national vision through Five-Year Plans, the creation of guaranteed local demand, access to cheap financing, extensive government support including R&D subsidies, and a thriving entrepreneurial ecosystem.
The report praises China’s achievements for accelerating the global transition by slashing the cost of clean technologies, but it also raises concerns about supply chain vulnerabilities, over-reliance on a single nation, and associated risks related to national security, employment and sustainability.
Rethinking supply chain strategy
To address these concerns, the ETC outlines six guiding principles for countries aiming to localise or diversify clean energy supply chains without sacrificing efficiency or competitiveness. First, the goal should be diversification not autarky. Fully decoupling from global supply chains would result in higher costs and slower deployment of clean technologies. Research from BloombergNEF reveals that onshoring solar and battery production could increase the cost of power decarbonisation by hundreds of billions of dollars in Europe and the US.
Second, the concept of ‘security’ must be clearly defined. While geopolitical tensions can disrupt fossil fuel supplies with immediate effect, clean technology imports do not carry the same short-term risk since assets like solar panels and wind turbines, once installed, continue to operate.
Third, policy strategies should be tailored to each sector. For instance, while it may be economically and technologically difficult for Europe to develop competitive solar PV manufacturing, building local EV or battery supply chains could be both viable and beneficial given existing infrastructure and market demand.
Fourth, tariffs and subsidies should be used judiciously, in a WTO-compliant and time-bound manner, to avoid long-term inefficiencies. Fifth, the focus of industrial policy should be on the location of economic activity, not the nationality of ownership, foreign firms can still deliver local employment, tax revenue, and skills development. Finally, developed nations and China should collaborate to direct climate finance toward lower-income countries, enabling them to leapfrog fossil-based development models.
Role of carbon pricing and CBAMs
For sectors where the green premium remains high, like cement, steel, and aviation, the ETC emphasises that carbon pricing is essential. These sectors account for nearly 30% of global emissions, and without a price signal to internalise the environmental cost, low-carbon alternatives will remain economically uncompetitive.
However, unilateral carbon pricing risks undermining domestic industries through ‘carbon leakage’ where production shifts to regions with lax climate policies. To counter this, the European Union is rolling out its CBAM, which aims to equalise the carbon cost between domestic products and imports by 2034. The CBAM initially targets high-emission industries such as cement, aluminium, fertilisers, hydrogen and electricity.
The ETC strongly advocates for CBAMs, refuting claims that they are protectionist. Instead, these mechanisms help preserve a level playing field and serve as incentives for countries to adopt carbon pricing. They also allow developed countries to take responsibility for consumption-based emissions, which are often excluded from domestic emissions accounting but are embedded in imported goods.
Developing countries and fair implementation
A major concern surrounding CBAMs is their potential impact on developing economies. Critics argue that CBAMs contradict the principle of “common but differentiated responsibilities.” However, the ETC contends that these mechanisms can coexist with that principle if implemented with care.
The ETC recommends that CBAM revenues at least in part be used to support climate finance in lower-income countries. In addition, technical support and international standardisation of emissions measurement should be prioritised to ensure developing countries can participate fairly in a carbon-priced global market.
Encouragingly, some progress is already underway. China’s Emissions Trading Scheme (ETS), though in early stages, has expanded to cover heavy industry and reached carbon prices of nearly $15 per tonne. The report suggests that global consensus on sector-specific carbon pricing standards, perhaps spearheaded by the WTO or launched at future COP summits, could accelerate broader adoption.
Future of industry and location shifts
The final segment of the ETC report delves into the future geography of clean industrial production. Once international carbon pricing frameworks are in place, industries may naturally relocate to regions with the lowest clean energy costs. For example, green hydrogen and DRI-based steel production could shift to nations like India or Brazil, where solar and wind resources are abundant.
This isn’t cause for alarm, the ETC argues, it’s a rational and efficient response to comparative advantage. Developed economies can still retain downstream manufacturing and value-added services while sourcing raw green materials from energy-rich nations. In fact, such relocations could stimulate investment, job creation, and sustainable industrialisation in developing regions.
Call to cooperative action
In summary, the ETC’s ‘Global Trade in the Energy Transition’ report offers a comprehensive and pragmatic roadmap for aligning global trade policies with climate goals. It urges countries to avoid protectionism while building resilient supply chains, calls for carbon pricing in hard-to-abate sectors, and promotes equitable international cooperation through mechanisms like CBAMs and climate finance.
The world is at a tipping point where the clean energy transition can either be accelerated through smart policy and trade cooperation or be derailed by fragmented, nationalistic responses. The ETC’s principles provide a timely compass to navigate this complex, high-stakes landscape and offer hope for a more sustainable and inclusive global economy.
