Green Industrial Policies: Opportunities and Obstacles in the Global Trade and Investment Regime

Advanced economies that have criticized industrial policy in the past, are now increasingly turning to those tools in response to the climate crisis. At the same time, existing trade and investment agreements, negotiated and drafted at a time when countries viewed industrial policies with skepticism, embody a more “hands-off” approach to economic governance.

The new rise of industrial policies combined with a decidedly anti-industrial policy treaty landscape begs the question: To what extent do countries face actual or potential legal constraints in their pursuit of climate-related industrial policy under the international trade and investment regime?

A new journal article in Climate Policy by Rachel Thrasher, Praveena Bandara, Yudong Liu and Alessandro Iaia creates a climate-related industrial policies landscape from existing policy data and examines the extent to which those policies are actually or potentially threatened by the current trade and investment rules. The authors identify policies as “climate-related” where they are aimed at supporting and maintaining the critical/transition minerals, battery, wind and solar power and electric vehicle sectors.

The analysis reveals that the policies preferred by advanced economies (AEs) enjoy more deferential treatment under the World Trade Organization (WTO) and other free trade agreement rules, whereas emerging market and developing economies (EMDEs) tend to rely on measures that are more tightly constrained under those rules.

Main findings:

• The vast majority (more than 75 percent) of industrial policies adopted by AEs from 2021-2023 fall under the category of “subsidies and state aid.” China relies almost entirely on this category as well.
• By contrast, EMDEs, excluding China, spent nearly half of their policy toolkit on “export and import policies” and 10 percent on local content policies.
• There is a clear disparity between AEs and EMDEs when it comes to policy choices, as nearly 15 percent of all EMDE policies clearly violated rules in 2023 compared to a mere 3 percent of AE policies.
  • Trade rule violation and WTO disputes may lead to disruptive negative effects on EMDE green industrial development.

Overall, the findings emphasize that the tension between policymaking trends and global rules must be resolved to ensure that trade and investment rules do not pose an obstacle to the global goal of slowing climate change for the benefit of current and future generations.

This journal article was previously published as a working paper by the GDP Center in September 2025.