This article is part of a Synergies series on Next generation trade arrangements for environment and sustainable development. Any views and opinions expressed are those of the author(s).

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The debate on industrial decarbonization often starts with finance. Why are there not more bankable projects for green steel, low-carbon aluminium, sustainable aviation fuel, green hydrogen derivatives, or clean fertilizers in the Global South? The usual answers are technology risk, weak infrastructure, high capital costs, and regulatory uncertainty. All matter. But they miss a simpler sequence: demand comes before investment, and investment comes before finance.

A project is bankable when buyers can sign credible long-term contracts. If a cleaner producer cannot be sure that its product will be accepted in major markets, there is no reliable revenue stream. Without that, there is no contract, no collateral, and no finance at scale. The first question for trade and climate policy is therefore not only how to mobilize money. It is how to create trustworthy markets for verified low-carbon goods.

Recent evidence makes the point sharper. The IEA Global Energy Review 2026 shows that clean energy deployment is accelerating, yet energy-related CO2 emissions still reached a new high in 2025. The IEA Global Hydrogen Review 2026 also identifies weak offtake as a central barrier for low-emissions hydrogen. The world is adding clean capacity faster than it is reorganizing the markets that would turn that capacity into large-scale industrial substitution.

The energy transition is changing the meaning of comparative advantage. In the fossil fuel age, energy could travel to industry. Oil, gas, and coal were dense, storable, and globally tradable. Renewable electricity is different. It is cleaner, but it is also more tied to place. Wind, sun, hydropower, biomass, land, water, ports, and grids are becoming strategic factors of production.

This creates green comparative advantage. Some countries can produce particular industrial inputs with lower embedded emissions and competitive costs because their clean energy systems and natural assets are structurally stronger. Brazil, Chile, Uruguay, Morocco, Namibia, South Africa, Australia, and others have opportunities that many advanced economies cannot easily reproduce. In Brazil, for example, renewable electricity, biomass, water, minerals, land, and Atlantic-facing ports can support green iron, low-carbon aluminium, fertilizers, sustainable aviation fuel, and other products.

The point is not that all production should move South. The right unit of analysis is the value chain, not the individual plant. Energy-intensive upstream stages may locate where clean energy is abundant and cheap, while downstream activities based on engineering, design, services, brands, advanced manufacturing, and customer integration remain close to established industrial centres. Trade then becomes a way to carry embedded clean power in goods, not only a way to exchange final products.

This is the logic behind powershoring and behind the argument that trade can be a vector of climate efficiency. If a tonne of iron, aluminium, or fertilizer can be produced with lower emissions because it uses a cleaner energy system, trade can reduce emissions rather than merely shift them across borders.

The problem is that many markets are open in theory and closed in practice. Tariffs still matter, but the more important barriers are often regulatory: incompatible certification systems, narrow eligibility rules, costly traceability, shifting product standards, local content requirements, domestic production preferences, and subsidies designed around national champions rather than carbon performance.

The European Union's Carbon Border Adjustment Mechanism, now in its definitive phase from 1 January 2026, can be part of the solution if it rewards verified lower emissions wherever they are produced. But border measures can also deepen mistrust if default values, reporting costs, or uncertain recognition penalize new suppliers from developing economies. The same is true of green subsidies and procurement rules. If they create demand only for domestic production, they may protect incumbent plants while blocking cleaner and cheaper inputs from partners.

The steel debate illustrates the stakes. Recent work by Agora Industry shows that trade in green iron can help industrial economies decarbonize steel while preserving downstream jobs and creating opportunities for renewable-rich producers. That is the kind of arrangement climate policy should encourage: not a race to subsidize every production stage at home, but a governed value chain that rewards verified carbon performance.

This is not a technical detail. It is the political economy of the slow transition. Incumbent firms, workers, and regions have visible losses and strong voices. The gains from new low-carbon value chains are larger but more diffuse and still prospective. Governments therefore tend to spend heavily to preserve the existing geography of production, even when a value chain approach would reduce emissions and costs more quickly.

A next generation trade arrangement should not be limited to tariff preferences or broad declarations on sustainable development. It should make low-carbon production investable. Green corridors offer a practical model. They are product-specific institutional arrangements that coordinate production stages, standards, finance, infrastructure, market access, and long-term demand across countries.

The term should not be understood only as a shipping route or a hydrogen pipeline. A green corridor is a governed market for a specific low-carbon product. It links the buyer, the producer, the standard, the port, the lender, the certifier, and the development strategy. Its purpose is to turn a climate opportunity into a contract that firms can sign and financiers can underwrite.

Product-specific design matters because each industry has its own barriers. A green iron corridor is different from a sustainable aviation fuel corridor. Green iron requires ore, renewable electricity, hydrogen or direct reduction capacity, shipping logistics, steel buyers, and carbon accounting. Sustainable aviation fuel requires biomass, land-use safeguards, fuel certification, refinery capacity, airport logistics, airline demand, and life-cycle emissions recognition. A generic agreement cannot solve these different problems with one clause.

The corridor approach begins with market demand, maps the value chain, allocates production stages according to comparative advantages, and then builds the commercial and institutional package needed for investment. That package should include long-term offtake agreements, interoperable measurement, reporting, and verification systems, mutual recognition of certification, predictable customs treatment, development finance guarantees, shared infrastructure, and mechanisms for resolving disputes before they become trade conflicts.

Green corridors can also change the tone of North-South cooperation. Too often, developing economies are asked to provide raw materials, clean energy sites, or carbon credits, while higher-value functions remain elsewhere. That would reproduce old patterns with a green label. Corridors should instead be designed to support domestic value capture: local suppliers, technical jobs, skills, research links, tax revenues, small-firm participation, environmental safeguards, and community benefits.

This is why green comparative advantage is not enough by itself. A country may have sun, wind, water, biomass, minerals, and ports and still fail to develop if those assets are exported in thin forms. The development goal is to industrialize the advantage: to embed clean energy and natural capital in more sophisticated goods, services, standards, engineering capabilities, and firms.

Advanced economies also gain. Access to lower-cost, verified low-carbon inputs can protect downstream competitiveness, reduce the need for permanent subsidies, lower green inflation, and diversify supply. A German car, a European aircraft, or a Japanese machine tool may become more competitive if its upstream materials are produced where clean energy is structurally cheaper. This is not deindustrialization. It is industrial specialization under climate constraints.

This logic complements recent policy shifts. The European Commission's Clean Industrial Deal recognizes that competitiveness and decarbonization must be addressed together. The challenge is to make that agenda outward-looking as well as domestic. Clean Trade and Investment Partnerships, climate clubs, sectoral agreements, and South-South initiatives can all become more effective if they are organized around specific low-carbon value chains rather than abstract cooperation.

A serious green corridor should contain five elements. First, a shared carbon-accounting method that measures actual life-cycle emissions and avoids hidden discrimination against cleaner foreign pathways. Second, mutual recognition of credible certification bodies, laboratories, and digital traceability systems. Third, demand instruments such as buyer clubs, public procurement, airline or steel offtake contracts, and contracts for difference where they are needed to bridge early green premiums.

Fourth, finance linked to demand rather than isolated plant announcements. Multilateral development banks, export credit agencies, and climate funds should offer guarantees, currency risk tools, and political risk insurance when market access and offtake are secured. Fifth, development commitments in supplier economies: skills, supplier development, infrastructure with broad use, transparent taxation, environmental protection, and benefit sharing. The aim is not only to export green goods. It is to build green capabilities.

The multilateral system still matters. The WTO Agreement on Fisheries Subsidies, which entered into force on 15 September 2025, shows that binding trade rules can support environmental goals. But the next step will require more than one agreement. It will require a family of sectoral and corridor-based arrangements that discipline disguised protectionism while preserving environmental integrity.

Green protectionism is tempting because it turns climate policy into a promise of domestic factories and jobs. But if every country tries to reproduce every stage of every clean value chain at home, the transition will be slower, more expensive, and less inclusive. The real task is to build coalitions that make openness politically safe.

Green corridors do this by making gains visible on both sides. Renewable-rich economies see investment, jobs and industrial upgrading. Advanced economies see cleaner inputs, stronger downstream sectors, and lower fiscal pressure. Firms see contracts. Financiers see cash flow. Communities see safeguards and benefits. The climate sees lower verified emissions.

The next generation of trade arrangements should therefore start from a simple principle: trade is not a threat to climate ambition when it is governed by transparent carbon performance and fair development rules. It is one of the fastest ways to make the transition real. The choice is not between open trade and climate policy. The choice is between protection that preserves yesterday's industrial geography and cooperation that builds tomorrow's clean value chains.

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Jorge Arbache is Professor of Economics, University of Brasília, Brazil.

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Synergies is an online platform featuring expert commentary and opinions curated by TESS. We foster dialogue and incubate ideas on how to shape a global trading system that effectively addresses global environmental crises and advances sustainable development. Synergies draws on perspectives from leading experts and practitioners across policy communities from around the world. We seek to cultivate solutions-oriented policy analysis for a sustainable future.

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