The worldwide effort to decarbonize is no longer limited to climate summits, diplomacy, or scientific urgency. It has invaded the sector where great-power rivalries are most fiercely contested: commerce. As governments compete to establish green businesses, acquire crucial minerals, and defend domestic manufacturing, climate policy is evolving into the language of a new trade conflict. The era of green protectionism has come, with regulations disguised as environmental necessity while serving as strategic industrial shields.
The United States, the European Union, and China are the three most powerful actors shaping the global green economy. Meanwhile, India is negotiating an increasingly protectionist world as it seeks to expand its renewable manufacturing, green hydrogen leadership, and net-zero promises. Climate action has already reshaped trade, so the debate is no longer whether it will do so. The fundamental question is whether climate policy will become the 21st century’s economic battlefield.
A New Trade Conflict Wrapped in Climate Language
The actions taken by the United States and the European Union over the last three years have altered the rules of global renewable energy competitiveness. The US Inflation Reduction Act (IRA), passed in 2022, is internally portrayed as a climate law, but its actual construction is undeniably protectionist.
It offers $369 billion for green subsidies and tax credits for domestic manufacturing. Further, batteries, essential minerals, and components must be sourced from the United States or trustworthy partners. Production-linked incentives for American-made electric vehicles, solar panels, and hydrogen. The message is clear: decarbonize, but do so through American supply chains. For nations like India, the IRA presents a dual challenge: it boosts US industrial competitiveness while drawing away investment in green manufacturing with unusually substantial subsidies. Companies in the solar, green hydrogen, and battery sectors are now pressured to choose between domestic growth and IRA-driven US relocation.
EU CBAM: Climate Action or Carbon Border Tax
If the IRA is a carrot, then the EU’s Carbon Border Adjustment Mechanism (CBAM) is a stick. CBAM is clearly a tariff disguised in green. It sets a carbon price for imports of steel, aluminum, cement, hydrogen, fertilizers, and electricity.
The aim is to prevent “carbon leakage”: the transfer of production to nations with laxer climate policies. However, emerging economies have accused the EU of adopting CBAM to maintain industrial dominance while pressuring the rest of the world to implement EU-style carbon pricing. India has been a vocal critic, claiming that CBAM punishes developing countries. Internal government estimates suggest that the method will cost India’s steel and aluminum exporters more than €2 billion per year by 2034.
China: The Quiet Giant Driving the Green Trade War
China leads the clean energy supply chain: 80% of the global solar manufacturing capacity, 60% of EV battery production, and 70% of rare earth processing. This supremacy is not accidental; it is the result of two decades of government subsidies, funding, and industrial planning. While the West frames China as a threat to “fair competition”, Beijing positions its strategy as climate leadership. The end result is a triangular rivalry. The US tries to limit Chinese imports. The EU levies taxes on carbon-intensive production. China responds with price cuts and state-supported scale. The green trade war is not just beginning; it is already well started.
Why “Green Protectionism” has become appealing to governments
Clean energy relies on mineral and supply chains that resemble the geopolitics of oil: lithium (dominated by Australia, Chile, and China), nickel (Indonesia and the Philippines), cobalt (DRC and China), and rare earths (China). Governments now treat solar panels, batteries, and hydrogen in the same way they used to handle petroleum and defense equipment. To achieve net-zero ambitions, economies must revamp their energy, transportation, and industrial sectors. Governments are concerned that neglecting to preserve domestic sectors today could lead to employment losses in the future. Further, green manufacturing creates local jobs, local investments, visible economic benefits. This makes green protectionism politically acceptable to domestic audiences.
India is in a unique position: it needs access to affordable green technology while simultaneously developing domestic manufacturing capabilities. As a result, it has adopted a mixed strategy—protectionist when essential, liberal when opportunities present. India’s solar manufacturing capacity has risen to 64.5 GW in 2023, supported by production-based rewards, high basic customs taxes, approved list of manufacturers.
This is protectionism, but it is freely accepted as an industrial policy. Nonetheless, India still imports over 60% of its solar components from China. A quick move to local manufacturing would impede the renewable transition. India must therefore walk a fine line between increasing domestic capacity and keeping solar pricing cheap. India’s Green Hydrogen Mission, with incentives worth ₹19,744 crore, intends to establish India as a global powerhouse for green hydrogen and derivatives such as green ammonia. However, until the government finds a method to decrease capital costs or ensure long-term buyers, EU and US subsidies are likely to outperform India. This implies that India’s hydrogen ambitions are directly influenced by the global subsidy race.
Critical Minerals: A Strategic Gap
India lacks native lithium and cobalt reserves. It is currently pursuing partnerships with Australia, joint ventures in Africa, and domestic exploration (J&K’s lithium deposits). However, China’s entrenched influence over the global value chain challenges India’s efforts. Delhi regards CBAM as discriminatory. It evaluates multiple strategies: challenging the EU at the WTO, establishing a domestic carbon market, encouraging steelmakers to use green technology, and negotiating sectoral exemptions.
But India is more concerned about whether CBAM is the first of many Western efforts to stifle emerging economies’ industrial growth.
Climate action without cooperation risks turning into economic conflict
Climate policy is now about more than just emissions; it is also about power. The rising green trade war may hasten decarbonization in the West, but it also risks exacerbating inequities in the developing world. India faces the challenge of not only participating in the global green economy but also shaping the laws of this new era.
If climate policy becomes the new trade war, India will have no choice but to fight—not to put off climate action, but to ensure that the path to net-zero is fair, competitive, and in line with its developmental goals.
The “Green Protectionism” Era: Is Climate Policy Becoming the New Trade War
The worldwide effort to decarbonize is no longer limited to climate summits, diplomacy, or scientific urgency. It has invaded the sector where great-power rivalries are most fiercely contested: commerce. As governments compete to establish green businesses, acquire crucial minerals, and defend domestic manufacturing, climate policy is evolving into the language of a new trade conflict. The era of green protectionism has come, with regulations disguised as environmental necessity while serving as strategic industrial shields.
The United States, the European Union, and China are the three most powerful actors shaping the global green economy. Meanwhile, India is negotiating an increasingly protectionist world as it seeks to expand its renewable manufacturing, green hydrogen leadership, and net-zero promises. Climate action has already reshaped trade, so the debate is no longer whether it will do so. The fundamental question is whether climate policy will become the 21st century’s economic battlefield.
A New Trade Conflict Wrapped in Climate Language
The actions taken by the United States and the European Union over the last three years have altered the rules of global renewable energy competitiveness. The US Inflation Reduction Act (IRA), passed in 2022, is internally portrayed as a climate law, but its actual construction is undeniably protectionist.
It offers $369 billion for green subsidies and tax credits for domestic manufacturing. Further, batteries, essential minerals, and components must be sourced from the United States or trustworthy partners. Production-linked incentives for American-made electric vehicles, solar panels, and hydrogen. The message is clear: decarbonize, but do so through American supply chains. For nations like India, the IRA presents a dual challenge: it boosts US industrial competitiveness while drawing away investment in green manufacturing with unusually substantial subsidies. Companies in the solar, green hydrogen, and battery sectors are now pressured to choose between domestic growth and IRA-driven US relocation.
EU CBAM: Climate Action or Carbon Border Tax
If the IRA is a carrot, then the EU’s Carbon Border Adjustment Mechanism (CBAM) is a stick. CBAM is clearly a tariff disguised in green. It sets a carbon price for imports of steel, aluminum, cement, hydrogen, fertilizers, and electricity.
The aim is to prevent “carbon leakage”: the transfer of production to nations with laxer climate policies. However, emerging economies have accused the EU of adopting CBAM to maintain industrial dominance while pressuring the rest of the world to implement EU-style carbon pricing. India has been a vocal critic, claiming that CBAM punishes developing countries. Internal government estimates suggest that the method will cost India’s steel and aluminum exporters more than €2 billion per year by 2034.
China: The Quiet Giant Driving the Green Trade War
China leads the clean energy supply chain: 80% of the global solar manufacturing capacity, 60% of EV battery production, and 70% of rare earth processing. This supremacy is not accidental; it is the result of two decades of government subsidies, funding, and industrial planning. While the West frames China as a threat to “fair competition”, Beijing positions its strategy as climate leadership. The end result is a triangular rivalry. The US tries to limit Chinese imports. The EU levies taxes on carbon-intensive production. China responds with price cuts and state-supported scale. The green trade war is not just beginning; it is already well started.
Why “Green Protectionism” has become appealing to governments
Clean energy relies on mineral and supply chains that resemble the geopolitics of oil: lithium (dominated by Australia, Chile, and China), nickel (Indonesia and the Philippines), cobalt (DRC and China), and rare earths (China). Governments now treat solar panels, batteries, and hydrogen in the same way they used to handle petroleum and defense equipment. To achieve net-zero ambitions, economies must revamp their energy, transportation, and industrial sectors. Governments are concerned that neglecting to preserve domestic sectors today could lead to employment losses in the future. Further, green manufacturing creates local jobs, local investments, visible economic benefits. This makes green protectionism politically acceptable to domestic audiences.
India is in a unique position: it needs access to affordable green technology while simultaneously developing domestic manufacturing capabilities. As a result, it has adopted a mixed strategy—protectionist when essential, liberal when opportunities present. India’s solar manufacturing capacity has risen to 64.5 GW in 2023, supported by production-based rewards, high basic customs taxes, approved list of manufacturers.
This is protectionism, but it is freely accepted as an industrial policy. Nonetheless, India still imports over 60% of its solar components from China. A quick move to local manufacturing would impede the renewable transition. India must therefore walk a fine line between increasing domestic capacity and keeping solar pricing cheap. India’s Green Hydrogen Mission, with incentives worth ₹19,744 crore, intends to establish India as a global powerhouse for green hydrogen and derivatives such as green ammonia. However, until the government finds a method to decrease capital costs or ensure long-term buyers, EU and US subsidies are likely to outperform India. This implies that India’s hydrogen ambitions are directly influenced by the global subsidy race.
Critical Minerals: A Strategic Gap
India lacks native lithium and cobalt reserves. It is currently pursuing partnerships with Australia, joint ventures in Africa, and domestic exploration (J&K’s lithium deposits). However, China’s entrenched influence over the global value chain challenges India’s efforts. Delhi regards CBAM as discriminatory. It evaluates multiple strategies: challenging the EU at the WTO, establishing a domestic carbon market, encouraging steelmakers to use green technology, and negotiating sectoral exemptions.
But India is more concerned about whether CBAM is the first of many Western efforts to stifle emerging economies’ industrial growth.
Climate action without cooperation risks turning into economic conflict
Climate policy is now about more than just emissions; it is also about power. The rising green trade war may hasten decarbonization in the West, but it also risks exacerbating inequities in the developing world. India faces the challenge of not only participating in the global green economy but also shaping the laws of this new era.
If climate policy becomes the new trade war, India will have no choice but to fight—not to put off climate action, but to ensure that the path to net-zero is fair, competitive, and in line with its developmental goals.
Author
Anusreeta Dutta