Domestically-oriented Green Energy Statecraft involves bold government initiatives to build, grow and successfully compete in the high-technology industries essential to the green transition – either individually or in close collaboration with key economic and strategic partners. This aspect of statecraft will need to be tailored to each country’s strengths and weaknesses to maximise its effectiveness.

We find extensive evidence of this statecraft in Northeast Asian countries, especially South Korea and China, where policymakers understand the huge economic gains to be made from pioneering new markets and seizing first mover advantage. Their long history of highly strategic, export-oriented techno-industrial policymaking, underpinned by close, collaborative government-business relations and financial support, gives these governments a significant advantage in this crucial statecraft domain. Nevertheless, largely in response to the China challenge, we have seen growing experimentation with ambitious green industry building initiatives in countries with liberal state traditions, from the United States (under the Inflation Reduction Act) to the UK (under its Clean Energy Superpower Mission Board) and Australia (under Future Made in Australia).

It is useful to distinguish domestically-oriented Green Energy Statecraft from ‘industry policy’, green or otherwise. The term ‘industry policy’ is now highly politicised and widely misunderstood in many national contexts. It is also an unhelpfully broad term that can describe any government intervention in the economy intended to alter the nation’s productive structure, regardless of motivation, from industry development to job creation to pork-barrelling. By contrast, domestically-oriented Green Energy Statecraft describes government initiatives focused squarely on building new green energy-related industries with the intention of ensuring success in hyper-competitive global markets and, simultaneously, bolstering national security, broadly defined. As the Northeast Asian experience shows, this goal-orientation makes domestically-oriented Green Energy Statecraft a highly disciplined affair; policymakers who practice it successfully don’t merely outline bold visions for new industry creation. They make government support conditional on firm performance to ensure success. This involves setting clear production, export, environmental and/or technology upgrading targets, and mobilising both supply- and demand-side policy instruments and all available financial resources and incentives to ensure that targets are met (we discuss the financial foundations of Green Energy Statecraft below). Such discipline is also essential to ensure that precious taxpayer dollars are not squandered and economic and social returns to citizens are maximised.

What if many governments embraced this kind of strategic activism? Would the market for green goods and technologies be saturated, driving down prices to the point of non-viability? China’s massive investments in green industries have already dramatically reduced prices for goods like batteries, solar panels, and EVs. But given the climate crisis, sharply falling prices for these goods, combined with technological spillovers that benefit firms and consumers, are cause for celebration. To be sure, there are losers, including workers in less competitive sectors in advanced countries, but these groups should be provided with transitional financial support and retraining to secure their future. Under existing trade rules on “safeguards”, governments concerned about the domestic impact of import surges are already permitted to impose temporary tariffs to enable adjustment. However, tariffs that inhibit the green transition are counter-productive and reflect a failure of green energy statecraft.

Economists often object that green interventions risk greater protectionism. These concerns are misplaced. Fossil fuel subsidies continued unabated in the so-called era of open trade. We have been experiencing rising protectionism in manufactured products for some years, driven in part by a concern that China’s dramatic export successes have been achieved by “unfair” departures from principles of open trade. Yet these “fair trade” responses from Europe, the US and others have not brought the world closer to a free trade ideal. The US in particular is unlikely to exhibit great concern for WTO rules or for general principles of open trade in the foreseeable future. As we discuss below, it would be more productive – and an important external component of green economic statecraft – to negotiate new ground rules for global trade that permit interventions that promote a green transition while limiting protection in goods and services that are critical to this transition.

It is also worth noting that economists have long accepted important justifications for departing from free trade. Adam Smith famously defended the mercantile-era Navigation Acts on national security grounds, arguing that “defence is of much more importance than opulence”. Like Smith, we favour prioritising national security, but conceive it as including the long run prosperity and collective sustainability of economic and social life. Certainly, there are likely to be trade-offs between economic efficiency and interventions to support the green transition. This implies the need for discipline and conditionality in local industry-building endeavours, both crucial components of effective domestically-oriented green energy statecraft. But there are larger social and environmental benefits to be gained from a successful energy transition, including greater economic security for workers in advanced and developing countries.  There is also, we would add, sound strategic reasoning behind efforts to diversify green supply chains on Smithian security grounds. The concentration of production capabilities for critical goods and technologies in a single country poses serious risks to the global green transition should international relations deteriorate or unforeseen disaster strike.