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) and do not necessarily reflect those of TESS or any of its partner organizations or funders.

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The green industrial transition is underway. The question now is not whether the world will decarbonize its heavy industry such as steel, aluminium, cement, and chemicals, but which regions will host the low-carbon version of it. That looks like an industrial strategy question. In practice, it is just as much a trade architecture question.

Trade instruments can help accelerate industrial decarbonization. The design choices embedded in carbon pricing instruments and their implementation paths—the rules within the rules—will shape whether investment flows to the locations that make the most climate, economic, and development sense, or whether they create a structural lock-in of current emission-intensive production.

The pressure is not only climatic: countries are now openly competing for green industrial position in ways that make longer-term, comparative-advantage-based partnerships harder to build; even where the logic for them is clear.

Two sectors—green iron and green aluminium—illustrate both what the win-win can look like, and the cost of getting the rules wrong.

Africa holds structural advantages relevant to energy-intensive industrial production: the world’s largest untapped renewable energy resources, substantial reserves of relevant materials such as iron ore and bauxite, and a young, rapidly expanding workforce. But intrinsics don’t automatically drive investments. The trade and investment architecture must create the conditions in which those advantages become investable and genuinely competitive.

The logic is straightforward. Upstream minerals processing is energy hungry: aluminium smelting consumes enormous volumes of electricity for a proportionally small share of economic output while iron-making is both energy- and emission-intense, and the green alternative—direct reduction—requires sustained, reliable, low-cost energy at scale. Both processes are ideally suited to regions with abundant renewable energy, yet both currently take place predominantly in fossil-dependent systems: coal-grid smelting in China and coal-based blast furnace steel in Asia and Europe.

Shifting these processes to regions with surplus renewable energy is not a development subsidy. It is a globally efficient reallocation of industrial capacity to match where the energy is.

But the transition is not playing out in a neutral market space. It is occurring against a backdrop of competing industrial strategies, deliberate policy choices about where value is captured, and supply chains that states are actively reshaping for security as much as for efficiency. The globally efficient outcome and the geopolitically desired outcome are not always the same. For some sectors and some transitions, they coincide; creating genuine win-wins where all parties gain from the shift. For others, the efficiency logic runs against the short-term interests of more powerful actors. The rules embedded in trade arrangements are what determines which logic prevails. Details matter, which is why we will look at the rules inside the rules.

African countries and continental institutions are actively positioning for green industrial growth: developing domestic carbon pricing frameworks, building investment cases, and shaping industrial policy. Whether that positioning translates into investable opportunity depends substantially on whether the parts of the trade architecture not defined by Africa alone are designed to recognize and reward it.

CAP-A’s analysis of green hot briquetted iron (HBI) production in Africa builds on earlier work by Agora Industries and ECDPM among others. Processing all African iron ore exports into green HBI (using renewable energy at the point of extraction) would generate over 520,000 jobs on the continent (including over 450,000 construction job-years and nearly 70,000 permanent roles), retain $21 billion in annual value, and reduce associated global emissions by 79 MT CO₂e per year. Critically, the emissions reduction does not stay in Africa: 54 MT annually materializes in China and 15 MT in Europe, as fossil-based processing is replaced by green HBI inputs.

Europe’s electricity system is already constrained: slow permitting, limited land, and competing electrification demands from transport and heating. Green HBI produced in Africa embodies renewable energy in a stable, tradable form and supplies Europe with the clean metallic inputs its steelmakers need, without placing additional pressure on a tight domestic power system and allowing Europe to retain its strategically important steel industry.

The gains are genuinely additive: Africa captures industrial development and employment at scale, Europe accelerates steel decarbonization without exacerbating its energy constraints, and global emissions fall. Policy alignment serves the collective interest because it also serves each party’s individual interest—provided trade and investment rules treat African green HBI as a core input to global industrial transition rather than a residual import.

Africa mines nearly a quarter of the world’s bauxite and exports virtually all of it unprocessed. Processing all of Africa’s bauxite exports into green aluminium on the continent, using African renewable energy, would generate 240,000 permanent jobs and 1.8 million construction job-years, reduce associated global emissions by 88%, and increase export revenue from $9.2 billion to nearly $84 billion per year.

The EU Carbon Border Adjustment Mechanism (CBAM) was designed partly to create the price signal that would drive investment towards low-carbon production. For aluminium, over 70% of embedded emissions come from smelting electricity (scope 2 emissions) which the EU CBAM currently excludes. This is not a technical footnote: it means the mechanism that is supposed to reward low-carbon production does not reward the decarbonization lever that matters most in this sector. Green aluminium produced using African renewable energy therefore receives no CBAM price advantage over aluminium smelted using a coal-heavy grid. The market signal is suppressed at precisely the point it would be most effective.

The EU CBAM entered its definitive phase in January 2026, moving from a reporting obligation into a financial one. It remains work in progress. The scope 2 exclusion for aluminium sits alongside other open questions: recognition criteria for carbon prices paid in third countries are still being developed, with certificate deduction rules expected only in early 2027; questions of revenue recycling and transition support for affected developing-country producers remain unresolved; and the scope extension to downstream products has yet to complete the legislative process. Pressure to narrow the mechanism has been significant: 2025 saw a de minimis exemption, a postponement of certificate sales, and a softening of quarterly compliance requirements, driven partly by administrative burden concerns and partly by pushback from affected stakeholders across trade and industry.

The concerns underpinning some of this pressure are legitimate. But the case for pricing embedded carbon is a structural necessity, not a technical preference. Emissions are a textbook negative externality: the gains from carbon-intensive production are privatized, while the costs of climate change are socialized, falling hardest on those least responsible. It is precisely this failure to price the externality that produced the existential climate problem the world now faces. Weakening the signal defers the adjustment while increasing its eventual cost.

This matters beyond the EU. Embedded carbon pricing is becoming a structural feature of global trade architecture—and that proliferation is, in itself, the right direction of travel. Carbon pricing now covers around 28% of global greenhouse gas emissions, with jurisdictions representing two-thirds of global GDP having adopted carbon taxes or emissions trading systems. Coverage has grown from 12% to 28% over the past decade, and average prices have nearly doubled. China has extended its national emissions trading scheme (ETS) to cement, steel, and aluminium. Brazil, India, and Türkiye are implementing or planning ETSs. The IMO is on track to apply a levy on high-emission shipping fuels from 2027.

As more of their export markets apply carbon pricing, the question of whether those mechanisms recognize African green production becomes not only a climate policy question, but a question of market access. The design questions that remain unresolved in the EU CBAM are therefore not merely EU regulatory questions; they are the template questions that will shape how a proliferating set of mechanisms either direct production towards genuine low-carbon comparative advantage or protect the incumbent systems they are nominally designed to phase out.

For next generation carbon pricing mechanisms to direct investment towards global industrial decarbonization, three design elements are key.

Relevance. A carbon border adjustment that excludes electricity-related emissions in aluminium smelting is not a carbon price; it is a partial accounting exercise that omits the largest decarbonization lever. Expansion to more products and fuller emission scopes further amplifies the mechanism’s effect: by simple economic calculus, the greater the proportion of global emissions that carries a cost to the producer, the more low-carbon alternatives will be accelerated.

Clarity. Carbon pricing mechanisms must be clear on what is covered, what qualifies for recognition, and on what terms. For the EU CBAM, producer country ability to reduce CBAM exposure by building equivalent domestic carbon pricing is important in WTO and GATT non-discrimination discussions: it is part of the EU’s argumentation on why the CBAM is genuinely non-discriminatory. Yet the EU has not yet shared clear eligibility criteria for such local levies, slowing down policy action in exporting countries.

More broadly, mechanisms that offer producing countries a credible onramp—reducing CBAM exposure through equivalent domestic carbon pricing—are more likely to attract the broad political support that the continued global expansion of carbon pricing depends on. Without defined recognition criteria, carbon pricing will not expand to producer regions, the desired global level playing field will not be reached, and producer countries will have fewer tools for industrial decarbonisation.

Actionability. Mechanisms that shift abruptly, apply without consultation, or offer no transition support cannot drive the investment and policy responses they are designed to trigger, and—worse— generate political resistance that undermines them altogether. Phased implementation schedules, formal consultations with affected third-country producers, and defined transition support—such as revenue recycling towards green industrial investment in those economies—should not be seen as concessions to delay. Recycling CBAM revenue towards green industrial investment in exporting countries is not charity: it is the instrument that converts a trade measure into a development pathway and builds the political coalition that allows carbon pricing to expand. These are the conditions under which broad-based political sustainability for carbon pricing can be maintained.

Carbon pricing mechanisms do not operate in a vacuum. Incentives for industrial production locations are shaped not only by trade measures, but also by industrial policy frameworks and financing tools; and these do not always pull in the same direction. A growing set of industrial policy levers favours or even mandates domestic production or domestically sourced inputs. Yet the logic of comparative advantage—and of durable industrial partnerships—does not operate within national borders. To capture the global benefit of African green industrialization, policy frameworks, transaction structuring, and financing mechanisms need to work together. The most effective carbon pricing mechanism in the world will underdeliver if the surrounding investment, trade, and industrial policy architecture treats the low-carbon value chain as stopping at the border.

The toolkit available to governments—carbon pricing, industrial subsidies, local content requirements, financing arrangements—is large, growing, and becoming more sophisticated. None of these instruments is inherently directed towards the globally efficient outcome; each can as easily entrench existing positions as enable new ones. What determines the direction is the framework in which the tools are deployed.

China has already made the long-horizon industrial calculation in aluminium: capping domestic primary aluminium capacity at 45 million tonnes per year under its current Five-Year Plan, moving domestic production towards renewably powered locations, and simultaneously investing in refining and smelting capacity abroad. This is a strategic, long-term, and coordinated industrial strategy oriented towards securing supply chain advantage—not a climate one—and it is moving at pace.

Many other industrialized economies, including many European countries, are deploying a growing set of green industrial policy tools with an implicit focus on being comprehensive: to anchor as much of the value chain domestically as possible. Yet comparative advantage is built through specialization, not comprehensiveness. Understanding which steps each economy genuinely holds the edge on, and which it would be better served sourcing from others, helps focus interventions and shape partnerships.

Opportunities for genuine long-term win-wins exist across many sectors. A trade architecture that is honest about competing interests and precise enough in design can make the globally efficient outcome the rational choice for each actor—not despite their competing interests, but because of them.

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Carlijn Nouwen is Co-Founder of Climate Action Platform Africa (CAP-A), which produces rigorous, sector-specific evidence on Africa’s green industrial opportunities and works with governments, investors, and policymakers to align trade, financing, and market access with Africa’s emerging industrial advantage.

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