This article is part of a Synergies series on climate and trade curated by TESS titled Addressing the Climate Crisis and Supporting Climate-Resilient Development: Where Can the Trading System Contribute? Any views and opinions expressed are those of the author(s) and do not necessarily reflect those of TESS or any of its partner organizations or funders.

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International trade and climate policy were treated for years as distinct, often incompatible domains. Trade was frequently perceived as a source of carbon leakage and competitive distortion, while climate action was framed primarily as a domestic undertaking, to be pursued through regulation, subsidies, and long-term infrastructure planning. Yet the world is now entering a phase in which these assumptions no longer hold. With rising fiscal pressures, constrained public budgets, and the urgent need to accelerate decarbonization, trade is emerging as a practical and powerful transitional strategy—one capable of reducing emissions rapidly, affordably, and at scale.

The central insight is that climate mitigation is not solely a technological challenge; it is also a question of geographical optimization. Some regions can produce electricity and energy-intensive goods with extremely low carbon intensity, while others face structural, financial, or political constraints that render decarbonization slow, costly, or politically fraught. Making deliberate use of these differences through commerce enables what may be termed global carbon arbitrage: the strategic relocation of production to places where emissions are cheapest to avoid and where clean energy is most abundant.

The logic becomes evident when examining the carbon footprint of energy-intensive sectors. A tonne of aluminium smelted with hydropower emits roughly four tonnes of CO2, whereas the same tonne produced using coal-fired electricity emits more than twenty. Relocating even a modest share of global output to renewable-rich regions produces immediate and measurable reductions, irrespective of the final destination of the aluminium. This is the essence of green comparative advantage, a concept extending classical Ricardian trade theory by treating carbon intensity, renewable endowments, regulatory coherence, and technological capability as core determinants of competitiveness. Under this logic, environmental conditions and energy availability become as relevant to economic performance as labour productivity or capital deepening. Clean electricity itself becomes a form of natural capital—one that can be productively transformed and valorized through trade.

When green comparative advantage is combined with the emerging phenomenon of powershoring, a powerful market-based pathway for accelerating the global energy transition begins to take shape. Powershoring refers to the relocation of electro-intensive industries to regions possessing abundant, reliable, and competitively priced renewable energy. It is distinct from reshoring, near-shoring, or friend-shoring because it is driven not by geopolitics or logistical concerns, but by energy economics and climate efficiency. Powershoring places decarbonization at the centre of industrial location decisions and treats renewable energy as a fundamental input to competitiveness in the 21st century. In doing so, it helps create new industrial geographies organized around green hubs—integrated ecosystems in which low-carbon electricity, green hydrogen, industrial facilities, logistics, certification systems, and technological spillovers reinforce one another.

It is crucial to emphasize that this is not intended as a permanent rearrangement of global industry. Rather, it is a transitional strategy for a transitional moment. The world must triple renewable capacity by 2030, even as electricity demand surges due to artificial intelligence, data centres, electric mobility, industrial electrification, and hydrogen production. Most advanced economies are struggling to deploy renewables at the pace required, hindered by land constraints, protracted permitting processes, rising costs, and community resistance. Simultaneously, governments face fiscal tightening, intense political contestation, competing budgetary priorities, and pressure to curtail subsidies. In this context, relocating part of global production to renewable-rich regions offers a pragmatic means of buying time, reducing costs, and accelerating climate progress while domestic infrastructure gradually expands.

The corporate benefits of such a strategy are increasingly apparent. Firms confront mounting expectations from regulators, investors, and consumers. Scope 1, 2, and 3 reporting obligations, the EU Carbon Border Adjustment Mechanism, procurement policies favouring low-carbon materials, and evolving ESG financing standards all heighten the incentive to reduce carbon intensity. Locating production in regions with naturally low embedded emissions allows firms to achieve compliance organically, without reliance on offset markets or expensive retrofits. They benefit from lower operating costs, reduced exposure to fossil fuel price volatility, greater regulatory predictability, and improved access to climate-sensitive markets. They also gain more favourable financing conditions, as investors increasingly price climate risk and seek assets aligned with a low-carbon pathway. For many multinational corporations, access to clean, affordable, and dependable electricity is becoming as essential as access to labour or consumer markets.

These advantages extend downstream along global value chains. Automakers, technology producers, construction companies, food and beverage firms, and consumer goods manufacturers all rely heavily on aluminium, steel, fertilizers, petrochemicals, and other electro-intensive materials. If these inputs become more expensive or more carbon-intensive due to domestic constraints, entire value chains face margin compression, erosion of competitiveness, and potential job losses. Access to greener inputs—produced through powershoring—helps sustain employment in downstream industries by ensuring that supply chains remain compliant, affordable, and predictable. Far from displacing employment, this approach can preserve and even expand jobs in both exporting and importing economies by maintaining the competitiveness of industries that depend on low-carbon materials.

For renewable-rich developing countries, the opportunities are particularly significant. Powershoring and green comparative advantage enable these countries to industrialize their comparative advantages, transforming abundant natural energy endowments into engines of technological upgrading, value creation, and inclusive development. Producing green steel, aluminium, fertilizers, hydrogen derivatives, and synthetic fuels in these regions creates skilled industrial employment, stimulates local supplier networks, expands service sectors in logistics, certification, engineering, and maintenance, and fosters innovation ecosystems. It increases fiscal revenues, enabling governments to invest in infrastructure, education, and social programmes. Small and medium-sized enterprises can participate in supply chains, local content expands, and regional inequalities may be reduced through the formation of distributed green industrial clusters.

Brazil stands as a paradigmatic example. With an electricity matrix that is nearly 90% renewable—a level that the European Union, the United States, and China would require decades and vast financial resources to attain—Brazil possesses a temporal and competitive advantage of exceptional magnitude. The country’s Northeast region offers outstanding solar and wind potential, with natural complementarity that enables high capacity factors and long-term price stability. Producing energy-intensive goods in Brazil is, in effect, a means of exporting embedded renewable energy. Every tonne of green steel or aluminium produced there displaces a carbon-intensive tonne produced elsewhere, contributing directly to global emissions reductions while supporting domestic industry. In this sense, powershoring is not a race to the bottom but a race to the cleanest—and most competitive—production model. It exemplifies geographic optimization of decarbonization, aligning the interests of producers, consumers, and the planet.

This strategy does not supplant other climate solutions; it complements them. Countries must still expand renewable capacity at home, electrify transport, invest in storage technologies, adopt nature-based solutions, decarbonize buildings, and deploy carbon-capture technologies where appropriate. No single tool will address the climate challenge in its entirety. Yet trade can play a catalytic role by accelerating mitigation during the critical years in which domestic infrastructure remains insufficient. Powershoring is one element within a broader menu of strategies—alongside innovation, circular economy approaches, green finance, demand-side efficiency, and long-term energy planning—that can collectively deliver a more rapid and cost-effective transition.

For importing economies, the benefits are noteworthy. Green trade reduces transition costs, mitigates green inflation, broadens access to low-carbon materials, and enables industries to remain competitive in a world that is rapidly internalizing carbon accountability. It allows governments to advance climate goals while safeguarding employment in sectors that might otherwise be compromised by stringent regulatory demands. It eases fiscal pressures by leveraging global markets rather than relying exclusively on domestic subsidies. And it offers a cooperative, mutually beneficial alternative to unilateral climate measures that risk fragmenting the global trading system.

To unlock the full potential of trade as a climate accelerator, global governance will need to evolve. A new green multilateralism is required—one built upon transparent carbon accounting, mutual recognition of standards, elimination of tariffs on low-carbon goods, de-risking instruments for green hubs, and the creation of green trade corridors connecting renewable-rich producers to major demand centres. Such corridors would integrate harmonized certification systems, dedicated logistics infrastructure, and jointly developed regulatory frameworks. A Brazil-Europe corridor, for instance, would reduce decarbonization costs for European industry while generating stable demand and investment flows in Brazil, illustrating how trade can foster shared prosperity and climate efficiency.

The coming decade will be decisive. Emissions must fall sharply, yet governments face high debt, constrained budgets, political polarization, and multiple competing priorities. In this environment, strategies that deliver rapid mitigation at low fiscal cost are indispensable. Powershoring and green comparative advantage are not permanent restructurings of global industry but transitional mechanisms designed to optimize decarbonization while renewable capacity remains unevenly distributed across the globe. They serve as bridges between ambition and feasibility, enabling countries to achieve climate objectives while maintaining competitiveness, protecting employment, and attracting investment.

Trade, long underestimated in climate debates, may prove to be the missing accelerator the world urgently needs. By aligning markets with the geography of clean energy, the international community can reduce emissions more swiftly, cheaply, and equitably. In a world short on time, financial resources, and political cohesion, solutions that deliver immediate results matter enormously. Leveraging global carbon arbitrage through trade is one such solution: pragmatic, effective, and fully aligned with the structural realities of the global energy transition.

* This article is based on the paper by Jorge Arbache on The role of trade in global energy transition published by the Brazilian Center for International Relations (CEBRI) in November 2025.

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

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Synergies by TESS is a blog dedicated to promoting inclusive policy dialogue at the intersection of trade, environment, and sustainable development, drawing on perspectives from a range of experts from around the globe. The editor is Fabrice Lehmann.

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