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Amitabh Kant and Samir Saran, “The Green Development Compact: Atlantic Ambition, Southern Scale,” ORF Issue Brief No. 853, Observer Research Foundation, January 2026.
Both the United States (US) and the European Union (EU) have moved beyond the Paris Agreement, albeit in different ways. In both centres of the Global North, there has been a belated recognition that state capacity—organisation, incentives, and planning—must be applied to the question of green industrialisation, even if public finances are more strained than they were a decade ago.
Even in the Trump era, amid the rollback of multiple goals embodied in the Inflation Reduction Act and similar legislations, the US government as well as sub-national authorities still have an implicit industrial policy with similar aims in place, particularly in cutting-edge tech sectors. Although reframed from climate action to geo-economic competition, the logic of inward-focused industrial policy as expressed in the Deese Foreign Affairs paper[1]—using foreign demand to support a return of energy-intensive manufacturing in the US—remains at the core of recent policy moves in Washington.
The focus of the EU, meanwhile, remains on closing the competitiveness gap caused by its high-cost energy matrix as well as the complex regulatory and tax structure that inhibits innovation. The Bruegel white paper[2] is a reflection of these priorities.
Both worldviews, while distinct, have a great deal in common. Most importantly, they share the view that domestic industrial capacity can be created in an era of transition through the focused application of state power and capacity. The recognition that state capacity must be mobilised to meet the climate crisis and industrialisation goals is a premise the developing world has long championed. However, frameworks out of the Global North that envision the developing world merely as a consumer market for Western green tech or a supplier of intermediate resources will fail to capture the global imagination and miss the possibilities inherent in transnational cooperation.
For the Global South, decarbonisation must also be development. Nations on the frontline of climate change recognise that it threatens food security, infrastructure, and the hard-won achievements on poverty reduction in many societies and regions. Therefore, any efforts to ideate new approaches to green industrial policy, the energy transition, and climate cooperation are welcome.
To be politically sustainable and viable, however, such efforts must move beyond models based around competition for industrial advantage towards those that stress co-development. Any sustainable design for such an effort must also take into account the gravitational force exerted by the manufacturing base of the People’s Republic of China, and how that shifts the industrialisation choices and strategic environment of decision-makers in both the West and the South. Since their contribution to new energy supply chains is undeniable, industrial policy elsewhere must work around Chinese overcapacity and with Chinese know-how.
Similarly, Chinese capital cannot and must not be ignored in Global South planning; instead, it must be incentivised, constrained, and disciplined through institutions and rules. Through the Asian Infrastructure Investment Bank and the New Development Bank, the mainland’s vast resources of savings are already being deployed in new geographies—on terms that meet global norms, not Beijing’s geopolitical aims. This must be expanded. Every region’s prosperity must contribute to the global good.
This brief will argue that any Global South view on this will not accept a permanent economic subordination, as in Deese, or relegation to certain sectors, as in Bruegel. Instead, it will call for a shift from follower to leader status for key economies and hubs in the south. Just as we mutually depend on each other for climate action, we need to embed mutual dependence into our geo-economic solutions. It will propose a Green Development Compact that integrates capital and core innovation from the Global North with scale, speed, and renewable endowments of the Global South. This will enable the construction of a diversified and resilient industrial architecture that serves the economic security of all parties.
The global transition to energy-efficient production is the defining economic event of the century. As is the case with all such large-scale, global transformations, views and plans are filtered through as many prisms as there are national and sectional interests. For our purposes, it serves to examine three.
First, for the United States, the global shift is an opportunity to, in the words of Deese, “renew leadership” through investment. This reflects three aspects that are unique to US approaches to world events. First, the focus on retaining American primacy and restoring its mid-century greatness in a period when multiple challengers have emerged. Second, Washington does not yet need to question its ability to call upon the world’s investible funds to swell its public balance sheets and the power of its state to finance and direct investment. And third, it assumes that it will continue to retain an input-cost advantage when compared to competitors at an equivalent technological level (other than China).
For European strategists, there are similarly three core concerns. First, they must grapple with protecting jobs and retaining competitiveness amid the continent's relative energy poverty; the Bruegel paper, for example, identifies the need to import green energy embodied in energy-intensive tradeable goods from elsewhere in the world. Second, they must examine their economic security, in an age where European capitals have a heightened sensitivity to geopolitical and geo-economic risk. Third, they must depend on a private sector that they are less able to directly order or incentivise, but are able to regulate.
As we have argued, however, for the Global South—including for India—the climate transition must be about development as much as decarbonisation. In other words, no country expects that its future within a new green world order is to remain at the periphery of the global value chain. Atlantic views that bifurcate the world into those who produce and those who buy; those who require high-value inputs and those who export raw materials; or those who invent and those who pay—are naturally incongruent with such development aspirations. They are also obsolete. The 21st century is not the 19th, and the developing world is no longer just a market. Instead, it hosts many of the most crucial engines of global growth. Any workable climate solution must therefore place the industrialisation of the South at its core, alongside political and fiscal sustainability for the North. Otherwise, it will not achieve the scale necessary for 1.5 or even 2 degrees, and will fall short of the geopolitical durability it would require to survive in an increasingly fractured and fractious world.
We can thus define three core interests for the Global South, corresponding to those identified for the US and Europe above. First, the question of how to industrialise while decarbonising must be answered in any co-operative attempt. Second, economic security profits must be built in: A dangerous dependence on imported fossil fuels cannot be replaced by an equally dangerous dependence on imported minerals or technology. Third, value must also be created where energy is produced, minerals are mined or processed, and technologies are platformised and distributed.
The Deese proposal for a “Clean Energy Marshall Plan” plans the subsidisation of domestic US manufacturing, alongside access to foreign markets that will absorb the goods so produced. Shorn of its green fledging, this is also broadly the Trump economic mandate. This is why, as many have already argued, Trump’s industrial policy – with or without federal subsidies – will impact the global green transition similarly to Biden-era proposals such as Deese’s. Both share an injection of liquidity alongside protectionist impulses.
Indeed, recent US work on the subject – such as the August 2025 commentary[3] from the Center for Strategic and International Studies (CSIS) on American export leadership – retains many of the assumptions underlying the Deese analysis. It argues, for example, that “US diplomacy must focus on expanding global markets for next-generation US clean tech such that low- and lower-middle-income countries self-select US technologies.” This would be attempted through a redefinition of the goals of US development finance.
However, a Marshall Plan-equivalent that is designed around financing consumption of US goods and technology may neither protect existing American jobs, meet US spending constraints, nor satisfy developing-world requirements. Few emerging economies will be willing to use borrowed funds to buy goods manufactured in high-cost Northern jurisdictions; they will view this as cannibalisation of their own industrial aspirations. Such a process would, in addition, be economically inefficient, as it would not ensure that manufacturing and innovation took place in locations determined by the risk-reward calculations of the private sector. Nor does it satisfy the economic-security requirements of the Global South. Models that are based on “delivering” solutions to the world build in exclusive dependence on a single supplier of high technology and goods. It also requires US “generosity” on financing and technological transfer to be sustained over time; this will not be viewed as adequate in developing-world capitals from an economic security lens. They would prefer greater control over the means of production.
This can, however, be corrected. Resilience – political and economic – will emerge from distributed manufacturing. The US cannot supply the world on its own, nor should it aim to. It must aim instead to co-produce with the world, ensuring that US workers, companies, and capital benefit from the comparative advantages of different geographies. In the process, the global cost of the green transition will be lowered.
European thinking may revolve around restoring competitiveness rather than retaining leadership, but it also focuses on reframing trade policy through regulation in order to bolster domestic manufacturing. The Bruegel paper, for example, proposes an “international division of labour in which the South specialises in green production of energy-intensive intermediate inputs, such as ammonia and reduced iron ore, while the EU imports these inputs as a cheaper alternative to direct energy imports.” Europe will retain high-value final manufacturing, which the paper argues composes the bulk of overall industrial value added. Such proposals, however, run into the reality of emerging-economy ambitions. They are willing and eager to expand their industrial base and their ability to produce energy-intensive inputs for global value chains. But they will fear a permanent relegation to the “middle” of any value chain.
Moreover, from their economic security perspectives, they will seek to at the very least co-own or co-develop the technologies underlying the final goods they demand and consume over the coming decades. This has a pragmatic edge to it as well: For many countries, including India, it is in fact easier and quicker to set up cutting-edge technology through vibrant start-up sectors than it is to massively expand the industrial base to focus on green inputs.
Indeed, the politics of developing countries that have access to the endowments necessary for the transition are already being restructured around managing those supply chains and capturing excess profits. Indonesia, for example, has limited the exports of crucial minerals absent a commitment to developing local processing facilities. India conducts similar exercises around access to its vast market for final goods. European plans and proposals must take into account the facts on the political ground.
The corrective for this, too, is straightforward – especially as it fits well with the independence of Europe’s private sector and its ability to discover and develop new locations for manufacturing. The choice of new hubs for green manufacturing should be left to the private sector, alongside a process of regulatory harmonisation and co-investment. Competitiveness for European production in areas where it is not constrained by energy costs will naturally emerge under this scenario. Such mechanisms will ensure that the European public receives a fair return on its savings and that European companies and jobs are protected.
A “Marshall Plan” model of consumption-financing may thus prove to be politically and fiscally unsustainable for the North, and will likely fail to meet the South’s development expectations. An “extractivist” model will be politically untenable in the South, in turn. A third path must be identified, one that also manages to somehow deal with the three basic interests we have already identified: industrialisation, economic security, and the distributed creation of value. We propose a Green Development Compact.
We no longer live in the world of treaties, but of strategic alignments and agile arrangements, and this compact must be structured similarly – to ensure the congruence and convergence of interests in a rational, predictable and sustainable manner. It will end the war of fiscal attrition that current competitive subsidies entail – a war in which the South has no regiments to deploy – and deal with unnecessary trade barriers and the cost inflation they impose on the North. It will instead use the following three operating principles to ensure that each geography brings its particular competitive advantage to reducing and managing the cost of the transition.
Principle 1: Co-Development and Co-Growth
We desire, through this compact, to move from a hub-and-spoke industrial world to one where technology and capital disseminates freely. We reconcile the Global South’s desire for decarbonised industrialisation with Atlantic priorities of cost management and corporate health by shifting to a model of joint creation. The Global South’s scale, speed and endowments will be combined with the capital depth, corporate strength, tech innovation and labour skills of the Global North in distributed manufacturing ecosystems.
Principle 2: Economic Security and Interdependence
For all three geographies, the transition debate is inextricably tied up with questions of economic security. For the US, this means keeping its tech secure; for Europe, it means ensuring that its supply chains are free from political risk; and for the developing world, it means ensuring that the new economy does not replicate the dependencies of the old. The emerging world cannot allow tech or minerals to become the new oil – at least in terms of external influence on their own economies and social order, while the developed nations need to ensure their supply chains for green inputs remain accessible, affordable, and resilient.
Principle 3: Distributed Value Creation
For the transition to reach the scale that scientists demand it must, creating value for all stakeholders is an imperative. The supply chains in this transition are increasingly disparate, disconnected, and distributed. The creation and retention of value must therefore be geographically aligned with the chokepoints in these supply chains – among them, human ability, capital reserves, energy endowments, and mineral resources. Otherwise, we create a fragile system that build in multiple vetoes on our future.
These three principles move the debate from “who pays” and “who gets the jobs” to “what can we build together.”
To operationalise the compact, we suggest three instruments that would align various incentives from both North and South.
The primary barrier to green industrialisation in the South is not a lack of sun or wind, but the cost of capital. The primary barrier to manufacturing investment in the North is not a lack of capital, but concerns about market availability and supply stability.
The governments of the North are already aware that their economies’ purchasing power is their greatest strategic asset. It must be strategically deployed to ensure their economic futures. One way is to institute 15-year guarantees for the purchase of specific commodities, inputs, or materials – hydrogen or energy-embedded goods – from specific partners in the Global South. This reduces project costs in the developing-country partner, while reducing risk for the developed-world economy. The purchase guarantees can be attached to investment criteria, in which a fair return is provided to the investor in the Global North.
The Covax model had potential, though it proved fallible in the COVID-19 pandemic when the distribution of finished products succumbed to inefficiency. We will need to replace it with a model of distributed capacity instead. Either way, a multilateral R&D consortium should be created that can co-develop, co-finance, and co-own certain low-cost, distributable technologies.
The intellectual property developed within/with this grouping can be viewed/treated as a global public good. It could also be modelled on the private-public interface that has proven successful in India’s Digital Public Infrastructure model: Open protocols that allow private innovation to flourish on top.
The current financial architecture charges the Global South a “risk premium” that makes the transition impossible. Sovereign currency risk/hedging facilities must be developed to reduce individual project risk. In addition, existing agencies must be driven to better understand project-specific risk. For example, if a solar producer/park in Kenya has a guaranteed off-taker in Germany, then loans to that producer should reflect the credit risk of its off-taker as well as the local sovereign rating.
A “Green Marshall Plan” is a tempting prospect. But the Marshall Plan itself may not be the most apt of analogies. Like our proposed Compact, that was a rational act: US policymakers were wise enough to deploy their resources to rebuild allies that supported its global prominence for decades to come. We live in a different era, however, and our challenge is to build a more distributed and democratic industrial civilisation.
India and the Global South stand ready to be partners in this effort, and invite our Atlantic partners to look beyond models of the past to invent new ones for our shared future. Mutual dependence is a reality; the North needs our scale as much as we need their capital and technology. What is needed is for the institutions we build and the compact we design to reflect that reality.
Amitabh Kant is former G20 Sherpa, India and former CEO, National Institution for Transforming India (NITI Aayog).
Samir Saran is President, ORF.
All views expressed in this publication are solely those of the authors, and do not represent the Observer Research Foundation, either in its entirety or its officials and personnel.
[1] Ben McWilliams et al., “Reconciling the European Union’s Clean Industrialisation Goals with Those of the Global South,” Bruegel, July 3, 2025.
[2] McWilliams et al., “Reconciling the European Union’s Clean Industrialisation Goals with Those of the Global South”
[3] Leslie Abrahams and Joseph Majkut, “U.S. Clean Tech Exports Are the Key to Long-Term U.S. Economic Growth,” Center for Strategic and International Studies, August 11, 2025.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.
Samir Saran is the President of the Observer Research Foundation (ORF), India’s premier think tank, headquartered in New Delhi with affiliates in North America and ...
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