Industrial policy is back. The global number of government measures aimed at boosting businesses and the economy has skyrocketed, from just 228 in 2017 to over 2,000 in 2023. Many now focus on climate and sustainability. Across Asia and the Pacific, governments are increasingly subsidizing solar panels and electric vehicles (EVs), offering incentives for energy- and resource-efficient materials and technologies, and channeling investment toward green infrastructure, manufacturing, and skills development.
This shift carries significant potential for both growth and the green transition. The green economy is outperforming overall growth and is projected to expand by $4 trillion–$5 trillion by 2030. Green jobs are being created at twice the rate of workers qualified to fill them. Green products are traded more than conventional goods, and increased by 243% since 2000. However, the rise of green industrial policy is not without risks. These include high costs and misallocated resources, reduced productivity and competitiveness, “path dependencies” that inhibit innovation, and “subsidy races” that weaken the effectiveness of industrial policy over time.
Asia is the world’s industrial powerhouse. The region produces three-quarters of the world’s STEM graduates, including roughly a third of Indian students and more than two-fifths of those in Malaysia. Since the 1990s, Asia’s share of the global economy and manufacturing has nearly doubled. The number of free trade agreements (FTAs) has leapt from 8 to 147 since 2000. Renewable energy investment has risen by 34% every year since 2004, while infrastructure investment across 25 countries in emerging Asia is seven times the OECD average.
Green industrial policy seeks to leverage these strengths. The People’s Republic of China’s (PRC) Made in China 2025 policy directs subsidies and economic incentives toward green and digital technologies. India’s Production-Linked Incentives Scheme targets strategic sectors, including solar and batteries. Indonesia has pursued industrial ”downstreaming” to localize nickel production—a key input to EV batteries—cornering over half the global market.
This is principally designed to accelerate the energy transition. Feed-in tariffs (FITs), quotas, and tenders have advanced the deployment of renewables in 16 Asian countries from 2000 to 2021. In 2023, the PRC installed more solar power than the United States’ entire solar capacity. After adopting FITs in 2017, Viet Nam accounts for almost two-thirds of the Association of Southeast Asian Nations’ renewable electricity. Japan and the Republic of Korea drive demand for energy-efficient technologies through green purchasing requirements in public procurement, while Indonesia offers corporate and property tax incentives for renewable and geothermal projects.
EV production can also deepen sustainable value chains, generate green jobs, and curb air pollution. The PRC’s EV exports soared by 851% between 2020 and 2023, and the country now comprises 70% of worldwide production. Thailand is using targeted incentives to supercharge industrial capacity and inbound investment, including production subsidies, 40% reductions on import duties, and 75% off excise taxes. The Republic of Korea gives consumers $5,400 for locally produced EVs. Viet Nam is expanding its charging infrastructure and attracting foreign direct investment for a large-scale Hyundai factory alongside its domestic company VinFast.
Despite this momentum, Asia and the Pacific still faces structural challenges in its green industrial transformation. The first concerns the energy mix. The region’s share of global consumption has risen from 18% to 49% since 1980, and demand has grown by roughly 3% annually since 2000. Industry accounts for 47% of energy, and coal still supplies 57% of electricity, with production surging by 202% since 2000.
Policy inconsistency also undermines progress. Fossil fuel subsidies remain widespread, amounting to $600 billion in 2022. These often coexist with climate-friendly incentives across the region. For instance, Australia’s $14.9 billion in fossil fuel subsidies outweighs its investments in critical minerals, batteries, and renewables combined. Japan’s Green Growth Strategy prioritizes solar and grid upgrades alongside continued reliance on so-called “clean coal” and an unrealistic emphasis on carbon capture and storage.
Regional disparities, regulatory gaps, and integration shortfalls also constrain industrial capacity. Stark inequalities and widespread informality blunt workforce potential. Rapid infrastructure development has outstripped progress in the regulatory “software” of industrial transformation. Despite an expansive set of FTAs and advances in green cooperation, commitments are often aspirational and struggle to keep pace with innovation. For example, while the APEC Environmental Goods Agreement has boosted trade for in-scope, mature technologies such as solar panels, it does not cover EVs.
Rising geopolitical tensions and supply chain vulnerabilities pose significant risks to robust and resilient industrial development. The number of trade restrictions increased to nearly 3,000 in 2023, roughly fivefold since 2015. Rising fragmentation could reduce long-term global output by 7%. The long shadow of the coronavirus disease (COVID-19) pandemic and proliferating conflicts have also disrupted shipping and supply chains.
Looking ahead, three key priorities can unlock the region’s green industrial transformation. This begins with building a policy framework that levels the playing field for green sectors, phases out fossil fuel subsidies and boosts renewables, and tailors to national industrial strengths. Targeted investments in infrastructure and skills will also prove essential. Finally, regional environmental cooperation should turn stated aspirations into concrete actions, align regulations, and broaden green trade. By pursuing supportive governance, investing in underlying enablers, and deepening regional environmental cooperation, Asia and the Pacific can accelerate industrial transformation toward a greener future.
