Industry Transition to Climate Neutrality: Comparing Policy Approaches in Times of Geopolitical Fragmentation

Till Köveker, Fernanda Ballesteros, Franziska Klaucke, Antonia Kurz, Karsten Neuhoff, Paula Niemöller and Sangeeth Selvaraju

No 2114, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: European climate policy was traditionally pursued in the expectation of global policy convergence, ensuring equal opportunities for domestic and foreign firms in achieving climate neutrality. However, increasing geopolitical fragmentation has disrupted this expectation. Across the globe, national strategies increasingly favor economic policies that benefit domestic industries and coercive economic networks, altering the effectiveness of climate measures along international value chains. This study evaluates three policy approaches governing the transition to a climate neutral basic materials sector – (i) polluter pays, (ii) dedicated policies targeting both production and use, and (iii) green demand – to assess their political viability in the context of European policy in a fragmented world. Our analysis suggests that in a fragmented world, both the polluter pays and green demand policy approaches face significant challenges in achieving climate neutrality at sufficient stringency. A decarbonization approach based on separate but coordinated policies for material production and use appears to be more politically viable.

Keywords: Industrial decarbonization; Industrial policy; Climate policy; Geopolitical fragmentation; Value chains; Statutory incidence; Economic incidence (search for similar items in EconPapers)
JEL-codes: F59 P18 Q58 Q59 (search for similar items in EconPapers)
Pages: 24 p.
Date: 2025
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