Green industrial transformation: Countries compete for leadership in the new climate economy

Green Industrial Transformation: Nations Vie for Leadership in the New Climate Economy

As the world accelerates toward a low-carbon future, a new economic race is unfolding—one that will determine which countries dominate the industries of tomorrow. From renewable energy manufacturing to electric vehicles, green hydrogen, carbon markets, and climate technology innovation, nations are seeking economic advantages in the so-called "climate economy." The global transition is not merely an environmental obligation, but a contest of industrial strength, technological leadership, and geopolitical influence.

Industry Background

The global energy structure is currently undergoing profound transformation. According to data from the International Energy Agency (IEA), global renewable energy capacity additions surpassed those of fossil fuels in 2025, with solar and wind becoming the most cost-competitive sources of electricity. However, the industrial landscape of this transition is highly unbalanced: China accounts for over 80% of global solar photovoltaic module production capacity and over 70% of lithium battery capacity, establishing a dominant position in the supply chain. This concentration has raised strategic concerns among other economies—over-reliance on a single country for clean energy technology could pose risks to energy security and industrial resilience.

On the policy front, carbon neutrality commitments made by countries following the Paris Agreement have spurred a surge in clean energy investment. The U.S. Inflation Reduction Act (IRA), passed in 2022, provides $369 billion in climate subsidies. The European Union has launched the "Green Deal Industrial Plan" and established the "Net-Zero Industry Act," aiming to achieve at least 40% domestic manufacturing of clean technologies by 2030. These policies signal that developed countries are shifting from mere emissions reduction to industrial competition.

Current Development Dynamics

Intensified Competition in Renewable Energy Manufacturing: China not only installs more than half of the world's new solar capacity domestically but also solidifies its manufacturing advantage through economies of scale and industrial chain integration. The advanced manufacturing production tax credits in the U.S. IRA have attracted companies such as First Solar and Qcells to build factories in the U.S., planning to increase domestic solar module production capacity to over 25 GW by 2026. The EU, through the "Innovation Fund" and "Important Projects of Common European Interest," is supporting battery and hydrogen equipment manufacturing to reduce dependence on Asian imports.

Electric Vehicles as a Key Battlefield: China accounted for 60% of global electric vehicle sales in 2025, with BYD and CATL dominating the battery supply chain. The U.S. is promoting localization through federal tax credits (up to $7,500 per vehicle) and infrastructure investments, with General Motors and Ford forming joint ventures with Korean battery companies to build factories. Europe, with automakers like Volkswagen and Renault and strict carbon emission regulations, aims to maintain competitiveness in the high-end market. Additionally, India has launched the "Production Linked Incentive" (PLI) scheme, investing $3 billion to attract electric vehicle and battery manufacturing, while South Korea is stepping up research on solid-state batteries.Green hydrogen track heats up: Germany, Japan, and Australia are leaders in hydrogen infrastructure investment, while Saudi Arabia, UAE, and Oman leverage low-cost renewable energy to target export markets. Morocco and South Africa, with abundant solar and wind resources, are building large-scale green hydrogen projects and plan to supply Europe. Nigeria, as Africa's largest economy, besides launching a national carbon market framework, is also exploring solar manufacturing, biomass, and lithium processing, attempting to participate in the trillion-dollar climate economy.

Carbon market reshapes global economic landscape: After hosting COP30, Brazil is promoting the establishment of a global carbon credit system, enabling countries with rich forest resources (such as Indonesia and Congo Basin countries) to gain new export revenue through carbon credits. The EU's Carbon Border Adjustment Mechanism (CBAM) forces exporting countries to reduce the carbon intensity of production, accelerating the global decarbonization process.

Impact on Energy Systems

The green industrial transformation is profoundly changing the global energy supply structure. The expansion of clean energy manufacturing capacity directly reduces the costs of solar, wind, and energy storage, accelerating power system decarbonization. For example, the price of Chinese solar modules has dropped by over 90% in the past decade, allowing many countries to achieve renewable energy targets at lower costs. However, the geographic concentration of supply chains also exposes vulnerabilities: geopolitical tensions or export restrictions can lead to project delays and price fluctuations.

The concept of energy security is evolving: countries that once relied on oil and gas imports are now seeking to enhance resilience through domestic manufacturing and diversified clean energy trade routes. Green hydrogen trade is expected to shape a new energy geopolitical landscape, with countries that have renewable energy potential (such as the Middle East, North Africa, and Australia) potentially becoming export powers of future clean fuels.

Electricity market reforms are also advancing. The integration of high proportions of renewable energy requires flexible resources, promoting the deployment of energy storage, smart grids, and demand response. Countries are adjusting electricity pricing mechanisms to incentivize investment in storage and backup thermal power, while internalizing external costs through carbon markets and green certificates.

Challenges Ahead

• Despite strong momentum for transformation, challenges remain significant:- Insufficient energy storage and grid bottlenecks: The intermittency of renewable energy requires large-scale storage. Although battery costs have decreased, long-duration storage technologies (such as flow batteries and hydrogen storage) remain immature. Many regions have aging grids that cannot handle large amounts of renewable energy integration, requiring massive upgrade investments.
• Policy uncertainty: The US IRA provides tax credits for manufacturers, but political forces opposing climate policies, such as Trump, may adjust or repeal relevant regulations, putting corporate investments at risk. The details of the EU's Carbon Border Adjustment Mechanism have not been fully finalized, which could trigger trade frictions.
• Raw material supply issues: Demand for key minerals such as lithium, cobalt, and nickel is surging, but mining expansion faces environmental and social constraints. China dominates the processing stage; countries are pushing for new mine development (e.g., Chile, Australia) and recycling technologies, but capacity deployment takes time.
• Technology maturity gaps: The costs of technologies such as green hydrogen and carbon capture and storage (CCS) remain higher than fossil fuel alternatives, requiring ongoing R&D and scaled deployment.
• Funding gaps in developing countries: While countries such as Morocco and Nigeria have resource potential, they lack access to low-cost capital and infrastructure investment. Climate finance commitments have not been fully fulfilled, and developing countries account for less than 20% of global green investment.For developing countries, the real challenge lies in seizing opportunities to transform from raw material suppliers into providers of high-value-added manufacturing and services. Nigeria and other African nations have potential advantages in their young populations and abundant sunlight, but they need policy stability, infrastructure investment, and technology transfer. Green industrial transformation is no longer an option but a core economic competition that will determine a country's future in the 21st century. Those who act decisively will not only achieve environmental goals but also lay a lasting industrial foundation in the new climate economy.