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

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

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.

Suggested Citation

  • Till Köveker & Fernanda Ballesteros & Franziska Klaucke & Antonia Kurz & Karsten Neuhoff & Paula Niemöller & Sangeeth Selvaraju, 2025. "Industry Transition to Climate Neutrality: Comparing Policy Approaches in Times of Geopolitical Fragmentation," Discussion Papers of DIW Berlin 2114, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp2114
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    More about this item

    Keywords

    Industrial decarbonization; Industrial policy; Climate policy; Geopolitical fragmentation; Value chains; Statutory incidence; Economic incidence;
    All these keywords.

    JEL classification:

    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other
    • P18 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Energy; Environment
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q59 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Other

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