Industrial policies, localisation and selected trade-related measures

Industrial policies and supply-chain measures can harness renewables to drive green industries and open broader economic opportunities. Targeted interventions can shape how value is captured along the renewable energy and clean technology supply chains, which of those activities are carried out domestically, and how firms position themselves in regional and global markets.

Governments can identify realistic localisation opportunities and design coherent policy packages that support competitive domestic manufacturing and related services in renewable energy and transition-related industries. At the same time, they need to manage trade-offs linked to costs, speed of deployment, and trade exposure. With all these factors taken together, value-chain diagnostics can inform the choice and sequencing of industrial policy instruments, alignment with localisation requirements, and overall feasibility in terms of trade objectives and market access.

Various elements need to be considered, notably:

• Value chains and localisation potential: Sound green industrial strategies begin with a value-chain assessment that clarifies where domestic participation is feasible in the near term, shows where capabilities need to be strengthened, and identifies constraints such as skills, standards and certification, finance, infrastructure and logistics.
• Industrial policies for localised manufacturing: Demand-side measures that provide market certainty can be combined with supply-side measures to help address competitiveness barriers to renewable energy and clean technology manufacturing, such as investment costs, technology access, supplier development and clustering.
• Localisation requirements and long-term market signals: Local content rules and related requirements can accelerate domestic participation in renewable energy supply chains. The same rules can also stipulate design considerations to avoid inflating project costs, extending timelines, and diminishing long-term market efficiency, with an emphasis on promoting competitiveness and upgrading local capabilities.
• Strengthening domestic clean energy industries: Economy-wide foundations, such as skills and training systems, standards, access to finance, innovation support and export promotion can, over time, reduce reliance on mandatory requirements for localisation.
• Powersharing: By siting production where renewable resources are abundant, governments can lower production costs, accelerate industrial decarbonisation, and strengthen competitiveness with clean-technology value chains.

Assessing the value chain for specific renewable energy technologies (e.g. offshore wind) is a key early step in identifying localisation opportunities. Further steps can be determined in line with national skills, industries and strategies.

The typical sequence is:

• Defining key renewable-based technologies: Modelling for a decarbonised or net-zero electricity system can help identify the technologies needed and where any part of their manufacturing could be situated based on local competitive advantages.
• Value-chain assessment: To provide policy support, the government must understand the specific value chains for identified technologies and which parts or segments could be localised based on existing skills, resources and industries.
• Industrial policies: Dedicated industrial policies can assist in localising the manufacturing of the required components for identified technologies.
• Mining for critical materials: Domestic manufacturing will require critical raw materials, including transition minerals. Determining the minerals needed, their availability, and how to secure their supply or develop domestic extraction capacity helps build domestic industrial advantages.
• Building an institutional framework: A competitive industrial base for clean energy hinges on establishing institutions and mechanisms to conduct regular assessments, consult and communicate with industries and the private sector, and develop effective policies to support the sector.

Industrial policies that support the localisation of clean energy manufacturing are essential to ensure domestic economic benefits alongside emissions reduction. Supply-side push policies – aimed at stimulating investment, innovation, and capacity expansion – can lower production costs, reduce financial risks, and create supportive industrial ecosystems for manufacturing renewable energy technologies.

Key supply-side push policies include:

• Offering targeted tax credits: Cutting investment costs through tax credits for facilities and equipment helps firms scale up production related to renewables.
• Providing capital grants: Upfront investment barriers can be overcome with capital grants to offset project risks and ensure financial viability.
• Funding R&D: Support for research and development (R&D) accelerates domestic innovation in renewable energy technologies and manufacturing processes.
• Establishing dedicated economic zones: The creation of industrial clusters with preferential regulations and dedicated infrastructure can attract manufacturers and strengthen supplier networks for renewable energy development.
• Expanding concessional finance: Below-market loan rates and long tenors can ease financing constraints for large-scale renewable energy manufacturing investments.

Localisation requirements for clean energy technologies can boost domestic industrial development and job creation as part of the energy transition. Some governments thus opt to temporarily shield national companies from international competition. This allows the domestic industry to gather expertise and competences for manufacturing specific parts or other components.

Policy options to incentivise local manufacturing include:

• Local content requirements: Project developers can be obliged to source a defined share of inputs, labour, or components domestically. The required share to source nationally typically increases over time, strengthening local supply chains and stimulating ongoing national economic development. Local content requirements must be carefully aligned with trade rules and market capacity to avoid raising costs or slowing deployment.
• Incentives and bonuses for local equipment sourcing: Projects that incorporate domestically manufactured equipment can be granted advantages in procurement scoring or benefit from lower tariffs.
• Targets for domestically produced equipment: Quantitative policy goals (e.g. percentages of turbines, panels, or components made locally) can guide industry planning, helping scale up domestic production capacity and reduce reliance on imports.
• Long-term market signals: Creating stable and predictable domestic demand for renewable energy products depends on long-term market signals. The procurement framework can provide predictability through multi-year schedules, transparent auction calendars, feed-in tariffs, and long-term deployment targets.

Industrial policies promoting renewables can enable domestic firms to participate in relevant value chains. Broader measures to prepare domestic industries for the energy transition can equip firms to respond to new market opportunities shaped by renewable energy deployment, industrial decarbonisation and changing trade patterns. Such measures can boost competitiveness, innovation, and quality in domestic clean energy manufacturing and services, help SMEs participate in the market, and ensure a predictable and supportive business environment.

Policies to strengthen national industry – typically cutting across several ministries and agencies – need to be coordinated with energy transition strategies, industrial decarbonisation policies, and labour and skills measures, so that support for firms, workers, and supply chains is mutually reinforcing. The effectiveness of these policies depends on several factors, such as the maturity of domestic firms, specific technology choices, and existing targets.

Several factors must be considered in building up the domestic clean energy industry:

• Improving the business environment: Complex administrative procedures, regulatory uncertainty, and high transaction costs can discourage firms from entering renewable energy value chains. Streamlined registration, licensing and customs processes, along with clear and stable investment rules and dedicated advisory services, can ease investment, lower compliance costs, and improve predictability for domestic and foreign investors.
• Innovation and technology upgrades: Domestic firms often struggle to adopt advanced production processes, hindering competitiveness. Applied research programmes, innovation grants and tax incentives can help upgrade technologies and improve productivity, while structured collaboration between industry, universities and technical institutes supports knowledge transfer and workforce reskilling.
• Standards, certification and quality infrastructure: Weak or unclear standards and limited testing capacity can prevent domestic producers from meeting international sustainability requirements, limiting access to export markets. Clear standards, robust testing and certification systems, and technical assistance help firms meet quality benchmarks, gain credibility, and integrate into regional and global value chains.
• Access to finance for domestic producers: Limited access to long-term, affordable capital can constrain investments in manufacturing capacity and technology upgrades. Financial instruments like green credit lines, guarantees, and concessional loans reduce financing costs and risk exposure, particularly when aligned with renewable energy procurement schemes, corporate PPAs, and industrial decarbonisation initiatives.

• Cluster development and supplier upgrading: Fragmented supplier bases and weak linkages between firms can limit economies of scale and exchanges of knowledge. Industrial clusters and supplier development programmes, combined with infrastructure investment and business development services, can strengthen local networks, improve firm capabilities, and enable smaller suppliers to meet the standards and volume requirements of large project developers.
• Export promotion and value-chain integration: Even highly competitive firms may face information gaps, trade constraints, limited financial support and other barriers in foreign markets. Trade promotion, export finance, and engagement through international cooperation platforms can facilitate market entry, while alignment with broader trade policy instruments supports long-term integration into regional and global value chains.

The practice of powershoring – relocating energy-intensive production to sites with abundant, clean, and inexpensive energy – links energy access issues to the challenge of attracting and retaining energy-intensive manufacturing. By siting production where renewable resources are abundant, governments can lower production costs, accelerate industrial decarbonisation, and strengthen competitiveness with clean-technology value chains. When aligned with grid planning and localised development strategies, powershoring promotes more balanced economic development and job creation.

Enabling policies for successful powershoring include:

• Clear roadmaps and strategies: Aligning renewable energy deployment, grid expansion, and industrial siting decisions ensures that manufacturing facilities are located where clean power supply can be delivered reliably and at scale.
• Long-term access to affordable clean power: To build competitive industrial clusters, governments can enable long-term PPAs, CfDs, or regulated tariffs that give industrial users predictable access to low-cost renewable electricity in specific sub-national regions.
• Grid and infrastructure investment: Public investment in transmission, distribution, and enabling infrastructure (e.g. substations, storage, hydrogen pipelines, roads and ports) reduces connection bottlenecks and de-risks private industrial investment.
• Targeted location-based incentives: Tax credits, grants, or concessional finance tied to co-location with renewable energy hubs can encourage firms to site production where clean power is plentiful.
• Streamlined permitting and land-use planning: Faster, coordinated permitting for both renewable energy projects and industrial facilities in designated areas on non-contested land reduces delays and helps synchronise project timelines.
• Workforce and regional development policies: Skills programmes, housing, and local infrastructure investment help ensure that areas hosting powershored industries can attract workers and build long-term economic benefits.

Trade-related policies shape how countries acquire renewable energy technologies and participate in clean energy value chains. As renewable energy deployment expands, governments need to balance several objectives: keeping clean technologies affordable; supporting domestic industrial capabilities; maintaining access to regional and global markets; and avoiding unnecessary trade disputes.

These policies are closely linked to industrial policy and localisation choices. They influence whether clean energy supply chains remain open and affordable, whether domestic firms can gradually build capabilities, and whether climate-related measures are seen as credible and fair by trading partners.

The overall policy challenge is to ensure that trade measures are transparent, targeted and time bound, so that they support industrial development without raising costs, slowing deployment or undermining international cooperation.

The following policies are particularly relevant to trade in the energy transition:

• Border carbon adjustments: Import taxes can be linked to prior GHG emissions to prevent carbon leakage. Making importers pay for embedded emissions can safeguard the competitiveness domestic firms and reward those in other markets that are advancing in the energy transition.
• Other trade policies: Other tools can facilitate the expansion of renewable energy supply chains for domestic and international trade, such as tariff reductions. Trade measures are needed to manage dispute risks without undermining affordability or slowing down the energy transition.

In markets with existing carbon-pricing mechanisms in place, domestic industries can benefit from a border carbon adjustment (BCA) on imports. This type of trade policy aims to prevent “carbon leakage,” whereby costs incurred through carbon accounting drive production to countries without carbon-pricing mechanisms.

The EU’s Carbon Border Adjustment Mechanism (CBAM) – the first major instrument of its kind worldwide – makes importers pay for embedded emissions, aiming for systematic cost alignment with EUcarbonpriced goods in key sectors.

Applying a carbon-related charge on imports based their embedded emissions keeps the playing field level for domestic industries that are cutting emissions. In parallel, foreign industries are encouraged to keep pace with emissions cuts of their own.

Several elements need to be in pace for BCAs to work:

• Robust domestic carbon pricing: BCA mechanisms build on an existing, well-established, and predictable domestic carbon price, providing the benchmark needed to calculate equivalent border charges.
• Measurement methodologies: Standardised rules are needed to assess embedded emissions and ensure that calculations for imported products are consistent, transparent, and verifiable.
• Revenue use and redistribution policies: Defined allocation rules for BCA revenues can support climate objectives and channel funds to help decarbonise affected industries, either domestically or in other countries.
• Industrial policy and transition measures: Coordinated phase-outs of free allocations and targeted industrial support can help domestic industries adjust to increasingly robust climate policies both at home and abroad.
• Governance, transparency and review mechanisms: A dedicated authority and regular review processes can strengthen BCA administration and promote continuous improvement of the mechanism.
• Trade and WTO-compliance safeguards: Non-discrimination and equal treatment measures are needed to ensure BCA mechanisms align with international trade law, including provisions of the World Trade Organization (WTO).
• Engagement with trade partners: Early dialogues with trading partners before rolling out a BCA mechanism – including on methodologies, interoperability with other carbon-pricing systems, and uses for BCA revenues – can avert misunderstandings, avert subsequent disputes and reduce trade-related tensions.

Choices of trade policy influence the cost and availability of renewable energy equipment and the way countries participate in global value chains. Beyond the border carbon adjustment mechanisms, instruments such as tariffs, trade facilitation, rules of origin, trade remedies and subsidy disciplines all affect renewable energy deployment and industrial development.

Many trade policy options – when they are transparent, time bound and coordinated with localisation measures – can support renewable energy industrial strategies while avoiding measures that raise costs, slow deployment or trigger unnecessary disputes.

Examples of trade policies and mechanisms that can shape the energy transition include:

• Tariff reduction for renewable energy goods: High import duties on key equipment and inputs can raise project costs and slow deployment where domestic production is limited. Reducing tariffs on goods not yet produced at scale lowers costs and supports supply-chain competitiveness. Temporary and targeted protection may be justified where it is tied to a credible, time-bound industrial strategy.
• Trade facilitation and customs procedures: Slow and unpredictable customs processes disrupt supply chains and increase costs. Streamlined and digitalised procedures reduce clearance times, improve logistics reliability, and facilitate both imports of components and exports of finished products.
• Rules of origin and regional trade agreements: Restrictive rules of origin can constrain regional sourcing and limit value-chain integration. Flexible provisions, including cumulation of inputs among partner countries, can support regional specialisation and the development of integrated renewable energy supply chains.
• Trade remedies and dispute settlement: The use of anti-dumping and countervailing duties can protect domestic producers but may also increase costs for renewable energy deployment and slow progress toward climate targets. Careful assessment of system-wide impacts, combined with reliance on multilateral dispute settlement mechanisms, helps balance industrial objectives with affordability and international obligations.
• Export controls for critical minerals: Export taxes or restrictions on critical minerals and intermediate goods can support domestic processing and value addition but may also disrupt supply chains and affect downstream industries and trading partners. Their use is most effective when embedded in a broader, coherent strategy for industrial upgrading and resource governance.
• Subsidies, transparency and cooperation: Opaque subsidy regimes risk triggering inefficient subsidy competition and trade tensions. Greater transparency and international cooperation can reduce harmful races to the bottom while preserving policy space for well-targeted support to clean energy technologies.