Green transitions in the era of green subsidies: Ensuring no country is left behind

Aparadigm shift is occurring in climate policy. Instead of solely relying on sticks to penalise carbon emissions, national governments have turned to carrots to expand clean energy technologies. Efforts like the US’s Inflation Reduction Act and India’s production-linked incentives highlight the increasing comfort with using subsidies to simultaneously address the climate crisis and meet economic and geopolitical objectives. These incentives are expected to reduce the cost of nascent clean energy technologies to hasten the transition away from fossil fuels. However, without global cooperation and coordination, these subsidies risk a race to the bottom where (1) clean energy investment and technological capacity will accumulate in high-income countries able to provide the most subsidies, and (2) countries will respond by enacting further barriers like export bans or tariffs to inhibit the flow of clean energy finance and technology. These tensions threaten to jeopardise the energy transition, especially for developing countries with the greatest need for climate finance and technical assistance. Consequently, lower-cost clean energy may not only fail to reach developing countries but replicate existing global inequities in industrial and technological capacity. The G20 provides a more flexible platform to pilot solutions to this challenge. To address this challenge, the G20 should establish a trade, development, and climate working group and the ACCELERATE (Advancing Clean Energy, Collaboration, and Trade for Economic Recovery and Transformation) platform to share technical information and finance clean energy. Each effort will have unique roles for both developed and developing countries, as a step towards medium- and long- term solutions.